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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 March 31, 1999
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.
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(Exact name of registrant as specified in its charter)
Georgia 58-1861820
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(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 April 30,
1999.
2,705,689 shares of Common Stock, $1.00 par value per share
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<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
MARCH 31, 1999
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 and 1998
and December 31, 1998 2
Consolidated Statements of Income
For the Quarter Ended March 31, 1999 and 1998 3
Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998 5
Condensed Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-14
OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
EXHIBITS
Financial Data Schedules 17-18
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
MARCH 31, December 31, March 31,
1999 1998 1998
------------ ------------ ------------
ASSETS (Unaudited) (Unaudited)
Cash and due from banks $ 17,120 $ 17,355 $ 10,287
Interest-bearing deposits in bank - - 495
Federal funds sold 12,154 10,178 17,406
Securities available for sale, at fair
value (amortized cost of $59,604 on
3/31/99 $61,864 on 12/31/98 and
$49,175 on 3/31/98) 59,904 62,703 49,402
Loans 177,600 170,858 154,662
Less allowance for loan losses (2,416) (2,323) (2,141)
----------- ------------ ------------
Net loans 175,184 168,535 152,521
Premises and equipment, net 4,810 4,827 4,084
Other assets 3,023 2,782 2,437
----------- ------------ ------------
TOTAL ASSETS $ 272,195 $ 266,380 $ 236,632
=========== ============ ============
LIABILITIES
Deposits:
Non interest-bearing demand $ 39,120 $ 39,353 $ 30,170
Interest-bearing demand 50,929 44,269 35,186
Savings 12,624 11,632 11,666
Money market accounts 31,793 34,663 30,572
Time, $100,000 and over 36,828 41,723 36,871
Other time deposits 60,963 60,732 59,386
----------- ------------ ------------
Total deposits 232,257 232,372 203,851
Other short-term borrowings 8,898 3,211 4,441
Federal Home Loan Bank Advances 4,410 4,450 3,584
Other liabilities 1,871 1,872 2,057
----------- ------------ ------------
TOTAL LIABILITIES 247,436 241,905 213,933
----------- ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share:
authorized 20,000,000 shares; issued
2,719,614 shares 2,720 2,720 2,720
Preferred stock, par value $1 per share:
authorized 10,000,000 shares, none issued - - -
Capital surplus 13,076 13,076 13,050
Retained earnings 8,960 8,438 7,293
Treasury stock, 22,175 at 3/31/99, 37,125
at 12/31/98, and 73,050 at 3/31/98 (182) (275) (504)
Accumulated other comprehensive income 185 516 140
----------- ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 24,759 24,475 22,699
----------- ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 272,195 $ 266,380 $ 236,632
=========== ============ ============
2
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE QUARTER ENDED
MARCH 31,
-------------------------------
($ in thousands, except share data) 1999 1998
------------ ------------
INTEREST INCOME
Loans $3,836 $3,630
Investment securities:
Taxable 790 586
Non-taxable 99 84
Deposits with banks 1 10
Federal funds sold 138 258
------------ ------------
Total interest income 4,864 4,568
------------ ------------
INTEREST EXPENSE
Deposits 1915 2021
Other borrowings 200 90
------------ ------------
Total interest expense 2,115 2,111
------------ ------------
NET INTEREST INCOME 2,749 2,457
Provision for loan losses 105 100
------------ ------------
Net interest income after
provision for loan losses 2,644 2,357
------------ ------------
OTHER INCOME
Service charges on deposit accounts 231 180
Mortgage origination fees 194 187
Other income 127 138
------------ ------------
Total other operating revenue 552 505
Gains on sales of securities and land 5 57
------------ ------------
Total other income 557 562
------------ ------------
OTHER EXPENSE
Salaries and employee benefits 1,139 981
Occupancy expense 155 112
Equipment expense 136 146
Other operating expenses 596 518
------------ ------------
Total other expense 2,026 1,757
------------ ------------
Income before provision for income taxes 1,175 1,162
Provision for income taxes 384 387
------------ ------------
NET INCOME $ 791 $ 775
============ ============
NET INCOME PER SHARE:
Basic $ 0.29 $0.29
============ ============
Diluted $ 0.29 $0.28
============ ============
See the condensed notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
Common Stock Capital Retained Treasury Comprehensive
($ in thousands, except share data) Shares Amount Surplus Earnings Stock Income Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,713,148 $2,713 $12,977 $7,093 ($504) $118 $22,397
Comprehensive income:
Net income 775 775
Change in unrealized gains on
securities available for sale,
net of tax 22 22
--------
Total comprehensive income 797
Cash dividends - $.04 per share (69) (69)
Cash dividends of acquired banks (506) (506)
Exercise of options 7,400 8 32 40
Tax benefit from exercise of options 53 53
Retirement of Bryan treasury stock (934) (1) (12) (13)
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Balance, March 31, 1998 2,719,614 $2,720 $13,050 $7,293 ($504) $140 $22,699
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Balance, December 31, 1998 2,719,614 $2,720 $13,076 $8,438 ($275) $516 $24,475
Comprehensive income:
Net income 791 791
Change in unrealized gains on
securities available for sale,
net of tax (331) (331)
--------
Total comprehensive income 460
Cash dividends - $.10 per share (269) (269)
Treasury stock issued to meet
stock option exercises 93 93
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Balance, March 31, 1999 2,719,614 $2,720 $13,076 $8,960 ($182) $185 $24,759
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</TABLE>
See the condensed notes to the consolidated financial statements.
4
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE
FOR THE QUARTER ENDED YEAR ENDED
($ in thousands) MARCH 31, DECEMBER 31,
---------------------- ------------
OPERATING ACTIVITIES 1999 1998 1998
---------- ----------- ------------
Net income $ 791 $ 775 $ 2,626
Adjustments to reconcile net income to cash
Provided by operating activities:
Provision for loan losses 105 100 435
Depreciation of premises and equipment 136 115 471
Gains on sale of land - (57) (57)
Gains on sale or call of investment securities (5) - (3)
Amortization of investment securities
discount-net 125 23 326
Deferred tax benefit (29) (23) (60)
Decrease (increase) in accrued interest
receivable 64 (16) (446)
Increase in prepaid expenses and other assets (126) (157) (209)
Decrease in accrued interest payable (81) (3) 114
Increase in accrued expenses and other
liabilities 139 244 336
---------- ----------- ------------
Net cash provided by operating activities 1,119 1,001 3,533
---------- ----------- ------------
INVESTING ACTIVITIES
Net decrease in interest-bearing bank balances - 495 -
Purchases of investment securities (5,032) (10,571) (36,419)
Proceeds from sales or calls of investment
securities 6,500 - 2,002
Proceeds from maturities of investment
securities 672 3,336 14,192
Net increase in loans made to customers (6,754) (466) (16,815)
Capital expenditures (119) (76) (1,172)
Proceeds from sale of land - 359 356
---------- ----------- ------------
Net cash used in investing activities (4,733) (6,923) (37,856)
---------- ----------- ------------
FINANCING ACTIVITIES
Net increase in demand, savings and
money market accounts 4,549 545 22,868
Net (decrease) increase in certificates
of deposit (4,664) 2,862 9,060
Net increase (decrease) in securities
sold under agreements to repurchase 5,646 1,094 382
Net increase (decrease) in federal
funds purchased 40 (32) (551)
Net (decrease) increase in FHLB advances (40) 1,994 2,860
Purchase of treasury stock - (12) -
Dividend payments (269) (69) (1,281)
Exercise of options 93 40 335
---------- ----------- ------------
Net cash provided by financing activities 5,355 6,422 33,673
---------- ----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,741 500 (650)
Cash and cash equivalents at beginning
of period 27,533 27,193 28,183
---------- ----------- ------------
Cash and cash equivalents at end of period $29,274 $27,693 $ 27,533
========== =========== ============
See the condensed notes to the consolidated financial statements.
5
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
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, 1999, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. 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, 1998.
NOTE 2 - 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 2,772,000 and 2,774,000 for the
first quarters of 1999 and 1998, respectively. They included 83,000 and 127,000
common equivalent shares in 1999 and 1998, respectively.
NOTE 3 - 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; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by customers, including the features, pricing and
6
<PAGE>
NOTE 3 - FORWARD LOOKING STATEMENTS (CONTINUED)
quality compared to competitors' products and services; the willingness of
customers to substitute competitors' products and services for the Company's
products and services; the success of the Company in gaining regulatory approval
of its products and services, when required; the impact of changes in financial
services' laws and regulations (including laws concerning taxes, banking,
securities and insurance); 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.
7
<PAGE>
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, 1999 and December 31, 1998 and results of operations for
the quarters ended March 31, 1999 and 1998, the following analysis should be
reviewed along with other information including the Company's December 31, 1998
Annual Report on Form 10-K.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FIRST QUARTER FINANCIAL HIGHLIGHTS
MARCH 31, 1999 AND 1998
(Unaudited)
Percent
BALANCE SHEET DATA Increase
AT MARCH 31 1999 1998*** (Decrease)
- -------------------------------------------------------------------------------
( thousands, except per share data)
Total assets $ 272,195 $ 236,632 15
Interest-earning assets 249,658 221,965 12
Loans 177,600 154,662 15
Allowance for loan losses 2,416 2,141 13
Nonperforming assets 232 384 (40)
Deposits 232,257 203,851 14
Interest-bearing liabilities 206,445 181,706 14
Shareholders' equity 24,759 22,699 9
Allowance for possible
loan losses to total loans 1.36% 1.38%
Loan to deposit ratio 76.47% 75.87%
Equity to assets 9.10% 9.59%
Tier 1 capital to risk-
weighted assets 12.88% 14.06%
Book value per share $ 9.18 $ 8.58 7
Outstanding shares 2,697 2,647 2
FOR THE FIRST QUARTER
NET INCOME $ 791 $ 775 * 2
Return on average assets 1.22% 1.36%
Return on average equity 13.06% 14.09%
Overhead ratio ** 61.36% 59.32%
NET INCOME PER SHARE:
Basic $ .29 $ .29 0
Diluted $ .29 $ .28 4
AVERAGE SHARES:
Basic 2,689 2,647 2
Diluted 2,772 2,774 (0)
* - includes after-tax gain of $35 on sale of land
** - Overhead ratio = other expense / (net interest income + other
income)
*** - restated to include Bryan Bancorp of Georgia, Inc.
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 for
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 funds in the money markets.
During the first quarter 1999, loans increased $6.7 million, or 4%, while
deposits remained virtually the same at $232 million. However, average deposits
decreased during the quarter because of a pricing strategy designed to lower the
cost of funds by reducing premium rates paid on time deposits. This strategy
resulted in a reduction of $4.9 million of large time deposits and other time
deposits remained virtually level. The loan to deposit ratio increased from 74%
at the beginning of the year to 76.5% at the end of the first quarter.
Management consistently emphasizes both loan and deposit growth and has targeted
a loan to deposit ratio between 80% and 85%. This ratio has been and is
currently below target due to high deposit growth resulting from the three
offices opened since 1995 and competitive deposit pricing. Core deposit growth
should continue at a slower growth rate through slightly less competitive time
deposit rates and a more convenient branch office network. Both subsidiary banks
are members and shareholders of the Federal Home Loan Bank of Atlanta. As a
member of the FHLB, the subsidiary banks have access to short-term and long-term
borrowings at favorable rates. These borrowings can be used for liquidity,
asset-liability management and matched loan funding purposes. The subsidiary
banks also have $15 million of 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 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 cash flow maturity and repricing gap at March 31, 1999, was $14.4
million within one year, or 12.5 percent of total interest-earning assets. Fixed
rate earning assets with maturities over five years totaled $17.3 million, or
6.9 percent of total interest-earning assets. See Table 1 for cash flow maturity
and repricing gap. The maturity and repricing gap between one and five years
will adjust significantly each year through normal loan and deposit activity.
Based on the presently expected principal cash flows and interest rates 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.
The short-term asset sensitivity position of the Company indicates that net
interest income will be impacted negatively when the prime rate and deposit
rates decline. Soon after the rate declines cease, net interest income will be
impacted positively due to the continued time deposit repricing at lower rates.
The opposite is true in the event of rising rates.
The gap position after one year is of less concern because management has time
to respond to changing financial conditions with actions that reduce the impact
9
<PAGE>
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 where the subsidiary banks have no opportunity to reprice
the earning asset.
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
March 31, 1999, the Company had unfunded commitments to extend credit of $41.033
million and outstanding stand-by letters of credit of $1.222 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.
FINANCIAL CONDITION AND CAPITAL RESOURCES
The financial condition of the Company can be assessed by examining the changes
and relationships in the sources and uses of funds as shown in the consolidated
statements of cash flows. The Company increased its investment in callable U.S.
Government agency securities in 1998. In general, investments have expected
maturities of less than five years. Tax-exempt bank qualified municipals total
$8.6 million, or approximately 14 percent of the investment portfolio, and have
weighted average maturities of approximately 5.4 years. At March 31, 1999, the
investment in bank premises and equipment totaled $4.810 million, or
approximately 19 percent of equity capital.
The Savannah Bank, N.A. has classified all investment securities as available
for sale since January 1, 1994. Bryan Bank & Trust classified their municipal
bonds as held to maturity until their merger with the Company in December 1998.
During the first quarter, an increase in U.S. Treasury market rates of
approximately 50 to 100 basis points caused net unrealized gains on available
for sale securities to decrease to $185 from $516 during the first quarter,
1999. These amounts are included in shareholders' equity at March 31, 1999 and
December 31, 1998, respectively, in other accumulated comprehensive income.
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.
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 March 31, 1999, the Company and the subsidiary banks exceed the minimum
requirements necessary to be classified as "well-capitalized."
10
<PAGE>
Total equity capital for the Company is $24.759 million, or 9.1% of total
assets. Management expects that capital ratios will continue above the
well-capitalized capital ratio level. The high capital ratio and expected future
earnings allows the bank to continue its aggressive growth objectives without
having to raise additional capital.
RESULTS OF OPERATIONS
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
Net income for the first quarter, 1999 was $791,000, up 2 percent from $775,000
in the first quarter, 1998. This represented annualized returns of 13.06 percent
on average equity and 1.22 percent on average assets for the first quarter,
1999. Diluted earnings per share were $0.29 in the first quarter, 1999 compared
to $0.28 for the same period in 1998, an increase of 4 percent. The 1998
earnings included a pre-tax, none-recurring gain on sale of land of $57,000, or
$35,000 after-tax. Excluding the gain, net income for 1999 increased 7% over
1998.
Net interest income was $2,749,000 in 1999 compared to $2,457,000 in 1998, an
increase of $292,000, or 12%. Average interest-earning assets were up $31.4
million, or 14.4% in 1999 over 1998. The prime rate decreased 75 basis points to
7.75% during September through November 1998 and time deposit rates decreased
between 50 and 100 basis points during the fourth quarter, 1998. The net yield
on interest earning assets decreased to 4.53 percent in 1999 from 4.63 percent
in 1998.
The provision for loan losses was $105 in 1999 compared to $100 in 1998. Net
loan charge-offs totaled $12,000 for the first quarter 1999 and $22,000 in 1998.
There was $232,000 in non-performing assets at March 31, 1998 and $384,000 at
March 31, 1998. The allowance for possible loan losses was 1.36% of loans at
March 31, 1999 and 1.38% at March 31, 1998.
Other income was $557,000 in 1999 compared to $562,000 in 1998. Other income
included mortgage origination fees of $194,000 and $187,000, in 1999 and 1998,
respectively. Other income in 1998 also included the $57,000 gain from the sale
of land by Bryan.
Other expenses were $2,026,000 in 1999 compared to $1,757,000 in 1998, an
increase of $269, or 15%. Other expenses were higher primarily from increased
personnel and occupancy costs at The Savannah Bank, N.A. These costs included
the Medical Arts Office opening in September 1998 and the leasing of
approximately 3,500 square feet of additional office space in the Main Office
and Mall Boulevard Office for the trust, mortgage, branch operations and
technology functions. The Company's facilities and staff are now positioned to
add significant loan and deposit growth with a lower overhead growth rate.
The provision for income taxes was $384,000 in 1999 and $387,000 in 1998. The
effective federal and state tax rates were 32.7% and 33.3% in 1999 and 1998,
respectively. The decrease in the effective rate was due primarily to higher
levels of tax exempt securities. 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.
11
<PAGE>
YEAR 2000 READINESS DISCLOSURE (Made under the Year 2000 Information and
Readiness Act. This disclosure contains information from other published
sources, the validity of which has not been independently verified by The
Savannah Bancorp, Inc.)
The subsidiaries of The Savannah Bancorp, Inc., The Savannah Bank, N.A.
("Savannah Bank") and Bryan Bank & Trust ("Bryan Bank"), have conducted reviews
of their business systems, including their computer systems, to identify ways in
which their systems could be affected by problems in correctly processing date
information. Both banks formed Year 2000 readiness teams and engaged Year 2000
consultants and developed a plan to ensure a smooth transition of the systems,
products and vendors that they rely on into the twenty-first century.
Additionally, Savannah Bank and Bryan Bank are working with their loan customers
to monitor potential credit exposure that might result from a lack of their
systems' readiness for the Year 2000.
Savannah Bank's and Bryan Bank's primary software systems are licensed from an
outside vendor, M & I Data Systems, Inc. ("M&I") in Milwaukee, Wisconsin. The
core customer information system ("CIS"), loan, deposit, general ledger,
automated teller machine ("ATM") and card-based systems are all maintained and
processed by M&I, the largest bank-owned data processor for banks in the United
States. For other operations related systems, Savannah Bank and Bryan Bank have
received commitments from vendors providing those services to provide the
required systems modifications to ensure compliance. Management believes those
commitments will be met in advance of July 1, 1999.
In 1996, M&I senior management formed a Year 2000 project team. Plans were
developed and resources dedicated to assess risks and to inventory, renovate,
implement and test Year 2000 solutions for all computer hardware and software.
The plans included reviewing equipment such as security systems, building
systems, ATM's, telecommunications, etc. Potential risks from non-compliant
utilities, governmental bodies and other industries were also being assessed.
The risk assessment and renovation phases for all mission critical systems were
completed. M&I Data Services received ITAA 2000 Certification (Information
Technology Association of America). Year 2000 ready, core-banking applications
were installed on October 4, 1998. Most mission critical systems are Year 2000
ready.
Testing for the Company includes, but is not limited to, current system updates
before, during and after the start of year 2000 including Leap Year. A variety
of testing is performed both before and after the implementation of solutions.
Internal and external interfaces are being tested to the extent M&I can control
the process. Contingency plans and business resumption plans are in place.
Customer balance and other information are backed up on paper, tape, film and
fiche. Copies are kept at multiple locations. Specific contingency plans
relating to Year 2000 issues will be substantially completed to meet regulatory
requirements.
M&I systems are deemed "Year 2000 Compliant" when they are able to process,
calculate and recognize dates after the start of year 2000, as defined in the
processes and guidelines established by the Federal Financial Institutions
Examination Council (FFIEC). If an M&I product or service is not Year 2000
compliant, our exclusive remedy is to have M&I make the product or service
compliant.
12
<PAGE>
Indirect concerns related to Year 2000 include some possible unusual customer
behavior as it relates to their banking, motivated by adverse media coverage of
the Y2K issue. The desire by customers for higher than customary amounts of cash
and the desire to manage their deposit balances in certain financial
institutions could cause the need for additional liquidity in the banking system
and in Savannah Bank and Bryan Bank. Customer communications through print,
media and officer calls as well as additional back-up liquidity sources through
the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank discount
window are planned to provide adequate liquidity for Savannah Bank and Bryan
Bank.
Management of The Savannah Bancorp, Inc. believes M&I, Savannah Bank and Bryan
Bank will be successful in the achievement of their Year 2000 readiness plans
and does not believe that the execution of the plan will have a material adverse
effect on future operating results. However, management of the Company and M&I
cannot be assured that factors outside of its ability to test and control, such
as communications lines and electric power, will work properly in the year 2000.
Short-term contingency plans in the event of temporary loss of power and
communications are being developed during the second quarter, 1999. The total
cost for The Savannah Bancorp, Inc. for Year 2000 compliance is estimated to be
between $200,000 and $300,000. However, this includes $150,000 to $200,000 in
normal upgrades and salaries of existing personnel. The incremental Year 2000
expense is estimated to be between $60,000 and $100,000, for 1998 and 1999
combined, for Savannah Bank and Bryan Bank.
13
<PAGE>
TABLE 1 - LONG-TERM MATURITY GAP AND REPRICING DATA
The following is the Company's long-term maturity and repricing data for the
Company as of March 31, 1999.
<TABLE>
<CAPTION>
($ 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 $ 18,127 $ 15,271 $ 2,998 $ 8,503 $ 4,557 $ 10,148 $ 59,604
6.03% 6.05% 5.90% 5.81% 6.23% 5.85% 5.98%
Federal funds sold 12,154 - - - - - 12,154
4.75% - - - - - 4.75%
Loans - fixed rates 45,447 18,619 21,542 6,868 9,570 4,232 *106,278
8.54% 8.91% 8.91% 8.72% 8.20% 8.45% 8.66%
Loans - variable rates 39,337 10,739 9,358 5,072 3,701 2,883 71,090
8.56% 8.55% 8.39% 8.12% 8.06% 8.88% 8.49%
-------- -------- -------- -------- -------- -------- --------
Total earning assets 115,065 44,629 33,898 20,443 17,828 17,263 249,126
7.75% 7.85% 8.50% 7.36% 7.67% 7.00% 7.78%
-------- -------- -------- -------- -------- -------- --------
INTEREST BEARING DEPOSITS:
NOW and savings (a) 6,356 6,356 6,355 6,355 6,355 31,776 63,553
2.30% 2.30% 2.30% 2.30% 2.30% 2.30% 2.30%
Money market (a) 3,179 3,179 3,179 3,179 3,179 15,898 31,793
3.83% 3.83% 3.83% 3.83% 3.83% 3.83% 3.83%
Time, $100M and over 32,003 2,867 350 967 641 - 36,828
5.27% 5.75% 5.43% 6.15% 5.51% - 5.34%
Other Time 48,968 6,185 1,561 2,233 2,016 - 60,963
5.04% 5.68% 5.53% 5.93% 5.83% - 5.18%
-------- -------- -------- -------- -------- -------- --------
Total interest bearing 90,506 18,587 11,445 12,734 12,191 47,674 193,137
deposits 4.89% 4.22% 3.26% 3.61% 3.45% 2.81% 4.04%
Other borrowing 8,898 - - - - - 8,898
4.51% - - - - - 4.51%
Federal Home Loan Bank
Advances 1,265 265 265 265 265 2,085 4,410
6.31% 6.09% 6.09% 6.09% 6.09% 5.77% 6.00%
-------- -------- -------- -------- -------- -------- --------
Total interest bearing 100,669 18,852 11,710 12,999 12,456 49,759 206,445
liabilities 4.87% 4.25% 3.33% 3.66% 3.51% 2.93% 4.10%
-------- -------- -------- -------- -------- -------- --------
GAP-EXCESS ASSETS
(LIABILITIES) 14,396 25,777 22,188 7,444 5,372 (32,496) 42,681
-------- -------- -------- -------- -------- -------- --------
GAP-CUMULATIVE-3/31/99 $ 14,396 $ 40,173 $ 62,361 $ 69,805 $ 75,177 $ 42,681 $ 42,681
-------- -------- -------- -------- -------- -------- --------
</TABLE>
(a)- estimated cash flow runoff of 10% per year has been assumed.
The Company's cash flow gap is $14,397 within one year, or six percent of total
interest-earning assets. Fixed rate earning assets with maturities over five
years total $14,380 or six percent of total interest-earning 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 of 5 percent of the
net interest income.
14
<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.
The regular 1999 Annual Meeting of Shareholders to reelect directors was held on
April 20, 1999. Six existing directors were reelected for a three-year term. A
total of 2,238,990 shares were cast by proxy or 83.2 percent of the total
outstanding shares. All shares were cast for the election of the directors
except 55,351 shares, or 2.1 percent, were withheld from two directors. No other
shareholder actions were taken at the meeting.
Item 5. Other information. None
Item 6. Exhibits or reports on Form 8-K.
On January 28, 1999, the Registrant filed a Form 8-K reporting the 1998 earnings
announcement that also included five years of historical financial information.
The historical financial information was restated to include the merger with
Bryan Bancorp of Georgia, Inc. which was accounted for as a pooling of
interests.
On March 15, 1999, the Registrant filed a Form 8-K reporting one month of
combined earnings for the merged companies.
On April 26, 1999, the Registrant filed a Form 8-K reporting a change in the
Registrant's Independent Certified Public Accountants from Arthur Andersen LLP
to BDO Siedman LLP. There were no disagreements, reportable events or qualified
opinion issues. The decision to change auditors was approved by the audit
committee and the full board of Directors on April 19, 1999.
15
<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 5/19/99 /s/ Archie H. Davis
------- -------------------------------
Archie H. Davis - President & CEO
Date 5/19/99 /s/ Robert B. Briscoe
------- -------------------------------
Robert B. Briscoe - Chief Financial Officer
16
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 17120
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12154
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 59604
<INVESTMENTS-MARKET> 59904
<LOANS> 177600
<ALLOWANCE> (2416)
<TOTAL-ASSETS> 272195
<DEPOSITS> 232257
<SHORT-TERM> 8898
<LIABILITIES-OTHER> 1871
<LONG-TERM> 0
<COMMON> 2720
0
0
<OTHER-SE> 22039
<TOTAL-LIABILITIES-AND-EQUITY> 272195
<INTEREST-LOAN> 3836
<INTEREST-INVEST> 889
<INTEREST-OTHER> 139
<INTEREST-TOTAL> 4864
<INTEREST-DEPOSIT> 1915
<INTEREST-EXPENSE> 2115
<INTEREST-INCOME-NET> 2749
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 2026
<INCOME-PRETAX> 1175
<INCOME-PRE-EXTRAORDINARY> 1175
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.53
<LOANS-NON> 95
<LOANS-PAST> 137
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 232
<ALLOWANCE-OPEN> 2323
<CHARGE-OFFS> 40
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 2416
<ALLOWANCE-DOMESTIC> 2416
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
