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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18560
THE SAVANNAH BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1861820
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
25 Bull Street, Savannah, GA 31401
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
912-651-8200
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 2003. 3,281,902 shares of Common Stock, $1.00
par value per share
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THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
SEPTEMBER 30, 2003
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Review Report of Independent Certified Public Accountants 2
Consolidated Balance Sheets - September 30, 2003 and 2002
and December 31, 2002 3
Consolidated Statements of Income
For the Three and Nine Month Periods Ended
September 30, 2003 and 2002 4
Consolidated Statements of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 2003 and 2002 5
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002 6
Condensed Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10-20
Item 4. Conclusion About the Effectiveness of Disclosure Controls
and Procedures 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
1
ITEM 1. FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Savannah Bancorp, Inc.:
We have reviewed the accompanying consolidated balance sheets of The
Savannah Bancorp, Inc. (a Georgia Corporation) and its subsidiaries as of
September 30, 2003 and 2002 and the related consolidated statements of income
for the three and nine-month periods ended September 30, 2003 and 2002, and
changes in shareholders' equity and cash flows for the nine-month periods ended
September 30, 2003 and 2002 included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended September 30, 2003. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2002, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated January 24, 2003, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2002 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Atlanta, Georgia
November 5, 2003
2
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31, September 30,
- --------------------------------------------------------------------------------
($ in thousands, except share data) 2003 2002 2002
- --------------------------------------------------------------------------------
ASSETS (UNAUDITED) (Unaudited)
Cash and due from banks $ 14,558 $ 34,932 $ 17,416
Interest-bearing deposits in FHLB 12,088 6,061 1,399
Federal funds sold 10,441 733 4,914
Securities available for sale, at fair value
(amortized cost of $41,512 on 9/30/03,
$53,112 on 12/31/02 and $56,670 on 9/30/02) 42,638 54,898 58,654
Loans 367,516 336,775 318,289
Less allowance for loan losses (5,032) (4,373) (4,125)
- --------------------------------------------------------------------------------
Net loans 362,484 332,402 314,164
Premises and equipment, net 4,666 4,804 4,806
Other real estate owned - 117 117
Cash surrender value of officers' life insurance 5,066 0 0
Other assets 3,393 3,651 3,266
- --------------------------------------------------------------------------------
TOTAL ASSETS $455,334 $437,598 $404,736
- --------------------------------------------------------------------------------
LIABILITIES
Deposits:
Non interest-bearing demand $ 70,136 $ 63,450 $ 57,939
Interest-bearing demand 77,185 81,376 58,991
Savings 16,497 14,196 15,000
Money market accounts 63,778 62,537 58,002
Time, $100,000 and over 65,157 59,989 62,899
Other time deposits 77,332 81,496 82,256
- --------------------------------------------------------------------------------
Total deposits 370,085 363,044 335,087
Federal Home Loan Bank advances 20,473 20,625 20,688
Securities sold under repurchase agreements 18,587 14,088 12,573
Federal funds purchased 2,222 2,906 251
Trust preferred debt 6,000 - -
Other liabilities 1,718 2,179 1,907
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 419,085 402,842 370,506
- --------------------------------------------------------------------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share: authorized
20,000,000 shares; issued 3,290,223 on
9/30/03 and 2,991,378 on 12/31/02 and
9/30/02, respectively 3,290 2,991 2,991
Preferred stock, par value $1 per share:
Authorized 10,000,000 shares, none issued - - -
Contributed capital 25,109 18,557 18,555
Retained earnings 7,298 12,261 11,615
Treasury stock, 8,321, 8,450 and 8,440 shares
at 9/30/03, 12/31/02 and 9/30/02, respectively (147) (161) (160)
Accumulated other comprehensive income, net of
income tax 699 1,108 1,229
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 36,249 34,756 34,230
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $455,334 $437,598 $404,736
- --------------------------------------------------------------------------------
See the condensed notes to the consolidated financial statements.
3
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share data)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Interest income $ 5,622 $ 5,902 $17,025 $17,634
Interest expense 1,633 2,059 5,048 6,469
- --------------------------------------------------------------------------------
NET INTEREST INCOME 3,989 3,843 11,977 11,165
Provision for loan losses 255 151 790 463
- --------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,734 3,692 11,187 10,702
- --------------------------------------------------------------------------------
OTHER INCOME
Trust fees 101 77 293 265
Service charges on
deposit accounts 396 429 1,196 1,167
Mortgage origination fees 513 291 1,401 780
Other income 194 122 444 339
- --------------------------------------------------------------------------------
Total other income 1,204 919 3,334 2,551
- --------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and employee
benefits 1,893 1,684 5,660 4,791
Occupancy expense 218 209 638 614
Equipment expense 220 218 627 575
Other operating expenses 798 744 2,423 2,314
- --------------------------------------------------------------------------------
Total other expense 3,129 2,855 9,348 8,294
- --------------------------------------------------------------------------------
Income before provision
for income taxes 1,809 1,756 5,173 4,959
Provision for income taxes 597 564 1,721 1,604
- --------------------------------------------------------------------------------
NET INCOME $ 1,212 $ 1,192 $ 3,452 $ 3,355
================================================================================
NET INCOME PER SHARE:
BASIC $ 0.37 $ 0.36 $ 1.05 $ 1.02
================================================================================
DILUTED $ 0.36 $ 0.36 $ 1.03 $ 1.01
================================================================================
See the condensed notes to the consolidated financial statements.
4
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
($ in thousands, Common Stock Contributed Retained Treasury Comprehensive
except share data) Shares Amount Capital Earnings Stock Income (Loss) Total
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 2,991,378 $2,991 $18,754 $9,751 $(457) $1,032 $32,071
Comprehensive income:
Net income 3,355 3,355
Change in unrealized gains on
securities available for sale,
net of tax 197 197
------
Total comprehensive income 3,552
Cash dividends - $.50 per share (1,491) (1,491)
Exercise of options (199) 338 139
Purchase of treasury stock (41) (41)
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002 2,991,378 $2,991 $18,555 $11,615 $(160) $1,229 $34,230
================================================================================================================
Balance, December 31, 2002 2,991,378 $2,991 $18,557 $12,261 $(161) $1,108 $34,756
Comprehensive income:
Net income 3,452 3,452
Change in unrealized gains on
securities available for sale,
net of tax (409) (409)
------
Total comprehensive income 3,043
Cash dividends - $.475 per share (1,565) (1,565)
Exercise of options 1 14 15
Ten percent stock dividend 298,845 299 6,551 (6,850) -
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 2003 3,290,223 $3,290 $25,109 $7,298 $(147) $ 699 $36,249
================================================================================================================
See the condensed notes to the consolidated financial statements.
5
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in thousands)
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
- -------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,452 $ 3,355
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 790 463
Depreciation of premises and equipment 503 495
Amortization of investment securities discount-net 232 62
Increase in cash surrender value of life insurance (66) -
Decrease in other assets 572 123
Decrease in other liabilities (407) (335)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 5,076 4,163
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investment securities (12,781) (12,132)
Proceeds from maturities of investment securities 24,149 18,396
Net increase in loans made to customers (30,872) (33,830)
Capital expenditures (365) (437)
Investment in bank owned life insurance (5,000) -
- -------------------------------------------------------------------------------
Net cash used in investing activities (24,869) (28,003)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings and money
market deposits 6,037 25,066
Net increase in certificates of deposit 1,004 398
Net increase in securities sold under
agreements to repurchase 4,499 3,990
Net decrease in FHLB advances (152) (148)
Net decrease in federal funds purchased (684) (2,551)
Issuance of trust preferred debt 6,000 -
Dividend payments (1,565) (1,491)
Purchase of treasury stock - (41)
Exercise of options 15 113
- -------------------------------------------------------------------------------
Net cash provided by financing activities 15,154 25,336
- -------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS (4,639) 1,496
Cash and cash equivalents at beginning of period 41,726 22,233
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $37,087 $23,729
===============================================================================
See the condensed notes to the consolidated financial statements.
6
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month and nine-month periods ended September,
2003, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto, included in the Company's annual
report on Form 10-K for the year ended December 31, 2002.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", ("Interpretation No. 45"), which
addresses the accounting for and disclosures of guarantees. Interpretation No.
45 requires a guarantor to recognize a liability for the fair value of a
guarantee at inception. The recognition of the liability is required even if it
is not probable that payments will be required under the guarantee. The
disclosure requirements were effective for interim and annual financial
statements ending after December 15, 2002. This statement did not have a
material impact on the financial statements.
In January 2003, the FASB Issued Interpretation No. 46, "Consolidated Financial
Statements" ("Interpretation No. 46"), which addresses consolidation by business
enterprises of variable interest entities that have certain characteristics. In
general, Interpretation No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual return or both. An entity that meets this
definition is considered the "primary beneficiary". Interpretation No. 46
requires disclosures about variable interest entities by the primary beneficiary
and an enterprise that holds significant variable interests in a variable
interest entity but is not the primary beneficiary. Interpretation No. 46
provides for exceptions to the scope of this interpretation including transfers
to qualifying special purpose entities subject to the reporting of Statement No.
140, which would not be consolidated. Interpretation No. 46 applies immediately
to variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after January 31,
2003. Interpretation No. 46 applies in the first fiscal year, or interim period,
beginning after June 15, 2003 to variable interests entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
This statement did not have a material impact on the financial statements.
7
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS No. 150 requires that an issuer classify a
financial instrument within its scope as a liability because that financial
instrument embodies an obligation of the issuer. SFAS No. 150requires
classification of a mandatorily redeemable financial instrument as a liability
unless the redemption is required to occur only upon the liquidation or
termination of the issuer. This statement does not have a material impact of the
on the financial statements.
Various proposals have been issued recently by the Securities and Exchange
Commission ("SEC") related to changes in filing requirements and accountability
of Executive management and Directors regarding accounting policies, internal
controls and audit issues. Although the eventual outcome of these proposals is
expected to have no material impact on the Company's consolidated financial
statements, additional costs to comply with certain rules can be expected.
NOTE 3 - SHARES USED IN COMPUTING NET INCOME PER SHARE
The Board of Directors declared a 10 percent stock dividend on January 28, 2003.
The record date for distribution of the stock dividend was February 10, 2003 and
the payable date was February 24, 2003. Net income per share and average share
amounts have been restated to give the effect of the 10 percent additional
shares outstanding in the earliest period presented. Net income per diluted
share is computed using the weighted-average number of common and dilutive
common equivalent shares outstanding during the periods. The diluted
weighted-average shares outstanding after adjusting for a ten percent stock
dividend were approximately 3,351,000 and 3,329,000 for the third quarters of
2003 and 2002, respectively. They included approximately 69,000 and 48,000
common equivalent shares in 2003 and 2002, respectively. The diluted
weighted-average shares outstanding were approximately 3,346,000 and 3,328,000
for the first nine months of 2003 and 2002, respectively. They included
approximately 64,000 and 48,000 common equivalent shares in 2003 and 2002,
respectively
NOTE 4 - ACCOUNTING FOR STOCK-BASED COMPENSATION
In December 2002, the FASB issued FAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
The Company has one stock-based employee compensation plan. As permitted by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123), the Company accounts for the plan under the
recognition and measurement principles of Accounting Principles Board Statement
No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and its
related interpretations. Because all options granted under the Company's plans
had an exercise price equal to the market value of the underlying common stock
on the date of grant, no stock-based compensation cost is
8
reflected in net income under the Company's application of APB 25. The Company
did not issue any options to non-employees for the nine months ended September
30, 2003 and 2002, respectively.
The following table presents the effects on net income and net income per share
if the Company had recognized compensation expense under the fair value
recognition provisions of Statement No. 123:
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------ ------ ------ ------
Net Income - as reported $1,212 $1,192 $3,452 $3,355
Stock-based employee compensation
expense, determined under fair value
basis, net of tax (26) (21) (78) (65)
------ ------ ------ ------
Net Income - pro forma $1,186 $1,171 $3,374 $3,290
====== ====== ====== ======
Net Income per share - basic - as
reported $ 0.37 $ 0.36 $ 1.05 $ 1.02
Net Income per share - basic - pro
forma $ 0.36 $ 0.36 $ 1.03 $ 1.00
Net Income per share - diluted - as
reported $ 0.36 $ 0.36 $ 1.03 $ 1.01
Net Income per share - diluted - pro
forma $ 0.35 $ 0.35 $ 1.01 $ 0.99
FORWARD LOOKING STATEMENTS
The Savannah Bancorp, Inc. (the Company) may, from time to time, make written or
oral "forward-looking statements," including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
quarterly report on Form 10-Q) and in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; inflation, interest rate, market and monetary
fluctuations; competitors' products and services; technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For a comprehensive presentation of The Savannah Bancorp, Inc.'s financial
condition at September 30, 2003 and December 31, 2002 and results of operations
for the quarters ended September 30, 2003 and 2002, the following analysis
should be reviewed along with other information including the Company's December
31, 2002 Annual Report on Form 10-K.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
THIRD QUARTER FINANCIAL HIGHLIGHTS
SEPTEMBER 30, 2003 AND 2002
(Unaudited)
BALANCE SHEET DATA Percent
AT SEPTEMBER 30 2003 2002 Change
----------------------------------------------------------------
( thousands, except per share data)
Total assets $455,334 $404,736 13
Interest-earning assets 429,424 380,878 13
Loans 367,516 318,289 15
Allowance for loan losses 5,032 4,125 22
Nonperforming assets 3,249 605 437
Deposits 370,085 335,087 10
Interest-bearing liabilities 347,231 310,660 12
Shareholders' equity 36,249 34,230 5.9
Allowance for possible loan
losses to total loans 1.37% 1.30% 5.4
Nonperforming assets to
total loans 0.88% 0.19% 363
Loan to deposit ratio 99.31% 94.99% 4.5
Equity to assets 7.96% 8.46% (5.9)
Tier 1 capital to risk-
weighted assets 11.26% 10.44% 7.9
Book value per share * $ 11.04 $ 10.43 5.8
Outstanding shares * 3,282 3,281 0.0
Market value per share * $ 24.98 $ 19.86 26
KEY PERFORMANCE DATA Percent
FOR THE THIRD QUARTER 2003 2002 Change
----------------------------------------------------------------
NET INCOME $ 1,212 $ 1,192 1.7
Return on average assets 1.08% 1.17% (7.7)
Return on average equity 13.37% 13.98% (4.4)
Net interest margin 3.80% 4.07% (6.6)
Efficiency ratio 60.25% 59.95% .5
PER SHARE DATA: *
Net income - basic $ 0.37 $ 0.36 2.8
Net income - diluted $ 0.36 $ 0.36 0.0
Dividends $ 0.160 $ 0.155 3.2
AVERAGE SHARES: *
Basic 3,282 3,281 0.0
Diluted 3,351 3,329 0.7
10
KEY PERFORMANCE DATA Percent
FOR THE NINE MONTHS 2003 2002 Change
----------------------------------------------------------------
NET INCOME $ 3,452 $ 3,355 2.9
Return on average assets 1.06% 1.15% (7.8)
Return on average equity 13.00% 13.57% (4.2)
Net interest margin 3.94% 4.11% (4.1)
Efficiency ratio 61.05% 60.47% 1.0
PER SHARE DATA: *
Net income - basic $ 1.05 $ 1.02 2.9
Net income - diluted $ 1.03 $ 1.01 2.0
Dividends $ 0.47 $ 0.46 2.2
AVERAGE SHARES: *
Basic 3,282 3,280 0.1
Diluted 3,346 3,328 0.5
* - 2002 restated for a 10 percent stock dividend in February, 2003
FINANCIAL CONDITION AND CAPITAL RESOURCES
BALANCE SHEET ACTIVITY
The major changes in the assets and liabilities of the Company for the current
year-to-date and the prior year are shown in the consolidated statements of cash
flows. The increase in loans of $30.9 million in the first nine months 2003 was
funded primarily by net proceeds of $11.4 million from the maturity of
investment securities and increases in demand, savings, money market deposits
and certificate of deposits of $7.0 million. The Company also issued $6 million
in trust preferred securities to fund the planned future growth in loans. On
June 30, 2003, the Company invested a total of $5.0 million with two life
insurance companies for Bank Owned Life Insurance contracts on key officers of
the Company, The cash surrender value of officers' life insurance are carried in
other assets as prescribed by regulatory and accounting rules.
On September 29, 2003 the Company issued $6.0 million in trust preferred debt.
Under the terms of the trust preferred agreements, interest only is payable
quarterly at three-month LIBOR plus 285 basis points and the interest rate
changes each quarter. The principal is due in 2033 but may be prepaid in whole
or in part after five years. The debt qualifies as Tier 1 capital for the
holding company due to the terms of the agreement.
The Company has classified all investment securities as available for sale.
Unrealized gains are included in shareholders' equity at September 30, 2003 and
2002 and December 31, 2002, respectively, in other accumulated comprehensive
income, net of income taxes.
The Company's lending and investment policies continue to emphasize high quality
growth. Management is not aware of any known trends, events or uncertainties
that will have or that are reasonably likely to have a material effect on the
liquidity, capital resources or operations of the Company. However, the events
of September 11, 2001 and the aftermath have caused some fear, uncertainty and
security concerns among the general population. Unexpected future events could
cause further disruptions in economic growth.
11
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
Critical Accounting Policy - The allowance for loan losses is established
through charges in the form of a provision for loan losses based on management's
continuing and quarterly evaluation of the loan portfolio. Loan losses and
recoveries are charged or credited directly to the allowance. The amount of the
allowance reflects management's opinion of an adequate level to absorb probable
losses inherent in the loan portfolio at September 30, 2003. The amount charged
to the provision and the level of the allowance is based on management's
judgment and is dependent upon growth in the loan portfolio, the total amount of
past due loans and nonperforming loans, known loan deteriorations, and
concentrations of credit. Other factors affecting the allowance are market
interest rates, portfolio maturity and composition, collateral values and
general economic conditions. Finally, management's assessment of probable losses
based upon internal credit grading of the loans and periodic reviews and
assessments of credit risk associated with particular loans is considered in
establishing the allowance amount. The Company considers its policies regarding
the allowance for loan losses to be its most critical accounting policy due to
the significant degree of management judgment involved.
Management maintains an allowance for loan losses which it believes is adequate
to cover probable losses in the loan portfolio. It must be emphasized, however,
that the determination of the allowance for loan losses using the Company's
procedures and methods rests upon various judgments and assumptions about future
economic conditions, events, and other factors affecting loans which are
believed to be reasonable, but which may or may not prove valid. While it is the
Company's policy to provide for the loan losses in the current period in which a
loss is considered probable, there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of the economy, industry trends,
and conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. No assurance can be given
that the Company will not in any particular period sustain loan losses which
would be sizable in relationship to the amount reserved or that subsequent
evaluation of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges or credits to earnings. The allowance for loan losses
is also subject to review by various regulatory agencies through their periodic
examinations of the Company's subsidiaries. Such examinations could result in
required changes to the allowance for loan losses. No adjustment in the
allowance or significant adjustments to the Bank's internally classified loans
were made as a result of The Savannah Bank, N.A.'s most recent examination
performed by the Office of the Comptroller of the Currency as of December 31,
2002 or Bryan Bank & Trust's most recent examination by the Georgia Department
of Banking and Finance as of March 31, 2003.
The allowance for loan losses totaled $5.032 million or 1.37 percent of total
loans, at September 30, 2003. This is compared to an allowance of $4.373
million, or 1.30 percent of total loans, at December 31, 2002. For the nine
months ended September 30, 2003, the Company reported net charge-offs of
$131,000, or 0.05 percent (annualized) of average loans. This is compared to net
charge-offs of $164,000, or 0.07 percent (annualized) of average loans, for the
comparable period of 2002. Provision for loan losses of $790,000 was added to
the allowance for loan losses due to loan growth and higher levels of
non-performing loans.
12
The Company's nonperforming assets consist of other real estate owned, loans on
nonaccrual basis and loans which are contractually past due 90 days or more on
which interest is still being accrued. Other real estate owned of $117,000
consists of one foreclosed property at September 30, 2002 and $0 at September
30, 2003. Nonaccrual loans and loans past due 90 days and greater totaled
$3,249,000, or 0.88 percent of gross loans, at September 30, 2003 compared to
$488,000, or 0.15 percent of gross loans, at September 30, 2002. Generally,
loans are placed on non-accrual status at the earlier of when they are 90 days
past due or when the collection of the loan becomes doubtful. The increase in
nonaccrual loans is attributable to one SBA enhanced credit for $1,477,000 and
one residential construction loan of $1,016,000 for which the Company
anticipates no significant loss. The SBA credit was paid in full on October 28,
2003 including all interest.
Impaired loans under Statement of Financial Accounting Standards 114, which were
on non-accrual status, totaled $2,133,000 and $395,000 at September 30, 2003 and
2002, respectively.
CAPITAL ADEQUACY
The Office of the Comptroller of the Currency (OCC) has adopted capital
requirements that specify the minimum level for which no prompt corrective
action is required. In addition, the FDIC adopted FDIC insurance assessment
rates based on certain "well-capitalized" risk-based and equity capital ratios.
As of September 30, 2003, the subsidiary banks exceed the minimum requirements
necessary to be classified as "well-capitalized."
Total equity capital for the Company is $36.2 million, or 7.96 percent of total
assets at September 30, 2003. Tier 1 Capital is 11.26 percent of Risk-Weighted
Assets at the same date. The Savannah Bancorp, Inc. issued $6 million in trust
preferred securities on September 29, 2003, which is included in the company's
capital ratios.
RESULTS OF OPERATIONS
THIRD QUARTER 2003 COMPARED WITH THIRD QUARTER 2002
Net income for the third quarter 2003 was $1,212,000, up 1.7 percent from
$1,192,000 in the third quarter 2002. This represents an annualized return of
13.37 percent on average equity and 1.08 percent on average assets for the third
quarter, 2003. Diluted earnings per share were 36 cents in the third quarter,
2003 and 2002. Earnings per share were restated in 2002 to reflect a 10 percent
stock dividend in February 2003.
Net interest income was $3,989,000 as compared to $3,843,000 in 2002, an
increase of $146,000, or 3.8 percent. Average loans were $357.4 million, or 16
percent higher in the third quarter 2003 as compared $309.3 million in the third
quarter 2002. The average loan to deposit ratio increased to 97 percent in 2003
as compared to 93 percent in 2002. The prime rate remained at 4.25 percent until
June 27, 2003, when the rate declined to 4.00%. The net yield on interest
earning assets decreased to 3.80 percent in 2003 from 4.07 percent in 2002, due
to the greater repricing of interest-earning assets as compared to
interest-bearing liabilities, as shown in Table 2.
13
The provision for loan losses was $255,000 for the third quarter of 2003,
compared to $151,000 for the comparable period of 2002. Changes in the provision
each year are impacted as discussed under the "Allowance for Loan Losses"
section above. Loan growth was $12.6 million for the quarter ended September 30,
2003 and $9.6 million for the third quarter 2002. Higher levels of
non-performing assets also contributed to the higher provision for losses.
Other operating income was $1,204,000 in 2003 compared to $919,000 in 2002, an
increase of $285,000 or 31 percent. Service charges on deposit accounts
decreased $33,000 due to lower volume of NSF charges and higher balances on
commercial accounts. Other income included mortgage origination fees of $513,000
and $291,000 in 2003 and 2002, respectively. Lower mortgage loan interest rates
caused increases in mortgage origination and refinancing volumes and fees
throughout the mortgage banking industry when compared to the third quarter
2002. Refinancings and purchases slowed during September as mortgage rates
increased. Trust income was $101,000 in the third quarter of 2003, compared to
$77,000 in the same period of 2002. Other income also increased by $66,000 due
to increase in cash surrender value of officers' life insurance.
Other expenses were $3,129,000 in 2003 compared to $2,855,000 in 2002, an
increase of $274,000, or 10 percent. Personnel expense increased $209,000, or 12
percent in 2003. Approximately $109,000 of the increase are commissions and
benefits directly related to the higher mortgage income described above and the
remainder is due to normal increases and approximately $40,000 of additional
salaries and benefits related to the Harbourside Mortgage loan production office
at Hilton Head, SC.
The provision for income taxes was $597,000 in 2003 and $564,000 in 2002. The
effective federal and state tax rates were 33.0 percent and 32.1 percent in 2003
and 2002, respectively. The increase in the effective rate was due primarily to
lower tax-exempt income on investments in 2003 resulting from the lower average
volumes and rates. The Company has never recorded a valuation allowance against
deferred tax assets. All deferred tax assets are considered to be realizable due
to expected future taxable income.
FIRST NINE MONTHS 2003 COMPARED WITH FIRST NINE MONTHS 2002
Net income for the first nine months of 2003 was $3,452,000, up 2.9 percent from
$3,355,000 in the first nine months of 2002. This represents annualized returns
of 13.00 percent on average equity and 1.06 percent on average assets for the
first nine months of 2003. Diluted earnings per share was $1.03 in the first
nine months, 2003 compared to $1.01 for the same period in 2002. Earnings per
share were restated in 2002 to reflect a 10 percent stock dividend in February,
2003.
Net interest income was $11,977,000 as compared to $11,165,000 in 2002, an
increase of $812,000, or 7.3 percent. Average loans were $348.6 million, or 16
percent higher in the first nine months 2003 as compared $301.2 million in the
first nine months of 2002. The average loan to deposit ratio increased to 97
percent in 2003 as compared to 93 percent in 2002. The prime rate remained at
4.25 percent until June 27, 2003, when the rate declined to 4.00 percent. The
net yield on interest earning assets decreased to 3.94 percent in 2003 from 4.11
percent in 2002, due to the greater repricing of interest-earning assets as
compared to interest-bearing liabilities, as shown in Table 3.
14
The provision for loan losses was $790,000 for the first nine months of 2003,
compared to $463,000 for the comparable period of 2002. Changes in the provision
each year are impacted as discussed under the "Allowance for Loan Losses"
section above. Loan growth was $30.7 million for the nine months ended September
30, 2003 and $33.7 million for the same period in 2002.
Other operating income was $3,334,000 in 2003 compared to $2,551,000 in 2002, an
increase of $783,000 or 31 percent. Service charge on deposit accounts increased
to $1,196,000 or 2.5 percent over the same period last year. Other income
included mortgage origination fees of $1,401,000 in 2003 compared to $780,000 in
2002, an increase of $621,000 or 80 percent. Lower mortgage loan interest rates
caused increases in mortgage origination volumes and refinancing throughout the
industry. The refinancings began to slow substantially as mortgage interest
rates began to rise in the third quarter. Trust income was $293,000 in the first
nine months of 2003, compared to $265,000 in the same period of 2002. Other
income also increased by $66,000 due to increase in cash surrender value of
officers' life insurance acquired on June 30, 2003.
Other expenses were $9,348,000 in 2003 compared to $8,294,000 in 2002, an
increase of $1,054,000, or 13 percent. Salaries and benefit expenses increased
$869,000, or 18 percent in 2003, including approximately $306,000 of mortgage
commissions and benefit costs related to the higher revenues previously
mentioned and approximately $40,000 of additional salaries and benefits related
to the Harbourside Mortgage loan production office at Hilton Head, SC.
The Company filled several key management positions during the second and
third quarters of 2002 resulting in lower costs in 2002 when compared to 2003.
Occupancy and equipment expenses increased approximately $76,000 an increase of
6.4 percent as a result of additional operations space occupied in June 2002.
Excluding the mortgage costs, other expenses increased 9.5 percent.
The provision for income taxes was $1,721,000 in 2003 and $1,604,000 in 2002.
The effective federal and state tax rates were 33.3 percent and 32.3 percent in
2003 and 2002, respectively. The increase in the effective rate was due
primarily to lower tax-exempt income on investments in 2003. The Company has
never recorded a valuation allowance against deferred tax assets. All deferred
tax assets are considered to be realizable due to expected future taxable
income.
ITEM 3. LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The objectives of funds management include maintaining adequate liquidity and
reasonable harmony between the repricing of interest sensitive assets and
liabilities. The goal of liquidity management is to ensure the availability of
adequate funds to meet the loan demand and the deposit withdrawal needs of
customers. This is achieved through maintaining a combination of sufficient
liquid assets, core deposit growth and unused capacity to purchase and borrow
funds in the money markets.
During the nine months of 2003 loans increased $30.7 million to $367.5 million,
and deposits increased $7.0 million to $370.0 million. The very low deposit
interest rates have resulted in customers moving out of time deposits and into
other deposit types or alternative investments.
15
The loan to deposit ratio increased to 99 percent at September 30, 2003 from 93
percent at December 31, 2002.
Primary funding and liquidity sources in addition to local deposit growth
include borrowing capacity with the Federal Home Loan Bank of Atlanta, temporary
federal funds purchased lines with correspondent banks, and non-local time
deposits through an Internet bulletin board service. Backup funding and
liquidity sources include the ability to acquire brokered deposits, arrangements
to sell participations in certain loans and borrowing from the Federal Reserve
Bank of Atlanta discount window.
Both subsidiary banks have a Blanket Floating Lien Agreement with the Federal
Home Loan Bank of Atlanta ("FHLB"). Under these agreements, the banks have
credit lines up to 75 percent of the book value of the eligible 1-4 family first
mortgage loans, or approximately $48.8 million as of September 30, 2003. In
addition, the banks had approximately $1.5 million fair value of investment
securities pledged as collateral at the FHLB. In aggregate, the Company had
secured borrowing capacity of approximately $50.3 million of which $20.5 million
was advanced at September 30, 2003. These credit arrangements serve as a
core-funding source as well as liquidity backup for the banks. The Savannah
Bank, N.A. and Bryan Bank & Trust have credit lines approved by the FHLB of 20
percent and 16 percent of assets, respectively, subject to the FHLB collateral
requirements. The subsidiary banks also have $20.4 million of temporary
conditional federal funds borrowing lines available from correspondent banks.
A continuing objective of asset liability management is to maintain a high level
of variable rate assets, including variable rate loans and shorter-maturity
investments, to balance increases in interest rate sensitive liabilities.
Interest rate sensitivity management and its effects on the net interest margin
require analyses and actions that take into consideration volumes repriced and
the timing and magnitude of their change.
The Company's asset-sensitive cash flow maturity and repricing gap at September
30, 2003, was $63.4 million at one year, or 15 percent of total interest-earning
assets. Fixed rate earning assets with maturities over five years totaled $9.7
million, or 2.2 percent of total interest-earning assets. See Table 1 for cash
flow maturity and repricing gap.
The Company is well-positioned for a rising rate environment. Given the
historically low level of current interest rates, the opportunity for rising
rates may be greater than falling rates, however, the timing of a rise is
uncertain. The Federal Reserve has most recently communicated a neutral bias for
interest rates.
The gap position between one and five years is of less concern because
management has time to respond to changing financial conditions with actions
that reduce the impact of the longer-term gap positions. However, fixed rate
assets with maturities over five years may include significant rate risk in the
event of significant market rate increases which subject the subsidiary banks to
repricing risk.
Management monitors interest rate risk on a quarterly basis using
rate-sensitivity gap analysis, rate shock simulation and performance forecasting
measures. If and when interest rate risk measures are outside of policy
tolerances, specific actions to return interest rate risk
16
to acceptable levels are reported to the Board by management. Management is in
the midst of enhancing its interest rate risk reporting systems to provide
better information on a more frequent basis. These capabilities are especially
valuable during a period of volatile interest rates.
The Company is a party to financial instruments with off-balance sheet risks in
the normal course of business to meet the financing needs of its customers. At
September 30, 2003, the Company had unfunded commitments to extend credit of
$93.2 million and outstanding stand-by letters of credit of $4.0 million. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The Company uses the same credit policies in establishing commitments and
issuing letters of credit as it does for on-balance sheet instruments.
Management does not anticipate that funding obligations arising from these
financial instruments will adversely impact its ability to fund future loan
growth or deposit withdrawals.
17
TABLE 1 - LONG-TERM MATURITY GAP AND REPRICING DATA
The following is the long-term maturity and repricing data for the Company as of
September 30, 2003:
($ in 000's) 0 - 3 3 - 12 1 - 3 3 - 5 Over 5
INTEREST-BEARING ASSETS: Immediate Months Months Years Years Years Total
- -------------------------- --------- -------- -------- -------- -------- -------- --------
Investment securities $ - $ 3,279 $ 9,611 $ 14,655 $ 10,449 $ 3,518 $ 41,512
Interest-bearing deposits 12,088 - - - - - 12,088
Federal funds sold 10,441 - - - - - 10,441
Loans - fixed rates - 20,587 52,253 73,100 31,157 6,201 183,298
Loans - variable rates 182,085 - - - - - 182,085
--------- -------- -------- -------- -------- -------- --------
Total interest-
earning assets 204,614 23,866 61,864 87,755 41,606 9,719 429,424
--------- -------- -------- -------- -------- -------- --------
INTEREST BEARING DEPOSITS:
- --------------------------
NOW and savings ** 21,792 9,368 28,104 34,418 - - 93,682
Money market accounts ** 18,866 6,416 19,248 19,248 - - 63,778
Time, $100 and over - 18,451 28,220 9,489 8,997 - 65,157
Other time - 16,100 33,364 16,375 11,456 37 77,332
Federal Home Loan
Bank Advances - 64 154 15,449 1,320 3,486 20,473
Other borrowings 20,809 - - - - - 20,809
Trust preferred debt - 6,000 - - - - 6,000
--------- -------- -------- -------- -------- -------- --------
Total interest-
bearing liabilities 61,467 56,399 109,090 94,979 21,773 3,523 347,231
--------- -------- -------- -------- -------- -------- --------
GAP-EXCESS ASSETS
(LIABILITIES) 143,147 (32,533) (47,226) (7,224) 19,833 6,196 82,193
--------- -------- -------- -------- -------- -------- --------
GAP-CUMULATIVE - 9/30/03 $143,147 $110,614 $63,388 $56,164 $75,997 $82,193 $82,193
========= ======== ======== ======== ======== ======== ========
CUMULATIVE
SENSITIVITY RATIO * 3.33 1.94 1.28 1.17 1.22 1.24 1.24
========= ======== ======== ======== ======== ======== ========
* Cumulative interest-earning assets / cumulative interest-bearing
liabilities
** Repricing of NOW, Savings and Money market accounts based on
estimated percentages of the full market interest rate declines over
1 to 36 months.
18
SELECTED STATISTICAL INFORMATION OF THE COMPANY
The following statistical information is provided for the Company for the
quarters ended September 30, 2003 and 2002. The data is presented using daily
average balances. This data should be read in conjunction with the financial
statements appearing elsewhere in this report. The Company has no foreign
operations and, accordingly, there are no assets or liabilities attributable to
foreign operations.
TABLE 2 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS - THIRD QUARTER
2003 AND 2002
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during the third quarter of 2003 and 2002.
Average Average (a) Variance
Balance Rate Interest Attributable to
- ------------------ ---------- -------------- Vari- --------------
2003 2002 2003 2002 2003 2002 Ance Rate Volume
- -------- -------- ---- ---- ------ ------ ------ ------ ------
(Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME
AND FEES(b)
$ 14,272 $ 5,198 0.92 1.76 Interest-bearing deposits $ 33 $ 23 $ 10 $ (11) $ 21
35,699 45,969 4.10 5.48 Investments - taxable 369 635 (266) (160) (106)
6,917 8,458 8.83 8.63 Investments - non-taxable 154 184 (30) 4 (34)
8,894 13,232 0.94 1.68 Federal funds sold 21 56 (35) (25) (10)
357,432 309,332 5.67 6.52 Loans (c) 5,106 5,082 24 (663) 687
- -------- -------- ------ ------ ------ ------ ------
Total int.-earning
423,214 382,189 5.33 6.21 assets 5,683 5,980 (297) (854) 557
- ------- -------- ---- ---- ------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits
76,323 59,406 0.40 0.58 NOW accounts 76 87 (11) (28) 17
16,018 13,652 0.47 0.99 Savings accounts 19 34 (15) (18) 3
64,624 56,309 1.14 1.61 Money market accounts 186 229 (43) (67) 24
64,923 63,230 2.88 3.79 CD's, $100M or more 472 604 (132) (144) 12
78,462 82,932 2.77 3.75 Other time deposits 547 784 (237) (206) (31)
- ------- -------- ---- ---- ------ ------ ------ ------ ------
Total interest-
300,350 275,529 1.72 2.50 bearing Deposits 1,300 1,738 (438) (463) 25
Federal Home Loan
20,488 20,700 5.02 5.00 Bank advances 259 261 (2) 1 (3)
19,858 13,187 1.44 1.81 Other borrowings 72 60 12 (12) 24
- ------- -------- ---- ---- ------ ------ ------ ------ ------
Total interest-
$340,696 $309,416 1.90 2.64 bearing liabilities 1,631 2,059 (428) (474) 46
- ------- -------- ---- ---- ------ ------ ------ ------ ------
3.43 3.57 Interest rate spread
---- ----
Net interest income $4,052 $3,921 $ 131 $ (380) $ 511
====== ====== ====== ====== ======
- ------- -------- Non-interest
68,245 57,236 bearing Deposits
- ------- --------
Net yield on interest-
3.80 4.07 earning assets
---- ----
Total average deposits
and average cost
$368,595 $332,765 1.40 2.07 of deposits
======== ======== ==== ====
(a) This table shows the changes in interest income and interest expense for the
comparative periods based on either changes in average volume or changes in
average rates for interest-earning assets and interest-bearing liabilities.
Changes which are not solely due to rate changes or solely due to volume changes
have been attributed to volume.
(b) The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense.
(c) Average nonaccruing loans have been excluded from total average loans as a
non interest-earning asset.
The following statistical information is provided for the Company for the nine
month periods ended September 30, 2003 and 2002. The data is presented using
daily average balances. This data should be read in conjunction with the
financial statements appearing elsewhere in this report. The Company has no
foreign operations and, accordingly, there are no assets or liabilities
attributable to foreign operations.
19
TABLE 3 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS - FIRST NINE MONTHS,
2003 AND 2002
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during the first nine months of 2003 and 2002.
Average Average (a) Variance
Balance Rate Interest Attributable to
- ------------------ ---------- ---------------- Vari- --------------
2003 2002 2003 2002 2003 2002 Ance Rate Volume
- -------- -------- ---- ---- ------- ------- ------ ------ ------
(Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME
AND FEES(b)
$ 8,741 $ 4,988 0.99 1.66 Interest-bearing deposits $ 65 $ 62 $ 3 $ (25) $ 28
38,102 47,337 4.53 5.73 Investments - taxable 1,292 2,027 (735) (422) (313)
7,336 8,735 8.95 8.56 Investments - non-taxable 491 559 (68) 26 (94)
10,871 8,942 1.09 1.69 Federal funds sold 89 113 (24) (40) 16
348,587 301,243 5.87 6.70 Loans (c) 15,301 15,107 194 (1,884) 2,078
- -------- -------- ---- ---- ------- ------- ------ ------ ------
413,637 371,245 5.57 6.43 Total int.-earning assets 17,238 17,868 (630) (2,344) 1,714
- -------- -------- ---- ---- ------- ------- ------ ------ ------
INTEREST EXPENSE
Deposits
73,437 57,869 0.37 0.59 NOW accounts 202 255 (53) (96) 43
15,312 13,184 0.65 0.99 Savings accounts 75 98 (23) (33) 10
65,735 52,582 1.21 1.79 Money market accounts 594 704 (110) (229) 119
62,013 61,995 3.10 4.10 CD's, $100M or more 1,437 1,902 (465) (465) -
79,569 82,284 2.99 4.12 Other time deposits 1,780 2,537 (757) (696) (61)
- -------- -------- -------- ------- ------
Total interest-
296,066 267,914 1.85 2.74 bearing Deposits 4,088 5,496 (1,408) (1,519) 111
Federal Home Loan
20,543 20,755 5.00 5.01 Bank advances 769 778 (9) (1) (8)
17,314 13,172 1.47 1.98 Other borrowings 191 195 (4) (50) 46
- -------- -------- ---- ---- -------- ------- ------
Total interest-
$333,923 $301,841 2.02 2.87 bearing Liabilities 5,048 6,469 (1,421) (1,570) 149
- -------- -------- ---- ---- ------- ------- ------ ------ ------
3.55 3.57 Interest rate spread
==== ====
Net interest income $12,190 $11,399 $ 791 $ (775) $1,566
======= ======= ====== ====== ======
- -------- -------- Non-interest
63,599 54,272 bearing Deposits
- -------- --------
Net yield on interest-
3.94 4.11 earning assets
==== ====
Total average deposits
and average cost
$359,665 $322,186 1.52 2.28 of deposits
======== ======== ==== ====
(a) This table shows the changes in interest income and interest expense for the
comparative periods based on either changes in average volume or changes in
average rates for interest-earning assets and interest-bearing liabilities.
Changes which are not solely due to rate changes or solely due to volume changes
have been attributed to volume.
(b) The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense.
(c) Average nonaccruing loans have been excluded from total average loans as a
non interest-earning asset.
20
Item 4. - Controls and Procedures
CONCLUSION ABOUT THE EFFECTIVENESS OF DISCLOSURE
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
Disclose the conclusions of the registrant's principal executive officers and
principal financial officer, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures (as defined
in ss.ss.240.13a-14(c) and 240.15d-14(c)) based on their evaluation of these
controls and procedures as of a date within 90 days of the filing date of the
quarterly or annual report that includes the disclosure required by this
paragraph.
We, the certifying officers have disclosed, based on our most recent evaluation,
to the Company's auditors and the audit committee of the board of directors the
following items:
No significant deficiencies in the design or operation of internal controls
which could adversely affect the company's ability to record, process,
summarize, and report financial data have been identified.
No fraud that involves management or other employees who have a significant role
in the company's internal controls has been discovered.
Changes in Internal Controls
- ----------------------------
Disclose whether or not there were significant changes in the registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
We, the certifying officers, indicate in this report that there were no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to our evaluation completed on
October 31, 2003. There were no significant deficiencies and material weaknesses
that require corrective actions.
21
PART II - OTHER INFORMATION
Item 1. Legal proceedings. None
Item 2. Changes in securities and use of proceeds. None
Item 3. Defaults upon senior securities. None
Item 4. Submission of matters to a vote of security holders.
Item 5. Other information. None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings*
* Data required by Statement of Financial Accounting Standards No. 128,
Earnings per Share, is provided in Note 3 to the condensed consolidated
financial statements in this report.
Exhibit 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K during the quarter ended September 30, 2003.
A Form 8-K for a Regulation FD disclosure was filed on September 29, 2003
announcing plans to open a loan production office at Hilton Head, SC called
Harbourside Mortgage Company. An announcement of the issuance $6.0 million of
trust preferred debt on September 29, 2003 was also included in the filing.
A Form 8-K was filed on October 21, 2003 which included the Third Quarter 2003
Earnings Release. The filing was made to comply with Reg FD and the new Sarbanes
Oxley Reporting Requirements.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Savannah Bancorp, Inc.
-----------------------------------
(Registrant)
Date 11/5/03 /s/ Archie H. Davis
------- -----------------------------------
Archie H. Davis - President & CEO
Date 11/5/03 /s/ G. Mike Odom, Jr.
------- ------------------------------------
G. Mike Odom, Jr. - Executive Vice
President & COO
Date 11/5/03 /s/ Robert B. Briscoe
------- ------------------------------------
Robert B. Briscoe - Chief Financial Officer
23