<PAGE> 1
========================================================
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 March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
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
---------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-------------------------------------------------------
(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 April 30, 1997.
1,705,423 shares of Common Stock, $1.00 par value per share
=======================================================
<PAGE> 2
THE SAVANNAH BANCORP, INC.
FORM 10-Q INDEX
MARCH 31, 1997
PART I - FINANCIAL INFORMATION
<TABLE>
Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 2
Consolidated Statements of Income
For the Three Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
</TABLE>
1
<PAGE> 3
THE SAVANNAH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
F (dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,523 $ 6,015
Federal funds sold 10,025 10,810
Investment securities available for sale:
U. S. Treasury Securities (amortized cost of
$15,212 and $16,235 in 1997 and 1996) 15,053 16,209
Other taxable investments (amortized cost of
$11,908 and $9,936 in 1997 and 1996) 11,770 9,896
State and municipal investments (amortized cost of
$3,125 in 1997 and 1996) 3,180 3,186
---------- ----------
Total investment securities available for sale 30,003 29,291
Loans 89,631 88,649
Less allowance for loan losses (1,290) (1,240)
---------- ----------
Net loans 88,341 87,409
Premises and equipment, net 2,383 2,368
Other assets 1,686 1,559
---------- ----------
TOTAL ASSETS $ 138,961 $ 137,452
========== ==========
LIABILITIES
Deposits:
Non-interest bearing demand $ 20,418 $ 21,812
Interest-bearing demand 19,247 22,611
Savings 3,380 3,232
Money market accounts 17,219 14,656
Time, $100,000 and over 24,072 23,106
Other time deposits 37,656 35,983
---------- ----------
Total deposits 121,992 121,400
Federal funds purchased and securities sold under
agreements to repurchase 2,331 1,850
Other liabilities 1,142 916
TOTAL LIABILITIES ---------- ----------
125,465 124,166
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share: authorized
20,000,000 shares; issued 1,782,598 and 1,188,408 1,783 1,188
shares in 1997 and 1996
Preferred stock, par value $1 per share:
authorized 10,000,000 shares, none issued - -
Capital surplus 8,924 9,519
Retained earnings 3,468 3,136
Treasury stock, at cost, 77,175 and 54,200 shares
in 1997 and 1996 (529) (554)
Net unrealized holding losses on
available for sale securities (150) (3)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 13,496 13,286
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 138,961 $ 137,452
========== ==========
</TABLE>
See the condensed notes to the consolidated financial statements.
<PAGE> 4
THE SAVANNAH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans (includes loan fees) $ 1,988 $ 1,748
Investment securities 446 417
Federal funds sold 117 83
-------- --------
Total interest income 2,551 2,248
-------- --------
INTEREST EXPENSE
Deposits 1,154 1,051
Other short-term borrowings 29 21
-------- --------
Total interest expense 1,183 1,072
-------- --------
NET INTEREST INCOME 1,368 1,176
Provision for loan losses 50 60
-------- --------
Net interest income after
provision for loan losses 1,318 1,116
-------- --------
OTHER INCOME
Service charges on deposit accounts 97 85
Mortgage origination fees 59 53
Other income 35 12
-------- --------
Total other income 191 150
-------- --------
OTHER EXPENSE
Salaries and employee benefits 509 411
Occupancy expense 78 74
Equipment expense 68 61
Other operating expenses 287 243
-------- --------
Total other expense 942 789
-------- --------
Income before provision for income taxes 567 477
Provision for income taxes 200 172
-------- --------
NET INCOME $ 367 $ 305
======== ========
NET INCOME PER SHARE: (a)
Primary $ 0.20 $ 0.17
======== ========
Fully-diluted $ 0.20 $ 0.17
======== ========
</TABLE>
(a) - 1996 restated for a 3-for-2 stock split distributed on February 24, 1997.
See the condensed notes to the consolidated financial statements.
<PAGE> 5
THE SAVANNAH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
COMMON CAPITAL RETAINED TREASURY GAINS (LOSSES),
SHARES STOCK SURPLUS EARNINGS STOCK NET OF TAX TOTAL
------ ----- ------- -------- ------ ---------- -----
FOR THE THREE MONTHS
- --------------------
ENDED MARCH 31, 1996
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,188,408 $ 1,188 $ 9,519 $ 1,759 ($554) $ 251 $ 12,163
Cash dividends - $.025 per share - - - (29) - - (29)
Change in unrealized gains on securities
available for sale, net of tax - - - - - (190) (190)
Net income - - - 305 - - 305
--------- ------- ------- ------- ------ ------ --------
Balance at end of period 1,188,408 $ 1,188 $ 9,519 $ 2,035 ($ 554) $ 61 $ 12,249
========= ======= ======= ======= ====== ====== ========
FOR THE THREE MONTHS
- --------------------
ENDED MARCH 31, 1997
- --------------------
Balance, December 31, 1996 1,188,408 $ 1,188 $ 9,519 $ 3,136 ($ 554) ($ 3) $ 13,286
Three-for-two stock split 594,190 595 (595) - - - -
Cash dividends - $.02 per share - - - (35) - - (35)
Change in unrealized losses on securities
available for sale, net of tax - - - - - (147) (147)
Reissuance of treasury stock - - - - 25 - 25
Net income - - - 367 - - 367
--------- ------- ------- ------- ------ ------ --------
Balance at end of period 1,782,598 $ 1,783 $ 8,924 $ 3,468 ($ 529) ($ 150) $ 13,496
========= ======= ======= ======= ====== ====== ========
</TABLE>
See the condensed notes to the consolidated financial statements.
<PAGE> 6
THE SAVANNAH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 367 $ 305
Adjustments to reconcile net income to cash
Provided by operating activities:
Provision for loan losses 50 60
Depreciation of premises and equipment 63 18
Amortization of investment securities discount-net 118 20
Decrease (increase) in accrued interest receivable 15 (98)
Increase in prepaid expenses and other assets (52) (111)
Increase (decrease) in accrued interest payable 57 (52)
Increase (decrease) in other liabilities 169 (34)
------- -------
Net cash provided by operating activities 787 108
INVESTING ACTIVITIES ------- -------
Net increase in federal funds sold 785 3,894
Purchases of investment securities (2,067) (9,316)
Proceeds from maturities of investment securities 1,000 4,791
Net increase in loans made to customers (982) (1,057)
Capital expenditures (78) (384)
------- -------
Net cash used in investing activities (1,342) (2,072)
------- -------
FINANCING ACTIVITIES
Net (decrease) increase in demand, savings and money market accounts (2,047) 3,105
Net increase in certificates of deposit 2,639 1,500
Net increase (decrease) in securities sold under agreements to
repurchase 315 (1,077)
Increase in federal funds purchased 166 105
Reissuance of treasury stock 25 0
Dividend payments (35) (29)
------- -------
Net cash provided by financing activities 1,063 3,604
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 508 1,640
Cash and cash equivalents at beginning of year 6,015 4,459
------- -------
Cash and cash equivalents at end of period $ 6,523 $ 6,099
======= =======
</TABLE>
See the condensed notes to the consolidated financial statements.
<PAGE> 7
THE SAVANNAH BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed 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 period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996.
NOTE 2 - SHAREHOLDERS' EQUITY
On January 26, 1997, the Company's Board of Directors declared a three-for-two
stock split payable February 24, 1997 to shareholders of record on February 7,
1997. Per share amounts have been restated to reflect the stock split.
NOTE 3 - SHARES USED IN COMPUTING NET INCOME PER SHARE
Net income per fully diluted share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
periods. The fully diluted weighted average shares outstanding were 1,796,000
and 1,756,000 for the first quarters of 1997 and 1996, respectively. They
included 92,000 and 55,000 common equivalent shares in 1997 and 1996,
respectively.
NOTE 4 - CHANGE IN ACCOUNTING STANDARD
In February, 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share" which,
when adopted, will replace the current methodology for calculating and
presenting earnings per share. Under SFAS No. 128, primary earnings per share
will be replaced with a presentation of basic earnings per share and fully
diluted earnings per share will be replaced with diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share. The statement will be effective beginning in
the Company's financial statements for the year ended December 31, 1997,
including restatement of historical earnings per share presented in such
financial statements. Management does not expect the impact of SFAS No. 128 to
materially differ from the current presentation of earnings per share.
6
<PAGE> 8
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 March 31, 1997 and December 31, 1996, and results of operations
for the quarters ended March 31, 1997 and 1996, the following analysis should
be reviewed along with other information including the Company's December 31,
1996 Annual Report on Form 10-KSB.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The objectives of funds management include maintaining adequate liquidity and
reasonable harmony between the repricing of sources and uses of funds on
interest sensitive assets and liabilities. The goal of liquidity management is
to insure the availability of adequate funds to meet the loan demand and the
deposit withdrawal needs of the bank's customers. This is achieved through
maintaining a combination of sufficient liquid assets, core deposit growth, and
unused capacity to purchase funds in the money markets.
The Company will fund anticipated loan growth primarily through normal deposit
growth. However, the Bank is a member of the Federal Home Loan Bank of Atlanta
(FHLB) and has access to borrowings in excess of $10.0 million by pledging
qualifying residential real estate loans under a blanket float lien agreement.
The FHLB will also lend against unpledged investment securities of
approximately $15 million. In addition, the Bank has $8.0 million of unused
short-term federal funds borrowing lines available from correspondent banks.
The relatively high volume of $24.1 million of certificates of deposit over
$100,000, includes $6-8 million of negotiated rate deposits. The remaining
large certificates are considered to be core deposit funds. Most are on an
automatically renewing basis for 6 - 12 months and have proven to be no more
rate sensitive than the smaller time deposits. These deposits have been
acquired and retained primarily through relationships and service. The Bank
has done no advertising of higher rates to attract deposits and has
consistently set its deposit rates with very little premium above the regional
bank competition in our market area.
During the fourth quarter, 1995, the bank opened its third office, our West
Chatham office. This office is located in west Chatham County, approximately
six miles west of downtown Savannah. The Bank is expected to open its fourth
office six miles east of downtown Savannah in the fourth quarter, 1997. These
new offices along with the offices opened in 1990 and 1992 are expected to
provide continued core deposit growth as well as commercial and consumer loan
growth.
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 market sensitive
liabilities. Interest sensitivity management and its effects on the net
interest margin require analyses and actions which take into consideration
volumes repriced and the timing and magnitude of their change. The
7
<PAGE> 9
interest sensitivity gaps which existed at March 31, 1997 are presented in the
following table:
<TABLE>
<CAPTION>
Cumulative
Interest sensitive within: Assets Liabilities Gap Gap
-------------------------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C>
3 months $ 62,172 $ 66,516 $(4,344) $ (4,344)
3 - 6 months 6,665 12,581 (5,916) (10,260)
6 - 12 months 11,285 14,701 (3,416) (13,676)
Over 12 months 49,779 10,641 39,138 $ 25,462
-------- ----------- ------- ========
Total $129,901 $104,439 $25,462
======== =========== =======
</TABLE>
At March 31, 1997, the balance sheet was liability-sensitive within one year.
However, because certain deposits such as NOW, savings and money market
accounts reprice with less volatility than prime, the Bank's income statement
is actually asset sensitive. Management has policies and procedures in place
to measure and report anticipated net interest income fluctuations based on
rising and falling rates. The Board has specified a maximum risk level of 5%
of annualized net interest income on an immediate decrease in the prime rate of
200 basis points. The Bank is presently operating within the specified risk
levels.
FINANCIAL CONDITION
For the first three months of 1997, loans increased $1.0 million to $89.6
million, and deposits increased $.6 million to $122.0 million. The loan to
deposit ratio was 73.5% at March 31, 1997 compared to 73.0% at December 31,
1996. Non-performing assets were $43,000 at March 31, 1997 compared to $23,000
at December 31, 1996.
Management has continued to classify all investment securities as available for
sale since January 1, 1994. Fluctuations in the U. S. Treasury market rates
have caused both decreases and increases in the market value of the available
for sale investment portfolio and the related equity valuation account.
Capital ratios for regulatory purposes are not impacted by the net unrealized
holding gains (losses) on available for sale securities. Management has chosen
the flexibility to restructure the investment portfolio and to recognize gains
or losses on securities when appropriate.
The Company's lending and investment policies emphasize quality and well-managed
growth. These policies may translate into slower growth in net interest income
and earnings in the short-term; however, management believes these policies
result in lower costs and quality earnings and are best for the shareholders and
customers in the long-term.
At March 31, 1997, $2.4 million or approximately 17.7% of equity capital, was
invested in bank premises and equipment. Equity capital was $13.5 million, or
9.7% of total assets, compared to the regulatory minimum of 4.0%. Total capital
is 17.5% of risk-based assets compared to the regulatory minimum of 8%. The net
unrealized holding losses on the available for sale portfolio were $150,000 at
March 31, 1997 compared to $3,000 at December 31, 1996.
8
<PAGE> 10
RESULTS OF OPERATIONS - FIRST QUARTER, 1997 VS. FIRST QUARTER, 1996
The net income for the first quarter, 1997 was $367,000 or $.20 per fully
diluted share, compared to $305,000, or $.17 per fully diluted share in the
same period of 1996, an increase of 20% in net income and 18% in per share
earnings. Per share amounts for 1996 have been restated to reflect a
three-for-two stock split distributed on February 24, 1997.
Net interest income for the first quarter, 1997, was $1,368,000 compared to
$1,176,000 in 1996, an increase of 16.3%. Average interest-earning assets were
up 18.2% in 1997 over 1996. The first quarter net yield on interest-earning
assets increased to 4.43% from 4.40% in 1996. The relatively consistent net
interest margin reflects the relatively stable interest rate environment during
the past year.
The provision for loan losses was $50,000 in the first quarter of 1996,
compared to $60,000 for the same period in 1996. There were no charge-offs or
recoveries in either period.
Total other income in 1997 was $191,000 compared to $150,000 in 1996, an
increase of 27%. Volume increases in service charges on deposit accounts and
mortgage origination fees and new ATM transaction fees are the primary reasons
for the increase.
Other expenses were $942,000 in the first quarter, 1997 compared to $789,000 in
the first quarter, 1996, an increase of 19.4%. Salaries and employee benefits
increases include two new officer positions, three staff positions, and
promotional and incentive increases. Increases in occupancy, equipment and
other expenses primarily reflect normal volume and inflation growth.
The provision for income taxes was $200,000 in the first quarter of 1997
compared to $171,000 in the first quarter of 1996. The effective combined
federal and state income tax provisions were 35.3% in 1997 and 36.1% in 1996.
The slightly lower rate is due to higher tax-exempt income on securities.
9
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal proceedings. None
Item 2. Changes in Securities.
As described in Note 2, a three-for-two stock split in the form of a 50 percent
stock dividend was declared on January 27, payable on February 24, 1997 to
shareholders of record on February 7, 1997. An additional 594,190 shares were
issued bringing the total issued shares to 1,782,598 at March 31, 1997.
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
The regular annual meeting of the Company was held on April 22, 1997. Four
existing directors of the First Class were re-elected with 1,522,779 shares for
each director, except for 3,302 votes withheld on one director.
Arthur Andersen LLP was ratified as the independent certified public
accountants for the year ending December 31, 1997 with 1,483,182 votes for
ratification and 42,900 abstaining. There were a total of 1,705,423 shares
outstanding and 1,522,779 shares, or 90.4%, were present or held in proxy.
Item 5. Other Information. None
Item 6. Exhibits or Reports on Form 8-K.
27 Financial Data Schedule (for SEC use only).
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 5/2/97 /s/ Archie H. Davis
------ ---------------------------------
Archie H. Davis - President & CEO
Date 5/2/97 /s/ Robert B. Briscoe
------ ---------------------------------
Robert B. Briscoe - Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,523
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,025
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 30,245
<INVESTMENTS-MARKET> 30,003
<LOANS> 89,631
<ALLOWANCE> (1,290)
<TOTAL-ASSETS> 138,961
<DEPOSITS> 121,992
<SHORT-TERM> 2,331
<LIABILITIES-OTHER> 1,142
<LONG-TERM> 0
0
0
<COMMON> 1,783
<OTHER-SE> 11,713
<TOTAL-LIABILITIES-AND-EQUITY> 138,961
<INTEREST-LOAN> 1,988
<INTEREST-INVEST> 446
<INTEREST-OTHER> 117
<INTEREST-TOTAL> 2,551
<INTEREST-DEPOSIT> 1,154
<INTEREST-EXPENSE> 1,183
<INTEREST-INCOME-NET> 1,368
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 942
<INCOME-PRETAX> 567
<INCOME-PRE-EXTRAORDINARY> 567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 367
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 4.42
<LOANS-NON> 0
<LOANS-PAST> 43
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 43
<ALLOWANCE-OPEN> 1,240
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,290
<ALLOWANCE-DOMESTIC> 1,290
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
