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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(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, 1998
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.
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(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
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(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 30, 1998.
1,740,923 shares of Common Stock, $1.00 par value per share
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<PAGE>
The Savannah Bancorp, Inc.
Form 10-Q Index
September 30, 1998
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 2
Consolidated Statements of Income
For the Quarter Ended September 30, 1998 and 1997 3
For the Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997 6
Condensed Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Financial Data Schedules 16-17
1
<PAGE>
<TABLE>
<CAPTION>
The Savannah Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(dollars in thousands, except per share data)
(Unaudited)
September 30, December 31,
1998 1997
------------ ------------
Assets
<S> <C> <C>
Cash and due from banks $ 6,958 $ 11,929
Federal funds sold 8,642 13,187
Investment securities available for sale:
U. S. Treasury Securities (amortized cost of $8,085
and $12,141 in 1998 and 1997, respectively) 8,210 12,144
Other taxable investments (amortized cost of $33,821
and $13,782 in 1998 and 1997, respectively) 34,600 13,829
State and municipal investments (amortized cost of
$3,777 and $3,377 in 1998 and 1997, respectively) 4,001 3,527
------------ ------------
Total investment securities available for sale 46,811 29,500
Loans 113,293 106,021
Less allowance for loan losses (1,559) (1,480)
------------ ------------
Net loans 111,734 104,541
Premises and equipment, net 3,150 2,931
Other assets 1,675 1,571
------------ ------------
Total assets $ 178,970 $ 163,659
============ ============
Liabilities
Deposits:
Noninterest-bearing demand $ 23,234 $ 25,896
Interest-bearing demand 30,674 29,121
Savings 4,637 3,953
Money market accounts 25,477 20,203
Time, $100,000 and over 29,037 24,650
Other time deposits 44,186 40,641
------------ ------------
Total deposits 157,245 144,464
Federal funds purchased and securities sold under
agreements to repurchase 3,600 3,250
Other liabilities 1,339 969
------------ ------------
Total liabilities 162,184 148,683
------------ ------------
Shareholders' Equity
Preferred stock, par value $1 per share:
authorized 10,000,000 shares; none issued - -
Common stock, par value $1 per share: authorized
20,000,000 shares; issued 1,782,598
shares in 1998 and 1997 1,783 1,783
Capital surplus 8,924 8,924
Retained earnings 5,715 4,649
Treasury stock, at cost, 45,800 in 1998 and 73,050
in 1997 (335) (504)
Net unrealized holding gains on
available for sale securities 699 124
------------ ------------
Total shareholders' equity 16,786 14,976
------------ ------------
Total liabilities and shareholders' equity $ 178,970 $ 163,659
============ ============
</TABLE>
See the condensed notes to the consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
The Savannah Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
For the Quarter Ended
September 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest Income
Loans (includes loan fees) $ 2,490 $ 2,272
Investment securities 643 468
Federal funds sold 144 82
---------- ----------
Total interest income 3,277 2,822
---------- ----------
Interest Expense
Deposits 1,498 1,227
Other short-term borrowings 51 45
---------- ----------
Total interest expense 1,549 1,272
---------- ----------
Net Interest Income 1,728 1,550
Provision for loan losses 40 55
---------- ----------
Net interest income after
provision for loan losses 1,688 1,495
---------- ----------
Other Income
Service charges on deposit accounts 111 95
Mortgage origination fees 162 113
Other income 61 51
Investment securities gains 1 0
---------- -----------
Total other income 335 259
---------- -----------
Other Expense
Salaries and employee benefits 700 553
Occupancy expense 114 82
Equipment expense 91 81
Other operating expenses 362 288
---------- -----------
Total other expense 1,267 1,004
---------- -----------
Income before provision for income taxes 756 750
Provision for income taxes 262 259
---------- -----------
Net Income $ 494 $ 491
========== ===========
Net income per share:
Basic $ .29 $ .29
========== ===========
Diluted $ .27 $ .27
========== ===========
</TABLE>
See the condensed notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
The Savannah Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
For the Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest Income
Loans (includes loan fees) $ 7,294 $ 6,366
Investment securities 1,702 1386
Federal funds sold 620 357
---------- ----------
Total interest income 9,616 8,109
---------- ----------
Interest Expense
Deposits 4,430 3,585
Other short-term borrowings 156 112
---------- ----------
Total interest expense 4,586 3,697
---------- ----------
Net Interest Income 5,030 4,412
Provision for loan losses 140 170
---------- ----------
Net interest income after
provision for loan losses 4,890 4,242
---------- ----------
Other Income
Service charges on deposit accounts 323 299
Mortgage origination fees 426 246
Other income 212 132
Investment securities gains 1 -
---------- ----------
Total other income 962 677
---------- ----------
Other Expense
Salaries and employee benefits 1,986 1,591
Occupancy expense 298 240
Equipment expense 267 221
Other operating expenses 1,024 868
---------- ----------
Total other expense 3,575 2,920
---------- ----------
Income before provision for income taxes 2,277 1,999
Provision for income taxes 797 696
---------- ----------
Net income $ 1,480 $ 1,303
========== ==========
Net income per share:
Basic $ .86 $ .76
========== ==========
Diluted $ .82 $ .73
========== ==========
</TABLE>
See the condensed notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
The Savannah Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
(dollars in thousands, except per share data)
(Unaudited)
Net
Unrealized
Holding
Common Capital Retained Treasury Gains (Losses),
Shares Stock Surplus Earnings Stock Net of Tax Total
--------- ------- ------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Nine Months
Ended September 30, 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 - $.10 per share - - - (172) - - (172)
Change in unrealized gains (losses) on
securities available for sale, net of tax - - - - - 86 86
Reissuance of treasury stock - - - - 50 - 50
Net income - - - 1,303 - - 1,303
--------- ------- ------- -------- -------- -------------- --------
Balance at end of period 1,782,598 $ 1,783 $ 8,924 $ 4,267 ($ 504) $ 83 $ 14,553
========= ======= ======= ======== ======== ============== ========
For the Nine Months
Ended September 30, 1998
Balance, December 31, 1997 1,782,598 $ 1,783 $ 8,924 $ 4,649 ($ 504) $ 124 $ 14,976
Cash dividends - $.24 per share - - - (414) - - (414)
Change in unrealized gains on securities
available for sale, net of tax - - - - - 575 575
Reissuance of treasury stock - - - - 169 - 169
Net income - - - 1,480 - - 1,480
--------- ------- ------- -------- -------- -------------- --------
Balance at end of period 1,782,598 $ 1,783 $ 8,924 $ 5,715 ($ 335) $ 699 $ 16,786
========= ======= ======= ======== ======== ============== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
The Savannah Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
Operating Activities 1998 1997
------------ ------------
<S> <C> <C>
Net income $ 1,480 $ 1,303
Adjustments to reconcile net income to cash
Provided by operating activities:
Provision for loan losses 140 170
Depreciation of premises and equipment 243 190
Gains on sales of securities (1) -
Amortization of investment securities discount-net 147 257
Deferred tax benefit (23) (13)
Increase in accrued interest receivable (186) (95)
Increase in prepaid expenses and other assets (248) (27)
Increase in accrued interest payable 88 43
Increase in other liabilities 282 97
----------- ------------
Net cash provided by operating activities 1,922 1,925
----------- ------------
Investing Activities
Net decrease in federal funds sold 4,545 2,548
Purchases of investment securities (23,531) (4,320)
Proceeds from sale of investment securities 2,002 -
Proceeds from maturities of investment securities 5,000 3,000
Net increase in loans made to customers (7,333) (9,084)
Capital expenditures (462) (557)
----------- ------------
Net cash used in investing activities (19,779) (8,413)
----------- ------------
Financing Activities
Net increase in demand, savings, and money market
accounts 4,849 999
Net increase in certificates of deposit 7,932 3,875
Net increase in securities sold under agreements to
repurchase 821 1,705
Net decrease in federal funds purchased (471) (40)
Reissuance of treasury stock 169 50
Dividend payments (414) (172)
----------- ------------
Net cash provided by financing activities 12,886 6,417
----------- ------------
(Decrease) Increase in Cash and Cash Equivalents (4,971) (71)
Cash and cash equivalents at beginning of year 11,929 6,015
----------- ------------
Cash and cash equivalents at end of period $ 6,958 $ 5,944
=========== ============
See the condensed notes to the consolidated financial statements.
</TABLE>
6
<PAGE>
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-QSB 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 nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto, included in the Company's annual report on
Form 10-KSB for the year ended December 31, 1997.
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.
Note 3 - Shares Used in Computing Net Income Per Share
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 were 1,805,000 and 1,798,000 for the
third quarters of 1998 and 1997, respectively. They included 80,000 and 91,000
common equivalent shares in 1998 and 1997, respectively. The diluted weighted
average shares outstanding were 1,811,000 and 1,793,000 for the first nine
months of 1998 and 1997, respectively. They included 94,000 and 86,000 common
equivalent shares relating to outstanding stock options in 1998 and 1997,
respectively.
Note 4 - Change in Accounting Standard
In February of 1997, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share" which
replaced the prior methodology for calculating and presenting earnings per
share. Under SFAS No. 128, primary earnings per share have been replaced with a
presentation of basic earnings per share, and fully diluted earnings per share
have been 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 are computed similarly to fully diluted
earnings per share. The statement became 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.
Earnings per share for
7
<PAGE>
the third quarter and nine months ended September 30, 1997 have been restated to
show basic and diluted earnings per share.
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards for derivative instruments (including certain derivative instruments
imbedded in other contracts). The statement is effective for fiscal years
beginning after June 15, 1999. The financial impact of the adoption has not been
determined. However, the effect of the adoption of the statement is not expected
to be material.
Note 5 - Reporting of Comprehensive Earnings
Total comprehensive income is defined as net income and all other changes in
equity. The Company reported total comprehensive income, net of tax, for the
quarters ended September 30, 1998 and 1997 of $1,041,000 and $579,000,
respectively. Adjustments to total comprehensive net income, net of tax, for the
third quarter of 1998 and 1997 included net gains of $547,000 and $88,000,
respectively. The Company's total comprehensive income, net of tax, for the nine
months ended September 30, 1998 and 1997 was $2,055,000 and $1,389,000,
respectively. Adjustments to total comprehensive net income, net of tax, for the
first nine months included net gains of $575,000 and $86,000 in 1998 and 1997,
respectively. These changes reflect a market value increase in
available-for-sale securities for the quarters and the nine months ended
September 30, 1998 and 1997.
Note 6 - Pending Merger
On February 10, 1998, the Company signed a definitive agreement to merge with
Bryan Bancorp of Georgia, Inc. ("Bryan"), a bank holding company for Bryan Bank
& Trust Company. Bryan is located in Richmond Hill and Bryan County
approximately twenty miles south of Savannah. The Company intends to acquire
Bryan in a tax-free stock-for-stock merger, to be accounted for as a pooling of
interests, by issuing shares of common stock of the Company. The merger
agreement specifies that each share of Bryan stock will be exchanged for 1.85
shares of the Company's stock. The value of the stock to be issued is
approximately $24 million based on the $25.50 per share market value on the day
prior to the announcement. All regulatory approvals have been received. The
merger is expected to be consummated on December 31, 1998, contingent on the
approval of shareholders.
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, 1998 and December 31, 1997 and results of operations
for the quarters ended September 30, 1998 and 1997, the following analysis
should be reviewed along with other information including the Company's December
31, 1997 Annual Report on Form 10-KSB.
8
<PAGE>
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 ensure 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 through normal core deposit growth
and investment maturities and/or sales. 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 $20 million. In addition, the Bank has $6.5 million
of unused short-term federal funds borrowing lines available from correspondent
banks.
Certificates of deposit over $100,000 include rate sensitive deposits primarily
to local individuals and businesses and no brokered deposits. These certificates
are considered to be core deposit funds. Most are on an automatic renewing basis
for 6 - 12 months and 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 of 1997, the bank opened its fourth office at the
Island Towne Centre. This office is located in Chatham County, approximately six
miles east of downtown Savannah. The Bank opened its fifth office in Savannah's
primary medical care area of town in October of 1998. These new offices, along
with the offices opened in 1990, 1992, and 1995, 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 an increase 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 long-term maturity gap and repricing data as of September 30, 1998 is shown
in Table 1 following the Management's Discussion and Analysis section.
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 five percent 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.
9
<PAGE>
Financial Condition
For the first nine months of 1998, loans increased $7.3 million to $113.3
million, and deposits increased $12.8 million to $157.2 million. The loan-to-
deposit ratio was 72.0 percent at September 30, 1998 compared to 73.4 percent at
December 31, 1997. Nonperforming assets were $86,000 at September 30, 1998
compared to $185,000 at December 31, 1997.
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. However,
effective October 1, 1998, 45 percent of unrealized investment security gains
will be included as a component of Tier 2 capital under new regulatory capital
regulations. 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 September 30, 1998, $3.2 million or approximately 19.0 percent of equity
capital was invested in bank premises and equipment. Equity capital was $16.8
million or 9.4 percent of total assets compared to the regulatory minimum of 4.0
percent. Tier 1 capital is 13.4 percent of risk-weighted assets compared to the
regulatory minimum of 4 percent. The net unrealized holding gains on the
available-for-sale portfolio were $1,128,000 at September 30, 1998 compared to
$200,000 at December 31, 1997.
Results of Operations - Third Quarter, 1998 vs. Third Quarter, 1997
The net income for the third quarter of 1998 was $494,000, or $.27 per diluted
share, compared to $491,000 or $.27 per diluted share in the same period of
1997, an increase of 1 percent in net income and no increase in per share
earnings.
Net interest income for the third quarter of 1998 was $1,728,000 compared to
$1,550,000 in 1997, an increase of 11.5 percent. Average interest-earning assets
were up 21.8 percent in 1998 over 1997. The third quarter net yield on
interest-earning assets decreased to 4.26 percent from 4.65 percent in 1997. The
decrease in the net interest margin resulted primarily from the decrease in
investment yields on securities due to lower bond market rates, competitive loan
and deposit rates, and a lower loan-to-deposit ratio of 72 percent at September
30,1998 compared to 77 percent at September 30, 1997.
The provision for loan losses was $40,000 in the third quarter of 1998 compared
to $55,000 for the same period in 1997. Net loan charge-offs totaled $9,000 in
the third quarter of 1998, and there were net charge-offs of $22,000 in the same
period for 1997.
10
<PAGE>
Total other income for the third quarter of 1998 was $335,000 compared to
$259,000 in 1997, an increase of 29 percent. The expansion of the mortgage loan
origination department combined with lower mortgage interest rates accounted for
an increase of $49,000, or 43 percent, in origination fees. An increased volume
of ATM transaction fees resulted in higher other income.
Other expenses were $1,266,000 in the third quarter of 1998 compared to
$1,004,000 in the third quarter of 1997, an increase of 26 percent. Salaries and
employee benefits increases include five new officer positions, approximately
six new 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 $262,000 in the third quarter of 1998
compared to $259,000 in the third quarter of 1997. The effective combined
federal and state income tax provisions were 34.7 percent in 1998 and 34.5
percent in 1997.
Results of Operations - First Nine Months, 1998 vs. First Nine Months, 1997
The net income for the first nine months of 1998 was $1,480,000, or $.82 per
diluted share, compared to $1,303,000, or $.73 per diluted share in the same
period of 1997, an increase of 14 percent in net income and 12 percent in per
share earnings.
Net interest income for the first nine months of 1998 was $5,030,000 compared to
$4,412,000 in 1997, an increase of 14.0%. Average interest-earning assets were
up 17.9% in 1998 over 1997. The net yield on interest-earning assets decreased
to 4.24% from 4.53%. The decrease in the net interest margin resulted primarily
from competitive loan and deposit rates, the lower loan-to-deposit ratio in 1998
as compared to 1997, and the decrease in investment yields on securities.
The provision for loan losses was $140,000 and $170,000 in the first nine months
of 1998 and 1997, respectively. Net loan charge-offs were $61,000 in the first
nine months of 1998 and $34,000 in the same period for 1997.
Other income was $962,000 in the first nine months of 1998 compared to $677,000
for the same period in 1997, an increase of 42 percent. Mortgage origination
fees were $426,000 in the first nine months of 1998 compared to $246,000 in
1997, an increase of 73 percent. Other increases resulted from higher ATM
transaction fee volume..
Other expenses were $3,575,000 for the first nine months of 1998 compared to
$2,920,000 for the same period in 1997, an increase of 22 percent. Other
operating expense increases included expenses related to two new officer and
eight additional staff positions in 1998 and higher data processing fees,
supplies costs, and postage expense, which are directly related to the rapidly
growing loan portfolio and deposit base of the Bank.
11
<PAGE>
Year 2000
It is possible that currently installed computer systems, software
products or other business systems, or those of suppliers or customers, will not
always accept input of, store, manipulate, and output dates in the years 1999,
2000 or thereafter without error or interruption. Management has conducted
reviews of the business systems, including their computer systems, to attempt to
identify ways in which their systems could be affected by problems in correctly
processing date information. Management has engaged Year 2000 consultants and
has developed a plan to ensure a smooth transition of the systems, products, and
vendors that they rely on into the twenty-first century. Additionally,
management is working with loan customers to monitor potential credit exposure
that might result from a lack of their systems' readiness for the Year 2000.
The Bank's primary software systems are licensed from an outside vendor. The
core customer information system ("CIS"), loan, deposit, general ledger,
automated teller machine ("ATM") and card-based systems are all maintained and
processed by a third party, the largest bank-owned data processor of banks in
the United States. The software for these core processing systems were converted
successfully to Year 2000 ready code in October, 1998. Final testing of the core
systems for Year 2000 compliance is scheduled for February, 1999. Management has
received commitments from other major vendors to provide the required systems
modifications to ensure compliance. Management believes those commitments will
be met in advance of July 1, 1999. Some software programs and some hardware will
need to be modified or replaced for Year 2000 compliance. To the extent
possible, those changes will be incorporated in the normal replacement or
upgrade of hardware and systems. Management believes it will be successful in
the achievement of its plans and does not believe that the execution of the plan
will have a material adverse effect on future operating results. However, there
can be no assurance that management will identify all date-handling problems in
their business systems or those of their customers and suppliers in advance of
their occurrence, or that they will be able to successfully remedy problems that
are discovered.
The total cost for Year 2000 compliance is estimated to be between $150,000 and
$225,000. However, this includes $100,000 to $150,000 in normal upgrades and
salaries of existing personnel. The incremental Year 2000 expense is estimated
to be between $50,000 and $75,000 for 1998 and 1999 combined. Approximately 50
percent of the estimated incremental costs has been incurred.
12
<PAGE>
<TABLE>
<CAPTION>
Table 1 - Long-Term Maturity Gap and Repricing Data
The following is the long-term maturity and repricing data for the Company as of
September 30, 1998.
($ in 000's) One Two Three Four Five
Interest-bearing assets Year Years Years Years Years Beyond Total
- - ----------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment securities 13,634 11,061 5,024 - 10,018 5,946 45,683
6.01% 6.17% 5.84% - 5.62% 6.55% 6.01%
Federal funds sold 8,642 - - - - - 8,642
5.20% - - - - - 5.20%
Loans - fixed rates 29,182 9,207 17,032 4,079 7,282 3,237 70,019
8.69% 8.99% 8.62% 9.08% 8.45% 8.60% 8.71%
Loans - variable rates 18,854 8,212 6,562 3,709 4,826 1,111 43,274
8.84% 8.85% 8.80% 8.70% 8.64% 8.48% 8.79%
------ ------ ------ ------ ------ ------ ------
Total earning assets 70,312 28,480 28,618 7,788 22,126 10,294 167,618
7.78% 7.85% 8.17% 8.90% 7.21% 7.40% 7.81%
Interest-bearing deposits:
NOW and savings (a) 3,531 3,531 3,531 3,531 3,531 17,656 35,311
2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Money market accounts (a) 2,548 2,548 2,548 2,548 2,548 12,737 25,477
4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Time, $100 and over 24,417 2,765 369 716 770 - 29,037
5.74% 6.03% 6.15% 6.15% 5.99% - 5.79%
Other time 31,581 7,229 1,754 1,093 2,529 - 44,186
5.43% 5.95% 5.83% 6.00% 6.02% - 5.58%
------ ------ ------ ------ ------ ------ ------
Total interest-bearing
deposits 62,077 16,073 8,202 7,888 9,378 30,393 134,011
5.33% 4.90% 3.84% 3.80% 4.14% 3.13% 4.51%
Funds purchased 3,600 - - - - - 3,600
4.95% - - - - - 4.95%
------ ------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities 65,677 16,073 8,202 7,888 9,378 30,393 137,611
5.31% 4.90% 3.84% 3.24% 4.14% 3.13% 4.52%
GAP-excess assets 4,635 12,407 20,416 (100) 12,748 (20,099) 30,007
------ ------ ------ ------ ------ ------ ------
GAP-Cumulative-9/30/98 4,635 17,042 37,460 37,360 50,108 30,007 30,007
------ ------ ------ ------ ------ ------ ------
</TABLE>
(a) - estimated cash flow runoff of 10% per year has been assumed
The Company's cash flow gap is $4,635 within one year, or 3 percent of total
interest-earning assets. Fixed-rate earning assets with maturities over five
years total $10,294, or 6 percent of total interest-earnings assets. The cash
flow gaps between one and five years will adjust significantly each year through
normal loan and deposit activity. Based on the principal cash flows and interest
rates presented above and the policies and procedures in place to monitor
interest rate risk, management believes interest rate risk is being adequately
managed within reasonable earnings fluctuation tolerances.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings. None
Item 2. Changes in securities. None
Item 3. Defaults upon senior securities. None
Item 4. Submission of matters to a vote of security holders. None
Item 5. Other information. None
Item 6. Exhibits or reports on Form 8-K.
On July 28, 1998, a Form 8-K was filed containing news release disclosures of
July 22, 1998 announcing an end to the delay in the merger proceedings due to
certain concerns related to a director, who is Chairman of Bryan and an 8.6
percent shareholder. The director had refused to sign certain documents
necessary to assure the pooling-of-interests accounting method, which is a
condition of closing.
14
<PAGE>
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 __11/12/98___ ___/s/_Archie H. Davis______________
Archie H. Davis - President & CEO
Date __11/11/98___ __/s/_Robert B. Briscoe_______________
Robert B. Briscoe - Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1998 Form 10-Q and is qualified in its entirety by reference to
such information.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6958
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8642
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 45683
<INVESTMENTS-MARKET> 46811
<LOANS> 113293
<ALLOWANCE> (1559)
<TOTAL-ASSETS> 178970
<DEPOSITS> 157245
<SHORT-TERM> 3600
<LIABILITIES-OTHER> 1339
<LONG-TERM> 0
<COMMON> 1783
0
0
<OTHER-SE> 15003
<TOTAL-LIABILITIES-AND-EQUITY> 178970
<INTEREST-LOAN> 7294
<INTEREST-INVEST> 1702
<INTEREST-OTHER> 620
<INTEREST-TOTAL> 9616
<INTEREST-DEPOSIT> 4430
<INTEREST-EXPENSE> 4586
<INTEREST-INCOME-NET> 5030
<LOAN-LOSSES> 140
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3575
<INCOME-PRETAX> 2277
<INCOME-PRE-EXTRAORDINARY> 2277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1480
<EPS-PRIMARY> .86
<EPS-DILUTED> .82
<YIELD-ACTUAL> 4.24
<LOANS-NON> 50
<LOANS-PAST> 36
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 75
<ALLOWANCE-OPEN> 1620
<CHARGE-OFFS> 66
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1559
<ALLOWANCE-DOMESTIC> 1559
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
