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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act:
Common Stock - $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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_
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. ( )
Issuer's revenues for its most recent fiscal year were $23,012,000.
The aggregate market value of the voting and non-voting common equity at March
3, 2000 held by non-affiliates, based on the price of the last trade of $18.375
per share times 2,009,661 non-affiliated shares, was $36,928,000.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 3, 1999, the registrant had issued 2,719,614 and outstanding
2,705,464 shares of common stock.
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Portions of the 1999 Annual Report to Shareholders of Registrant are
incorporated in Parts I, II and IV of this report. Portions of the Proxy
Statement of Registrant dated March 17, 2000 are incorporated in Part III of
this report.
Registrant's Documents Incorporated by Reference
Part Number and Item
Document Incorporated Number of Form 10-K Into
by Reference Which Incorporated
Page F-27 Part II, Item 5, Market
of Registrant's 1999 Annual for Registrant's Common
Report to Shareholders Equity and Related
Stockholder Matters
Page F-20 through F-27 of Part II, Item 6,
Registrant's 1999 Annual Selected
Report to Shareholders Financial Data
Pages F-22 through F-23 Part II, Item 7,
of Registrant's Management's Discussion
1999 Annual Report to and Analysis of Financial
Shareholders Condition and Results of
Operations
Page F-22 through F-23 of Part II, Item 7A, Quantitative
Registrant's 1999 Annual and Qualitative Disclosures
Report to Shareholders About Market Risk
Pages F-1 through F-19, Part II, Item 8,
of Registrant's 1999 Financial Statements and
Annual Report to Shareholders Supplementary Data
Pages 3 through 5, and 7 through Part III, Item 10,
9 of Registrant's Proxy Directors and Executive
Statement in connection with Officers of the Registrant
its Annual Shareholders' Meeting
to be held April 18, 2000
Pages 8 through 10, Part III, Item 11,
of Registrant's Proxy Statement Executive Compensation
in connection with its
Annual Shareholders' Meeting
to be held April 18, 2000
Pages 3 through 5 and 8, 9 and Part III, Item 12,
12 of Registrant's Proxy Statement Security Ownership of
in connection with its Annual Certain Beneficial Owners
Shareholders' Meeting to be held and Management
April 18, 2000
Page 12 of Registrant's Proxy Statement in Part III, Item 13,
connection with its Annual Shareholders' Certain Relationships
Meeting to be held April 18, 2000 and Related Transactions
Pages F-4 through F-19 Part IV, Item 14,
of Registrant's 1999 Exhibits, Financial Statement
Annual Report to Shareholders Schedules and Reports on
Form 8-K
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THE SAVANNAH BANCORP, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 6
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreement with Accountants
on Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits and Reports on Form 8-K 24
Signature page 25
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PART I
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
ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), 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 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.
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Item 1. Business
(a) General Development of Business
General
The Savannah Bancorp, Inc. (the "Company") was incorporated as a Georgia
business corporation on October 5, 1989, for the purpose of becoming a bank
holding company by acquiring all of the common stock of The Savannah Bank,
National Association, Savannah, Georgia (the "Savannah Bank"). The Company
became a bank holding company within the meaning of the Federal Bank Holding
Company Act (the "Act") and the Georgia Bank Holding Company Act (the "Georgia
Act") upon the acquisition of 100 percent of the common stock of Savannah Bank
on August 22, 1990.
In February 1998, the Company entered into a plan of merger to exchange 1.85
shares of its stock for each share of the Bryan Bancorp of Georgia, Inc.
("Bryan"), the bank holding company for Bryan Bank & Trust ("Bryan Bank"). Based
on the Company's closing stock price of $25.50 per share on February 10, 1998,
the transaction was valued at approximately $24 million. The merger, which was
accounted for as a pooling of interests, was a tax-free reorganization for
federal income tax purposes. The merger was consummated on December 15, 1998.
Bryan was merged into the Company and Bryan Bank became a wholly-owned
subsidiary of the Company on the merger date.
As of December 31, 1999, Savannah Bank had five full service offices, total
assets of $208 million, total deposits of $170 million, total stockholders'
equity of $15.8 million and $2.2 million in 1999 earnings. As of December 31,
1999, Bryan Bank had one full service office, total assets of $78 million, total
deposits of $65 million, total stockholders' equity of $8.6 million and $1.5
million in 1999 earnings.
Savannah Bank and Bryan Bank (the "Subsidiary Banks") currently are the sole
operating subsidiaries of the Company. Savannah Bank received its charter from
the Office of the Comptroller of the Currency (OCC) to commence business and
opened for business on August 22, 1990. Bryan Bank received its charter from the
Georgia Department of Banking and Finance (the "GDBF") in December 1989. The
deposits at the Subsidiary Banks are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
(b) Information About Industry Segments
In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
financial reports issued to shareholders. The statement defines an operating
segment as a component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are reviewed by the
chief operating decision maker in the determination of resource allocation and
performance, and for which discrete financial information is available. The
Company presently operates as two commercial banks offering traditional banking
services. Certain departmental revenues, asset and liability volumes are used by
executive management for performance and resource allocation purposes; however,
sufficient discrete financial information is not available for presentation of
segmented line of business financial information to shareholders. These
disclosure requirements had no impact on the Company's financial position or
results of operations.
(c) Narrative Description of Business
GENERAL
The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable Federal regulatory restrictions on the
activities of bank holding companies. The Company was formed for the purpose of
becoming a holding company to own 100 percent of the stock of the Subsidiary
Banks. The holding company structure provides the Company with greater
flexibility than a bank would otherwise have to expand and diversify its
business activities, through newly formed subsidiaries or through acquisitions.
While the Company has no present plans to engage actively in any nonbanking
business activities, management anticipates studying the feasibility of
establishing or acquiring subsidiaries to engage in other business activities to
the extent permitted by law.
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Banking Services
The Subsidiary Banks have approximately 97 full-time and 17 part-time employees
and offer a full range of deposit services, including checking accounts, savings
accounts and various time deposits ranging from daily money market accounts to
longer-term certificates of deposit. The transaction accounts and time
certificates are tailored to the principal market areas at rates competitive to
those offered in the area. In addition, retirement accounts such as IRA
(Individual Retirement Account) and SEP (Simplified Employee Pension) accounts
are offered. The FDIC insures all deposit accounts up to the maximum amount
(currently $100,000 per account). The Subsidiary Banks solicit these accounts
from individuals, businesses, foundations and organizations, and governmental
authorities.
The Subsidiary Banks offer a full range of short-term and medium-term
commercial, real estate and personal loans. The Bank's primary lending focus is
business, real estate and consumer lending. Commercial loans include both
secured and a limited volume of unsecured loans. Consumer loans include secured
loans for financing automobiles, home improvements, real estate and other
personal investments. Unsecured consumer loans are limited and generally made to
our most creditworthy borrowers. The Subsidiary Banks originate fixed and
variable rate mortgage loans and offer real estate construction and acquisition
loans.
The Subsidiary Banks' lending policies generally require an 80 percent
loan-to-value ratio on secured term real estate lending. Additionally, the
existence of a reliable source of repayment/cash flow is usually required before
making any loans, regardless of the security. Appraisals are obtained as
required, and lending officers make on-site inspections. New loans over $25,000
are reported to the Credit/ALCO (Executive Committee of Bryan Bank) Committee,
and this Committee approves loans over $750,000, prior to the loan being made.
Generally, lending relationships over $100,000 are reported to the full Board of
Directors.
Both management and the directors are aware that environmental liabilities may
negatively impact the financial condition of borrowers, the value of real
property and the contingent environmental clean-up liabilities the Subsidiary
Banks could incur by having a lien on environmentally deficient property. The
Subsidiary Banks generally decline to make loans secured by property with
environmental deficiencies. Environmental surveys are required when there is
reason for concern about potential environmental liabilities.
Both Subsidiary Banks operate residential mortgage loan origination departments.
The departments take mortgage loan applications, obtain rate commitments and
complete various origination documentation and follow-up for an origination and
service release fee from third-party mortgage bankers. In addition to generating
fee income, the department also generates banking relationships from its
customers and real estate-related contacts. These loans are funded by other
mortgage investors and have not been warehoused on the Subsidiary Banks' books.
Credit Risk Management and Allowance for Loan Losses
The Subsidiary Banks have a multi-faceted program designed to control and
continually monitor the credit risks inherent in its loan portfolio. This begins
with a structured loan approval process in which the Board of Directors
delegates authority for various types and amounts of loans to loan officers on a
basis commensurate with seniority and lending experience. The Subsidiary Banks
use an asset classification system that is consistent with regulatory
classifications, which applies to all assets of an insured institution and
requires each institution to periodically classify its assets.
There are four risk grades of "criticized" assets: Special Mention, Substandard,
Doubtful and Loss. Assets classified as substandard, doubtful or loss are
considered "classified". The classification of assets is subject to regulatory
review and re-classification. The Subsidiary Banks include aggregate totals of
criticized assets, and general and specific valuation reserves in quarterly
reports to the Board of Directors, which approves the overall loan loss reserve
evaluation. The Subsidiary Banks' loan classification systems utilize both the
account officer and loan review function to monitor the classification of the
Subsidiary Banks' loans.
The account officers are charged with the responsibility of monitoring changes
in loan quality within his or her loan portfolio and reporting changes directly
to loan review and senior management. Additionally, loan review performs a
review of the Subsidiary Banks' loans to determine that the appropriate risk
grade has been assigned to each borrowing relationship. Delinquencies are
monitored on all loans as a basis for potential inclusion in general valuation
reserves or, ultimately, for potential charge-off. Loans which are delinquent 90
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days (four payments) or longer generally are placed on nonaccrual status unless
the collectibility of principal and accrued interest is assured beyond a
reasonable doubt. In certain cases, loans less than 90 days (four payments)
delinquent are placed on nonaccrual status when uncertainty exists as to the
loan's collectibility. Real estate acquired through foreclosure is classified as
substandard unless there is sufficient evidence to indicate such classification
is not warranted.
Loan loss reserves are determined based on management's internal review of
nonperforming loans, delinquency trends, the level of rated assets and
charge-off trends. Additionally, management assesses general and specific
economic trends both nationally and locally and regulatory information to
determine the impact of those external factors on loan loss reserve levels.
Based on the internal and external reviews, the Subsidiary Banks segregate their
loan portfolio by type of loans and by loan classification within each loan
type. Reserve percentages are applied based on historical loss rates and
inherent risk to each loan group to determine the required amount of allocated
general loan loss reserves. Additionally, an amount is provided for unallocated
general loan loss reserves, reflecting the potential for estimation errors in
allocated reserves. This methodology has been applied consistently for all
periods presented.
Other Banking Services
In November 1996, Savannah Bank applied for and received trust powers from the
OCC. Savannah Bank hired a Trust Department Manager/Trust Officer and an
assistant. The employee benefit administration and certain money management
functions are being outsourced to third parties, at least for the early years of
the department. Using these resources, the Trust Department offers a full array
of trust services, including investment management, personal trusts, custodial
accounts, estate administration and employee benefit administration. In late
1998, the Trust Department entered into a contract with Marshall & Ilsley Trust
Company to outsource trust data processing, securities safekeeping and certain
other operational functions for the Trust Department.
The Subsidiary Banks also offer cash management services, a non-cash deposit
courier service, safe deposit boxes, travelers checks, direct deposit of
payroll, U.S. Savings bonds, official bank checks and money orders and automatic
drafts for various accounts. The Subsidiary Banks are members of the HONOR
networks of automated teller machines that may be used by customers in our
market area and other cities. Both Subsidiary Banks issue ATM and debit cards
and have seven automated teller machines in the area. The Subsidiary Banks also
offer both VISA and MasterCard credit cards, on an agent bank basis, which have
a pre-authorized line of credit for personal purchases and expenses.
Location and Service Area
The primary service area of the Subsidiary Banks is the city of Savannah,
Georgia, certain contiguous areas of Chatham County and the Richmond Hill and
Bryan County market, which is 20 miles south of downtown Savannah. Its secondary
service area is the remainder of Chatham County and communities in Bryan,
Effingham and Liberty Counties, Georgia, and Beaufort and Jasper Counties, South
Carolina. The Subsidiary Banks' target markets are individuals residing in the
primary service area, small to medium size businesses, including retail shops
and professional service businesses in the community. The Subsidiary Banks are
also targeting individuals who meet certain net worth and income requirements as
potential customers for private banking services.
The Savannah Bank's main office, known as the Johnson Square Office, is located
in the primary business district in downtown Savannah on Johnson Square, where
most of the commercial banks in the primary service area have their main
Savannah offices. In recent years, regional banks with headquarter outside of
the state of Georgia have acquired several of the banks in the primary service
area. The Savannah Bank emphasizes that it is based in Savannah, and that its
directors and the executive officers are committed to the economic development
of the Savannah area.
Bryan Bank's main office opened in December 1989 and is located in the primary
commercial area of the city of Richmond Hill. Bryan Bank has limited competition
in the Richmond Hill market. One other community bank and one grocery store
branch office are located in Richmond Hill. Bryan Bank has approximately 70
percent of the commercial bank deposits in the Richmond Hill market. Richmond
Hill is experiencing substantial residential growth due to its proximity to
Savannah, its school system and affordable single-family residences.
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On October 1, 1992, Savannah Bank opened its second office at 400 Mall
Boulevard. The Mall Boulevard Office competes in the area of Savannah that has
the second largest concentration of deposits. This office is in the primary
commercial and retail district in Savannah and includes a high concentration of
professional and service-related businesses.
On November 20, 1995, Savannah Bank opened its third office, the West Chatham
Office, at 100 Chatham Parkway. West Chatham is a full service office located
six miles west of the main office location in a significant commercial and
industrial growth area of Chatham County.
On October 1, 1997, the fourth office at 4741 Highway 80 East on Whitemarsh
Island, six miles east of the main office location opened for business.
Deposits, mortgage loan origination and consumer loans are the primary
opportunities for this location that will serve a large concentration of higher
net worth individuals, as well as a young adult population in apartments and
first homes.
On October 8, 1998, Savannah Bank opened its fifth Savannah location in the
Medical Arts Shopping Center. This office is strategically located near two
major hospitals and numerous medical, dental and professional practices. This
location is approximately four miles southeast of the main office. The lease
term began in July 1998.
The Subsidiary Banks' business plans rely principally upon local advertising and
promotional activity and upon personal contacts by its directors, officers and
stockholders to attract business and to acquaint potential customers with the
Subsidiary Banks' personalized services. Both Subsidiary Banks emphasize a high
degree of personalized customer service in order to be able to provide for each
customer's banking needs. The marketing approach emphasizes the advantages of
dealing with an independent, locally-owned and relationship-oriented bank to
meet the particular needs of individuals, professionals and small to medium-size
businesses in the community. All banking services are continually evaluated with
regard to their profitability, and efforts will be made to modify the business
plan if the plan does not prove successful.
Asset and Liability Management
Assets of the Subsidiary Banks consist primarily of loans and an investment
portfolio. In an effort to maintain adequate levels of liquidity and minimize
fluctuations in the net interest margin (the difference between interest income
and interest expense), the rate sensitivity of the loan and investment
portfolios are matched to the maturities and rate sensitivity of the
liabilities.
The Subsidiary Banks invest the majority of its investment portfolio in highly
marketable medium-term and short-term maturity assets, such as Federal Funds,
U.S. Treasury securities, U.S. agency securities, marketable mortgage-backed
securities and high quality bank-qualified tax-exempt securities. By pricing
loans on a variable rate structure, or by keeping the maturity of the investment
and loan portfolios relatively short-term, the Bank expects to be able to
maintain loan interest, or to reinvest securities proceeds, at prevailing market
rates. These policies will help to maintain a generally consistent spread over
the interest rates paid by the Subsidiary Banks on the deposits which are used
to fund the investment and loan portfolios.
Deposit accounts represent the majority of the liabilities of the Subsidiary
Banks. These include noninterest-bearing checking accounts and interest-bearing
NOW accounts, savings accounts, money market accounts and certificates of
deposit, including Individual Retirement Accounts (IRAs). Most time deposits
have maturities of 12 months and less, but the maturities may be extended based
on liquidity position, interest rate expectations and the rate sensitivity in
the loan portfolio of the Subsidiary Banks. In managing its liabilities, both
Subsidiary Banks attempt to attract deposits from customers who, assuming rates
are competitive, are inclined to maintain an ongoing relationship with the
Subsidiary Banks.
The Company has no investment risk in off-balance sheet derivative-related
investments. The Subsidiary Banks own approximately $26.6 million in callable
agency obligations which have normal interest rate and marketability risk. Of
the callable obligations, $20.4 million have one time only calls. The call dates
and the final maturities are laddered so that an excessive amount of cash flow
from callable bonds will not be received in any one quarter or year. The
remaining $6.2 million of callable obligations are callable quarterly or
semiannually.
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Interest Rate Risk
Interest rate risk is a measure of exposure to changes in net interest income or
the theoretical market value of portfolio equity due to changes in market
interest rates. The differential (known as "gap") between interest rate
sensitive assets and interest rate sensitive liabilities over a specified period
of time represents a measure of sensitivity of net interest income to changes in
interest rates. A positive gap indicates an excess of rate sensitive assets over
rate sensitive liabilities, while a negative gap indicates an excess of rate
sensitive liabilities over rate sensitive assets.
The Subsidiary Banks operate under an interest rate risk policy through an Asset
Liability Management Committee ("Credit/ALCO") at Savannah Bank and the
Executive Committee at Bryan Bank. The policy outlines limits on interest rate
risk in terms of changes in net interest income and changes in the net market
values of assets and liabilities over certain changes in interest rate
environments. These measurements are made through a certain cash flow and
repricing analyses which projects the impact of changes in interest rates on the
Subsidiary Banks assets and liabilities. Additionally, the committees may set
other interest rate risk objectives. The policy also outlines responsibility for
monitoring interest rate risk, the process for the approval, implementation and
monitoring of interest rate risk strategies to achieve the Company's interest
rate risk objectives.
Federal and State Laws and Regulation of Banks and Bank Holding Companies
Bank holding companies and banks are extensively regulated under both federal
and state law. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable law or
regulation may have a material effect on the business of the Company and its
subsidiary.
Savannah Bank is subject to extensive supervision and regulation by the OCC, and
Bryan Bank is subject to extensive supervision by the GBDF and the FDIC. The
regulator of each bank is responsible for overseeing the affairs of all banks
and periodically examines banks to determine their compliance with laws and
regulations. Banks must make quarterly call reports of their financial condition
and results of operations to the FDIC, who reviews the call report information
for accuracy, consistency and reasonableness. Quarterly Call Report financial
information is made available to regulators and the public approximately 90 days
after each quarter-end. Regulators use this data for quarterly offsite
monitoring of the financial condition of banks. Quarterly holding company
reports are filed with the Federal Reserve Bank of Atlanta (FRB) within 45 days
of each quarter-end. This financial information is reviewed by the FRB for
accuracy, consistency and reasonableness and is also made available to holding
company database providers within 120 days of the end of each quarter. Bank
analysts, regulators and consultants regularly use this information in analyzing
historical and expected performance of banks and bank holding companies.
In addition, the regulators have authority to issue cease and desist orders
against banks and bank holding companies, which are about to engage, are
engaging or have engaged in an unsafe or unsound practice in the conduct of
their business. The regulators can order affirmative action to correct any harm
resulting from a violation of practice, including, but not limited to, making
restitution and providing reimbursement or guarantees against loss in certain
cases. Regulators also administer several federal statutes such as the Community
Reinvestment Act and the Depository Institution Management Interlocks Act, which
apply to national banks. The Subsidiary Banks also are subject to special
examination by the FDIC and to certain FDIC regulations.
Regulators have adopted risk-based 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 risk-based and equity
capital ratios. The table in Note 13 of the notes to the consolidated financial
statements in the 1999 Annual Report shows the capital ratios for the Company,
and the regulatory minimum capital ratios at December 31, 1999. The capital
ratios of the Company and each Subsidiary Bank exceeded the ratios required to
be "well-capitalized" by the FDIC.
A national banking association is insured by the FDIC and must be a member of
the Federal Reserve System. Therefore, the Subsidiary Banks are subject to
applicable provisions of the Federal Reserve Act, which restrict the ability of
any national bank to extend credit to its parent holding company. Additionally,
a national banking association cannot extend credit to any affiliate (including
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its parent and non-bank subsidiaries of its parent) to purchase the assets
thereof, to issue a guarantee, acceptance or letter of credit (including an
endorsement or standby letter of credit) to its affiliates, or to invest in the
stock or securities thereof or to take such stock or securities as collateral
for loans to any borrower.
Stockholders of banks (including bank holding companies which own stock in
banks, such as the Company) may be compelled by bank regulatory authorities to
invest additional capital in the event their bank's capital shall have become
impaired by losses or otherwise. Failure to pay such an assessment could cause a
forced sale of the holder's bank stock. In addition, the Company may also be
required to provide additional capital to any additional banks that it acquires
as a condition to obtaining the approvals and consents of regulatory authorities
in connection with such acquisitions.
The earnings of the Subsidiary Banks and, consequently of the Company, are
affected significantly by the policies of the Federal Reserve Board, which
regulates the money supply in order to mitigate recessionary and inflationary
pressures. Among the techniques used to implement these objectives are open
market operations in United States Government securities, changes in the rate
paid by banks on bank borrowings, changes in reserve requirements against bank
deposits and limitations on interest rates that banks may pay on time and
savings deposits. These techniques are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may also affect interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future.
In view of changing conditions in the national economy and money markets, as
well as the effect of actions by monetary and fiscal authorities, no prediction
can be made as to possible future changes in interest rates, deposit levels,
loan demand or the business and earnings of the Company and the Bank.
The Company, as a bank holding company, is required to register as such with the
Federal Reserve Board and the Georgia Department of Banking and Finance. It is
required to file with both of these agencies quarterly and annual reports and
other information regarding its business operation and those of its
subsidiaries. It is also subject to examination by these two agencies and will
be required to obtain their approval before acquiring directly or indirectly,
ownership or control of any voting shares of a bank or bank subsidiary of a bank
holding company if, after such acquisition, it would own or control directly or
indirectly, more than 5 percent of the voting stock of such bank or banking
subsidiary of a bank holding company. Furthermore, a bank holding company is
prohibited from acquiring direct or indirect ownership or control of any voting
stock of any company which is not a bank or bank holding company, with limited
exceptions. It must engage only in the business of banking or managing or
controlling banks or furnishing services to or performing services for its
subsidiary banks. During 1996, the Federal Reserve Board enacted regulations
that are slightly less restrictive of the types of businesses which bank holding
companies may own.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
Act) has introduced a process that enables nationwide interstate banking through
bank subsidiaries and interstate bank mergers. Separately, the Act also permits
bank subsidiaries to act as agents for each other across state lines. Since
September 29, 1995, adequately capitalized and managed bank holding companies
have been permitted to acquire control of a bank in any state. Any acquisitions
are subject to concentration limits. Beginning June 1, 1997, banks were
permitted to merge with one another across state lines. The Interstate Banking
Act also permits de novo branching to the extent that a particular state "opts
into" the de novo branching provisions. The legislation preserves the state laws
which require that a bank must be in existence for a minimum period of time
before being acquired as long as the requirement is five years or less. This
legislation has immediate relevance for the banking industry due to increased
competitive forces from institutions which may consolidate through mergers and
those which may move into new markets through enhanced opportunities to branch
across state lines.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provision of any property or service. Thus, a bank may not extend credit, lease
or sell property or furnish any service or fix or vary the consideration for
such on the condition that (i) the customer obtain or provide some additional
credit, property or service from or to such bank (other than a loan, discount,
deposit or trust service related to and usually provided in connection with a
loan, discount, deposit or trust service), its bank holding company or any other
subsidiary of its bank holding company or (ii) the customer not obtain some
10
<PAGE>
other credit, property or service from a competitor, except to the extent
reasonable conditions are imposed in a credit transaction to assure the
soundness of the credit extended.
The Federal Reserve Board has cease and desist powers over parent bank holding
companies and non-banking subsidiaries should their actions constitute a serious
threat to the safety, soundness or stability of a subsidiary bank. The Company
is also subject to certain restrictions with respect to engaging in the business
of issuing, underwriting and distributing securities.
Although the Company is not presently subject to any direct regulatory
restrictions on dividends (other than those of Georgia corporate law), the
Company's long-term ability to pay cash dividends will depend on the amount of
dividends paid by the Subsidiary Banks and any other subsequently acquired
entities. OCC regulations restrict the amount of dividends, which the Savannah
Bank may pay without obtaining prior approval. Based on such regulatory
restrictions, the Savannah Bank is limited from paying dividends in a calendar
year, which exceeds the current year's net income combined with the retained net
profits of the preceding two years. Bryan Bank is limited to paying 50 percent
of the prior year net income without getting approval from the GDBF. Banks also
have a financial advantage in the form of lower FDIC assessments if they are
classified as "well-capitalized" by the FDIC. Dividend payout plans of the
Subsidiary Banks will always consider maintaining their "well-capitalized"
classification an important objective.
Both Subsidiary Banks are members of the Federal Home Loan Bank ("FHLB") System,
which consists of 12 regional FHLBs subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB"). The FHLBs maintain central credit
facilities primarily for member institutions. The Subsidiary Banks, as a member
of the FHLB of Atlanta, is required to acquire and hold shares of capital stock
in the FHLB of Atlanta in an amount at least equal to the greater of: (i) 1
percent of the aggregate outstanding principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations as of the
beginning of each year, (ii) 5 percent of its advances (borrowings) from the
FHLB of Atlanta, or (iii) $500,000. Additionally, during 1996, the FHLB of
Atlanta imposed a maximum investment in its capital stock equal to $500,000 and
over the required minimum. The Subsidiary Banks are in compliance with this
requirement at December 1999.
Each FHLB serves as a reserve or central bank for its member institutions within
its assigned regions. It is funded primarily from proceeds derived from the sale
of obligations of the FHLB System. The FHLB makes advances (i.e., loans) to
members in accordance with policies and procedures established by its Board of
Directors. The Subsidiary Banks are authorized to borrow funds from the FHLB of
Atlanta to meet demands for withdrawals of savings deposits, to meet seasonal
requirements and for the expansion of its loan portfolio. Advances may be made
on a secured or unsecured basis depending upon a number of factors, including
the purpose for which the funds are being borrowed and existing advances.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the regional FHLB and the purpose of the borrowing.
Community Reinvestment Act
The Community Reinvestment Act of 1977 ("CRA") requires the federal bank
regulatory agencies to encourage financial institutions to meet the credit needs
of low- and moderate-income borrowers in their local communities. In May 1995,
the federal bank regulatory agencies published final amended regulations
promulgated pursuant to the CRA. The final regulations eliminate the 12
assessment factors under the former regulation and replace them with performance
tests. Institutions are no longer required to prepare CRA statements or
extensively document director participation, marketing efforts or the
ascertainment of community credit needs. Under the final rule, an institution's
size and business strategy determines the type of examination that it will
receive. Large, retail-oriented institutions will be examined using a
performance-based lending, investment and service test. Small institutions will
be examined using a streamlined approach. All institutions have the option of
being evaluated under a strategic plan formulated with community input and
pre-approved by the applicable bank regulatory agency.
CRA regulations provide for certain disclosure obligations. In accordance with
the CRA, each institution must post a CRA notice advising the public of the
right to comment to the institution and its regulator on the institution's CRA
performance and to review the CRA public file. Each lending institution must
maintain for public inspection a public file that includes a listing of branch
locations and services, a summary of lending activity, a map of its communities,
and any written comments from the public on its performance in meeting community
credit needs. Large institutions also are required to collect certain data,
11
<PAGE>
including the amount and location of originated and purchased small business,
small farm, community development, and home mortgage loans, and to report this
data to their regulatory agencies.
Public disclosure of written CRA evaluations of financial institutions made by
regulatory agencies is required under the CRA. This promotes enforcement of CRA
requirements by providing the public with the status of a particular
institution's community reinvestment record. The Bank received an "satisfactory"
rating on the most recent performance evaluation of its CRA efforts by the OCC.
Congress and various federal agencies responsible for implementing fair lending
laws have been increasingly concerned with discriminatory lending practices. In
1994, those federal agencies announced a Joint Policy Statement detailing
specific discriminatory practices prohibited under the Equal Opportunity Act and
the Fair Housing Act. In the Policy Statement, three methods of proving lending
discrimination were identified: (i) overt evidence of discrimination, where a
lender blatantly discriminates on a prohibited basis; (ii) evidence of disparate
treatment, when a lender treats applicants differently based upon a prohibited
factor, even where there is no showing that the treatment was motivated by
intention to discriminate; and (iii) evidence of disparate impact, when a lender
applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral in appearance and
applied equally. Lenders are particularly uncertain about the application of the
"disparate impact" criteria by virtue of the vague nature of the Policy
Statement. The Policy Statement notes that "the precise contours of the law on
disparate impact as it applies to lending discrimination are under development."
Recent Banking Legislation
Bills are presently pending before the United States Congress and certain state
legislatures, and additional bills may be introduced in the future in the
Congress and the state legislatures, which, if enacted, may alter the structure,
regulation and competitive relationships of the nation's financial institutions.
It cannot be predicted whether or in what form any of these proposals will be
adopted or the extent to which the business of the Company or the Subsidiary
Banks may be affected thereby.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act ("the Act"), formerly known as the Financial Modernization Act. The new
statute is the most sweeping financial services legislation enacted in decades.
It repeals depression-era laws and eliminates the barriers preventing
affiliations among banks, insurance companies, and securities firms. Key
provisions to the Act are summarized in the following paragraphs.
Repeal of the Glass-Stegall Act - At its core, the Act repeals, effective 120
days after enactment, the anti-affiliation provisions in sections 20 and 32 of
the Banking Act of 1933 (also known as the Glass-Steagall Act) and amends
provisions in the Bank Holding Company Act of 1956 to permit financial companies
to offer a broad array of banking, insurance, securities, and other financial
products, either through financial holding companies ("FHCs") or through
operating subsidiaries qualifying under the Act.
In general, Congress decided to preserve the Federal Reserve's role as the
umbrella supervisor for holding companies. The Board will work, however, within
a system of functional regulation designed to take advantage of the traditional
strengths of the federal and state financial supervisors. In addition, the
legislation establishes a mechanism for coordination between the Federal Reserve
and Treasury regarding the approval of new financial activities for both holding
companies and national bank financial subsidiaries.
Banking organizations are prohibited under the Act from participating in new
financial affiliations unless their depository institution subsidiaries are well
capitalized and well managed. Regulators are required to address any failure to
maintain safety and soundness standards in a prompt manner. In addition,
regulators must prohibit holding companies from participating in new financial
affiliations if, at the time of certification, any insured depository affiliate
had received a less than "satisfactory" Community Reinvestment Act ("CRA")
rating at its most recent examination.
Affiliation Authority - The Act amends section 4 of the Bank Holding Company Act
("BHCA") to provide a new framework for engaging in new financial activities.
Those bank holding companies ("BHCs") that qualify to engage in the new
financial activities are designated as financial holding companies ("FHCs"). New
provisions of the BHCA permit BHCs that qualify as FHCs to engage in activities,
and acquire companies engaged in activities that are financial in nature or
incidental to such financial activities. FHCs are also permitted to engage in
12
<PAGE>
activities that are "complementary" to financial activities if the Board of
Governors of the Federal Reserve Bank ("FRB Board") determines that the activity
does not pose a substantial risk to the safety or soundness of the institution
or the financial system in general.
The FRB Board may act by either regulation or order in determining what
activities are financial in nature, incidental to financial in nature, or
complementary. In doing so, the FRB Board must notify the Treasury of requests
to engage in new financial activities and may not determine that an activity is
financial or incidental to a financial activity if Treasury objects.
Furthermore, Treasury may propose that the Board find a particular activity
financial in nature or incidental to a financial activity. The Act establishes a
similar procedure with regard to the Treasury's (acting through the Office of
the Comptroller of the Currency ("OCC")) determination of financial activities
and activities that are incidental to financial activities for subsidiaries of
national banks. Congress intends for the Federal Reserve and Treasury to
establish a consultative process that will negate the need for either agency to
veto a proposal of the other agency.
Federal Home Loan Bank Reform - The Act reforms the Federal Home Loan Bank
System, including greatly expanding the collateral that a community bank can
pledge against FHLB System advances, thus giving smaller banks access to a
substantial new liquidity source. FHLB members under $500 million in assets can
now pledge small business and agricultural loans (or securities representing a
whole interest in such loans) as collateral for advances.
Privacy - The Act imposes a number of new restrictions on the ability of
financial institutions - read as any entity offering financial products,
including banks, insurance companies, securities houses, and credit unions - to
share nonpublic personal information with nonaffiliated third parties.
Specifically, the bill:
o requires financial institutions to establish privacy policies and
disclose them annually to all their customers, setting forth how the
institutions share nonpublic personal financial information with
affiliates and third parties
o directs regulators to establish regulatory standards that ensure the
security and confidentiality of customer information o permits
customers to prohibit ("opt out" of permitting) such institutions from
disclosing personal financial information to nonaffiliated third
parties
o prohibits transfer of credit card or other account numbers to
third-party marketers
o prohibits pretext calling (that is, makes it illegal for information
brokers to call banks to obtain customer information with the intent to
defraud the bank or customer)
o protects stronger state privacy laws, as well as those not
"inconsistent" with these Federal rules
o requires the Treasury and other Federal regulators to study the
appropriateness of sharing information with affiliates, including
considering both negative and positive aspects of such sharing for
consumers.
The bill also imposes an affirmative obligation on banks to respect their
customers' privacy interests.Language protects a community bank's ability to
share information with third parties selling financial products (for example,
insurance or securities) to bank customers. Community banks can thus continue
such sales practices without being subject to the opt-out provisions contained
elsewhere in the legislation.
On February 2, 2000, the United States Senate passed the Bankruptcy Reform Act
of 1999. This legislation revises the existing Bankruptcy code and requires
debtors in bankruptcy who have the ability to repay part or all of their debt
obligations to do so. The legislation next moves to conference, where a joint
conference committee will be appointed to resolve differences that exist between
the Senate bill and a very similar bill passed last year by the United States
House of Representatives.
The bill passed by the Senate would:
o force debtors into Chapter 13 (requiring a repayment schedule) if the
debtor has enough "net monthly income" to repay at least 25 percent (or
$15,000, whichever is less) of their unsecured, nonpriority debts over
five years;
o prohibit bankruptcy courts from "cramming down" (reducing the value) of
secured first liens on residential real estate mortgages in bankruptcy;
o reduce the ability of debtors to repeatedly file petitions in
bankruptcy; and
o permit the bankruptcy courts to proceed against co-debtors.
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<PAGE>
Although the proposed bankruptcy legislation is not finalized and signed into
law, it appears likely that the final legislation will assist in reducing the
number of voluntary liquidation bankruptcies. This legislation will be a
long-term benefit to financial institutions and other creditors.
Various other legislative proposals are expected in Congress concerning the
banking industry. Given the uncertainty of the legislative process, management
cannot assess the effect any such legislation would have on the Company's
financial condition or results of operations.
Competition
The banking business is highly competitive. The Subsidiary Banks compete with
other commercial banks and savings and loan associations in their Primary
Service Areas.
Banks generally compete with other financial institutions through the banking
products and services offered, the pricing of services, the level of service
provided, the convenience and availability of services, and the degree of
expertise and the personal manner in which services are offered. The Subsidiary
Banks encounter competition from most of the financial institutions in the
Subsidiary Banks' Primary Service Areas. In the conduct of certain areas of its
banking business, the Subsidiary Banks also compete with credit unions, consumer
finance companies, insurance companies, money market mutual funds, brokerage
firms and other financial institutions, some of which are not subject to the
same degree of regulation and restrictions imposed upon the Subsidiary Banks.
Many of these competitors have substantially greater resources and lending
limits than the Subsidiary Banks and offer certain services, such as
international banking services, that the Subsidiary Banks do not provide
currently.
Many of these competitors have more branch offices in the Savannah Bank's
Primary Service Area. However, the Company's plan is to expand into the markets
which will best serve our targeted customers. Management believes that
competitive pricing, local ownership, local decisions, local control and
personalized, relationship-oriented service provide the Subsidiary Banks with a
method to compete effectively for prospective customers.
Both Subsidiary Banks offer the full range of deposit services that are
typically available from financial institutions, including NOW accounts, demand,
savings and other time deposits ranging from money market accounts to longer
term certificates of deposit. In addition, retirement accounts such as
Individual Retirement Accounts are available. All deposit accounts will be
insured by the FDIC up to the maximum amount permitted by law.
Competition in the area of deposit growth is a substantial challenge facing the
banking industry and the Subsidiary Banks. It is likely that deposit growth in
competitive markets will require higher than historical deposit interest rates.
Higher costs of funds without corresponding higher rates on earning assets will
have a long-term negative impact on net interest income. Higher market share
growth on lower costing core deposits, higher revenue growth on fee based
services and lower overhead growth rates are the key items required to
accomplish the Company's earnings growth objectives.
14
<PAGE>
SELECTED STATISTICAL INFORMATION OF THE COMPANY
The following statistical information is provided for the Company for the years
ended December 31, 1999 and 1998. The data is presented using daily average
balances. This data should be read in conjunction with the financial statements
appearing elsewhere in this report. The Company has no foreign operations and,
accordingly, there are no assets or liabilities attributable to foreign
operations.
Table 1 - Average Balance Sheet and Rate/Volume Analysis - 1999 and 1998
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during 1999 and 1998.
<TABLE>
<CAPTION>
(a) Variance
Average Balance Average Rate Interest Attributable to
---------------- -------------- -------------- Vari- --------------
1999 1998 1999 1998 1999 1998 Ance Rate Volume
------- ------- ------ ------ ------ ------ ------ ------ ------
(Thousands) (%) Taxable-Equivalent (Thousands) (Thousands)
Interest Income and
fees(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 203 $ 347 4.93 5.76 Interest-bearing deposits $ 10 $ 20 $ (10) $ (2) $ (8)
51,492 45,346 5.88 6.04 Investments - taxable 3,026 2,739 287 (84) 371
8,505 7,102 7.84 7.17 Investments - non-taxable 667 509 158 57 101
10,474 18,162 4.95 5.25 Federal funds sold 518 954 (436) (32) (404)
186,997 160,262 8.97 9.43 Loans (c) 16,769 15,120 1,649 (873) 2,522
------- ------- Total int.-earning assets ------ ------ -----
257,671 231,219 8.15 8.37 20,990 19,342 1,648 (565) 2,213
------- ------- ------ ------ ------ ------ ----- ------ -----
Interest Expense
Deposits
45,649 40,215 2.15 2.76 NOW accounts 981 1,110 (129) (279) 150
12,252 11,850 2.78 3.24 Savings accounts 341 384 (43) (56) 13
35,128 31,946 3.83 4.00 Money market accounts 1,345 1,278 67 (60) 127
37,744 37,603 6.04 5.81 CD's, $100M or more 2,278 2,184 94 86 8
61,045 60,362 4.65 5.55 Other time deposits 2,840 3,348 (508) (546) 38
------- ------- ------ ------ -----
Total interest-bearing
191,818 181,976 4.06 4.56 deposits 7,785 8,304 (519) (968) 449
Federal Home Loan
8,082 3,325 5.74 6.17 Bank advances 464 205 259 (34) 293
10,402 4,358 4.72 5.21 Other borrowings 491 227 264 (51) 315
------- ------- ------ ------ ------ ------ ----- ----- -----
Total interest-bearing
$210,302 $189,659 4.16 4.61 liabilities 8,740 8,736 4 (947) 951
------- ------ ------ ------ ------ ------ ----- ----- -----
3.99 3.76 Interest rate spread
====== ======
Net yield on interest-
Earning assets and
4.75% 4.59% Net interest income $12,250 $10,606 $1,644 $ 382 $1,262
====== ====== ====== ====== ===== ===== =====
</TABLE>
(a) This table shows the changes in interest income and interest expense for the
comparative periods based on either changes in average volume or changes in
average rates for interest-earning assets and interest-bearing liabilities.
Changes which are not solely due to volume changes or solely due to rate changes
have been attributed to rate.
(b) The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense.
(c) The loan classifications shown here are based on the primary source of
repayment. There are loans secured by real estate in both the commercial and the
consumer categories.
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<PAGE>
Table 2 - Average Balance Sheet and Rate/Volume Analysis - 1998 and 1997
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during 1998 and 1997.
<TABLE>
<CAPTION>
(a) Variance
Average Balance Average Rate Interest Attributable to
---------------- -------------- -------------- Vari- --------------
1998 1997 1998 1997 1998 1997 Ance Rate Volume
------- ------- ------ ------ ------ ------ ----- ------ ------
(Thousands) (%) Taxable-Equivalent (Thousands) (Thousands)
Interest Income and fees(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 347 $ 205 5.76 5.85 Interest-bearing deposit $ 20 $ 12 $ 8 $ 0 $ 8
45,346 34,050 6.04 6.36 Investments - taxable 2,739 2,164 575 (143) 718
7,102 6,506 7.17 7.02 Investments - non-taxable 509 457 52 10 42
18,162 12,590 5.25 5.47 Federal funds sold 954 689 265 (40) 305
160,262 139,772 9.43 9.64 Loans (c) 15,120 13,481 1,639 (337) 1,976
------- ------- ------ ------ -----
231,219 193,123 8.37 8.70 Total int.-earning assets 19,342 16,803 2,539 (776) 3,315
------- ------- ------ ------ ------ ------ ----- ------ ------
Interest Expense
Deposits
40,215 32,752 2.76 3.03 NOW accounts 1,110 994 116 (110) 226
11,850 10,531 3.24 3.41 Savings accounts 384 359 25 (20) 45
31,946 20,247 4.00 3.88 Money market accounts 1,278 785 493 39 454
37,603 32,866 5.81 5.72 CD's, $100M or more 2,184 1,879 305 34 271
60,362 55,082 5.55 5.62 Other time deposits 3,348 3,096 252 (45) 297
------- ------- ------ ------ -----
Total interest-bearing
181,976 151,478 4.56 4.70 deposits 8,304 7,113 1,191 (241) 1,432
Federal Home Loan
3,325 1,026 6.17 6.63 Bank advances 205 68 137 (15) 152
4,358 3,215 5.21 5.04 Other borrowings 227 162 65 7 58
------- ------- ------ ------ ------ ------ -----
Total interest-bearing
$189,659 $155,719 4.61 4.72 liabilities 8,736 7,343 1,393 (207) 1,600
------- ------- ------ ------ ------ ------ ----- ------ ------
3.76 3.99 Interest rate spread
====== ======
Net yield on interest-
Earning assets and
4.59 4.90 Net interest income $10,606 $ 9,460 $1,146 $ (569)$ 1,715
====== ====== ====== ====== ===== ====== ======
</TABLE>
(a) This table shows the changes in interest income and interest expense for the
comparative periods based on either changes in average volume or changes in
average rates for interest-earning assets and interest-bearing liabilities.
Changes which are not solely due to volume changes or solely due to rate changes
have been attributed to rate.
(b) The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense.
(c) The loan classifications shown here are based on the primary source of
repayment. There are loans secured by real estate in both the commercial and the
consumer categories.
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<PAGE>
Table 3 - Investments - Weighted Average Yields by Maturity
The following table sets forth the amortized cost, fair value and tax-equivalent
yields by investment type and maturity category at December 31, 1999
Taxable
Amortized Fair Equivalent
Cost Value Yield (a)
------- ------- --------
(Thousands) (%)
Securities available for sale:
U.S. Treasury, other U.S. Government
Agencies and mortgage-backed:
Within one year $ 4,121 $ 4,105 6.12
One year to five years 36,205 34,997 6.03
Five years to ten years 8,008 7,626 6.11
Over ten years - - -
------- ------- --------
Total 48,334 46,728 6.05
------- ------- --------
Other interest-earning investments:
Within one year 155 155 7.12
One year to five years 4,701 4,750 7.51
Five years to ten years 4,251 4,165 7.49
Over ten years 675 675 8.18
------- ------- --------
Total 9,782 9,745 7.55
------- ------- --------
Total interest-earning investments
available for sale 58,116 56,473 6.18
Federal Reserve Bank stock
and other investments 1,729 1,690
------- -------
Total securities available-for-sale $59,845 $58,163
======= =======
(a) the yield is calculated on the amortized cost of the securities.
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<PAGE>
Loans
The following tables set forth certain information regarding the Subsidiary
Banks' loan portfolio as of December 31, 1999 and 1998.
Table 4 - Loan Repricing Opportunities
The following table sets forth certain loan maturity information as of December
31, 1999. Loan renewals generally reprice relative to the prime rate in effect
at the time of the renewal. Management expects that certain real estate mortgage
loans that have maturities of one to three years and longer amortization periods
will renew at maturity.
After
One one year Over
year through Five
Loan Category or less five years Years Total
------------- ------- ---------- ------ -------
Real estate-construction
and development $19,540 $ 4,025 $ 453 $24,018
Commercial 20,009 12,150 140 32,299
------- ---------- ------ -------
Total $ 39,549 $ 16,175 $ 593 $56,317
======= ========== ====== =======
Loans with floating and
adjustable rates $ 16,961 $ 7,158 $ 189 $24,308
Loans with fixed rates 22,588 9,017 404 32,009
------- ---------- ------ -------
Total $ 39,549 $ 16,175 $ 593 $56,317
======= ========== ====== =======
Nonaccrual, Past Due and Restructured Loans
At December 31, 1999 and 1998, nonperforming loans were $342 and $233,
respectively. Interest income of $8 was recognized from nonaccrual loans in 1999
and none in 1998. At December 31, 1999, the Subsidiary Banks had $229 nonaccrual
loans, had $68 in loans past due over 90 days and $45 in real estate owned.
Except for consumer loans, the Company's policy is to place a loan on nonaccrual
status when, in management's judgment, the collection of principal and interest
appears doubtful. Interest receivable accrued in prior years and subsequently
determined to have doubtful collectibility will be charged to the allowance for
possible loan losses. Interest on loans that are classified as nonaccrual is
recognized when received. In some cases, where borrowers are experiencing
financial difficulties, loans may be restructured to provide terms significantly
different from the original contractual terms.
Loan Concentrations
Most of the Subsidiary Banks' business activity is with customers located within
the Chatham and Bryan County area. As of December 31, 1999, the Subsidiary Banks
had a concentration of credit risk aggregating $156.1 million on loans secured
by real estate. The Subsidiary Banks have no exposure to highly leveraged
transactions and has no foreign credits in its loan portfolio.
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<PAGE>
Table 5 - Provision for Possible Loan Losses
Changes in the allowance for loan losses in 1999 and 1998 are summarized as
follows:
1999 1998
------ ------
(Thousands)
Balance at the beginning of the year $2,323 $2,063
Charge-offs - Commercial (80) (145)
Charge-offs - Consumer (78) (84)
Charge-offs - Real estate (10) (29)
------ ------
Charge-offs - Total (168) (258)
------ ------
Recoveries - Commercial 30 4
Recoveries - Consumer 61 79
Recoveries - Real estate 3 -
------ ------
Recoveries - Total 94 83
------ ------
Net charge-offs (74) (175)
------ ------
Provision for loan losses 545 435
------ ------
Balance at the end of the year $2,794 $2,323
====== ======
Ratio of net charge-offs to average loans .04% .11%
====== ======
Table 6 - Allocation of Allowance for Loan Losses by Loan Type
The allowance for loan losses is allocated by loan category based on
management's assessment of risk within the various categories of loans. The
Company's allocation of the allowance for loan losses according to the amount
deemed to be reasonably necessary to absorb potential losses within each loan
category is presented in the following tables:
% of % of
1999 Total 1998 Total
------ ----- ------ -----
(Thousands) (Thousands)
Commercial $ 520 .25 $ 450 .26
Real estate - construction
and development 635 .31 520 .30
Real estate - mortgage 993 .48 866 .51
Installment and consumer 425 .21 324 .19
Unallocated 221 .11 163 .10
------ ------
Total allowance for loan losses $2,794 1.36 $2,323 1.36
====== ======
The allowance for loan losses is based on estimates and is maintained at a level
considered adequate to provide for potential loan losses. The adequacy of the
allowance is based on management's continuing evaluation of the loan portfolio
under current economic conditions, underlying collateral value securing loans
and such other factors, which deserve recognition in estimating loan losses.
Actual future losses may be different from estimates due to unforeseen events.
Loans, or portions thereof, which are deemed to be uncollectible will be charged
against the allowance.
Loan loss reserves are determined based on management's internal review of
nonperforming loans, delinquency trends, the level of rated assets and
charge-off trends. Additionally, management assesses general and specific
economic trends both nationally and locally and regulatory information to
determine the impact of those external factors on loan loss reserve levels.
Based on the internal and external reviews, The Subsidiary Banks segregates
their loan portfolios by type of loans and by loan classification within each
loan type. The allowance for loan losses is allocated by different loan
classifications based on management's assessment of risk inherent in the various
types of loans. Reserve percentages are applied (based on historical and
anticipated loss rates) to each loan group to determine the required amount of
allocated general loan loss reserves. Additionally, an amount is provided for
unallocated general loan loss reserves reflecting the potential for estimation
errors in allocated reserves.
Although historically, there have been minimal losses in loans secured by real
estate, management has allocated additional reserves to these categories based
upon the large concentration of real estate loans, larger individual loan
19
<PAGE>
amounts, a very competitive market for loan growth and rapidly rising property
valuations during 1999 and 1998 in certain locations in our market area which
may not be sustainable.
Deposits
Table 7 - Deposit Average Balances and Rates Paid
The following table summarizes average balances of deposits of the Company and
the Subsidiary Banks on a consolidated basis and the average rates paid on such
deposits during 1999 and 1998.
1999 1998
------------------ ------------------
Amount Rate Amount Rate
(Thousands) (Thousands)
Non-interest-bearing demand $ 36,724 0.00% $ 30,137 0.00%
Interest-bearing savings 45,649 2.15% 40,215 2.76%
Savings deposits 12,252 2.78% 11,850 3.24%
Money market deposits 35,128 3.83% 31,946 4.00%
Time deposits 98,789 5.18% 97,965 5.65%
-------- --------
Total $228,542 $212,113
======== ========
Item 2. Properties
See Note 6 and Note 14 of Notes to Consolidated Financial Statements on page
F-12, and page F-17, of the Registrant's 1999 Annual Report to Shareholders,
which are specifically incorporated herein by reference.
The Savannah Bank's main office is located at 25 Bull Street, Savannah, Georgia
31401, on the ground floor and lower level of a seven story office building
located on Johnson Square in downtown Savannah. The location is sometimes called
the Financial Square because seven financial institutions surround the square
(downtown park). The location is convenient to commercial customers and
consumers who already use the services of the six other financial institution
offices on Johnson Square.
The Savannah Bank has leased approximately 4,710 square feet on the main floor,
and 2000 square feet in the lower level of the building under a five-year lease
with one optional five-year extension in June 2004. In November 1998, an
additional 1,475 square feet of space was rented on the sixth floor. This lease
is through June 2004 with one five-year renewal option. The rental costs
increase by 3 percent of the gross rental amount each year during the initial
five-year term and thereafter in accordance with the Consumer Price Index. The
Company is also responsible for its pro rata share of increases in the cost of
ad valorem taxes, insurance, utilities and janitorial services.
In 1989, Bryan Bank constructed its 8,500 square foot two-story main office in
Richmond Hill, Georgia, on land owned by Bryan Bank. The building has a walk-up
ATM a drive-up ATM and 4 drive-in lanes. All bank personnel are housed in this
one location.
Savannah Bank also leases approximately 6,700 square feet on the first floor of
a two-story building located at 400 Mall Boulevard, Savannah, Georgia. This
space is being used for the Savannah Bank's first branch location, the Mortgage
Loan Department and expansion space. The building is located near the corner of
Mall Boulevard and Hodgson Memorial Drive, a location that is convenient to a
significant concentration of commercial, service, and retail entities. The lease
rate increases with the Consumer Price Index. The initial lease term was for
five years and ended March 31, 1997. The Savannah Bank has committed to exercise
the next five-year lease option. There are four five-year renewal options
included in the terms. The Company is also responsible for its prorata share of
increases in the cost of ad valorem taxes, insurance and maintenance of common
areas. The bank renovated the existing space, constructed a vault, drive-in
teller area and five drive-in teller lanes adjacent to the building.
During 1995, Savannah Bank entered into a five-year ground lease with nine
five-year renewal options at 100 Chatham Parkway. The Savannah Bank also has a
right of first refusal to buy the property at appraised value should the owner
ever decide to sell the property. The location is at the intersection of Chatham
Parkway and U.S. Highway 80, a major commercial and industrial intersection in
west Chatham County. The Savannah Bank made land improvements and constructed a
2200 square-foot banking facility including four drive-in lanes and an ATM
drive-through lane. The West Chatham Office opened for business on November 20,
1995.
20
<PAGE>
In 1997, Savannah Bank constructed a 2300 square foot office on an outlot owned
in the Island Towne Centre Shopping Plaza, six miles east of downtown Savannah.
In November 1997, the Savannah Bank entered into a ten-year lease beginning June
1, 1998 with four five-year renewal options in the Medical Arts Shopping Center
at 4809 Waters Road. The property consists of 3,055 square feet of banking
office space and a separate drive-through behind the shopping center.
Item 3. Legal Proceedings
The Company is not a party to, nor is any of its property the subject of, any
material pending legal proceedings incidental to the business of the Company or
the Subsidiary Banks.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Incorporated herein by reference to sections entitled "Market for Registrant's
Common Equity and Related Stockholder Matters" on page F-27 of the Financial
Statement Section of the 1999 Annual Report to Shareholders.
Item 6. Selected Financial Data
Incorporated herein by reference to sections "Table 1 - Selected Financial
Condition Highlights - Five-Year Comparison," "Table 2 - Selected Operating
Highlights" and "Table 5 - Selected Quarterly Data" in the Registrant's
Management and Analysis of Financial Condition and Results of Operations on
pages F-20 through F-27 of the Financial Statement Section of the 1999 Annual
Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated herein by reference to the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages F-22 and F-23 of the Financial Statement Section of the 1999 Annual Report
to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Incorporated herein by reference to the sections entitled "Liquidity and
Interest Rate Sensitivity Management" and "Table 3 - Long-term Maturity Gap and
Repricing Data" in the Registrant's Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages F-22 and F-23 of the
Financial Statement Section of the 1999 Annual Report to Shareholders.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data
(a) 1. Financial Statements
The financial statements, together with the applicable report of independent
accountants, are included as Exhibit 13 on pages F-3 to F-27 in this 1999 Annual
Report on Form 10-K as shown in the following index.
Page Number
(i) Management's Responsibility for Financial Reporting F-2
(ii) Report of Independent Certified Public Accountants F-3
(iii) Consolidated Balance Sheets
December 31, 1999 and 1998 F-4
(iv) Consolidated Statements of Income for the Years
Ended December 31, 1999, 1998 and 1997 F-5
(v) Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1999,
1998 and 1997 F-6
(vi) Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-7
(vii) Notes to Consolidated Financial Statements F-8 to F-19
2. Financial Statement Schedules
Computation of Earnings Per Share Exhibit 11
1999 Annual Report to Shareholders Exhibit 13
Report of Predecessor Independent Accountants Exhibit 23.1
The report Arthur Andersen LLP for the year ended
December 31, 1998 and 1997 is included as a financial
schedule exhibit in this Form 10-K.
Report of Predecessor Independent Accountants Exhibit 23.1
The report of Moore, Stephens, Tiller for the
year ended December 31, 1997 is included as a
financial schedule exhibit in this Form 10-K.
Consent of BDO Seidman, LLP Exhibit 23.1
Consent of Arthur Andersen LLP Exhibit 23.2
Consent of Moore Stephens Tiller LLC Exhibit 23.3
Item 9. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
Change in Registrant's Certifying Accountant.
(a) Previous independent accountants
(i) Effective April 19, 1999 The Savannah Bancorp, Inc. ("TSB, Inc.") dismissed
its prior certifying accountants, Arthur Andersen LLP ("AA LLP"). AA LLP
audited the consolidated financial statements for the years ending December
31, 1996 through December 31, 1998. Unqualified opinions were issued in
each of those years. The decision to dismiss AA LLP was approved by the
Audit Committee and the full board of directors.
(ii) During the two most recent fiscal years and the subsequent interim period
to the date hereof, there were no disagreements between TSB, Inc. and AA
LLP on any matters of accounting principles, practices, financial statement
disclosure, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of AA LLP would have caused them to make a
reference thereto in their report on the financial statements for such
years.
22
<PAGE>
None of the "reportable events" described in Regulation S-K Item 304 (a)(1)(v)
occurred with respect to TSB, Inc. within the last two fiscal years and
subsequent interim period to the date hereof.
(b) New independent accountants
A competitive proposal was received from BDO Siedman LLP, ("BDO") which has
significant publicly-traded, community banking expertise. Effective April 19,
1999, TSB Inc.'s Board of Directors engaged the services of BDO as its
independent accountants. During the last two years and subsequent interim period
to the date hereof, TSB, Inc. did not consult BDO regarding any of the matters
or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the sections entitled "Election of
Directors" and "Executive Officers" in the Registrant's Proxy Statement dated
March 17, 2000 and filed on March 15, 2000. All reports required pursuant to the
insider trading regulations were filed timely with the exception of Mr. Burnsed
and Mr. Briscoe, CFO, who each exercised options during 1999 and did not
correctly report the transactions.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled "Executive
Compensation and Benefits" in the Registrant's Proxy Statement dated March 17,
2000 and filed on March 15, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the sections entitled "Election of
Directors" and "Ownership of Equity Securities" in the Registrant's Proxy
Statement dated March 17, 2000 and filed on March 15, 2000.
Item 13. Certain Relationships and Related Transactions
The information contained in Note 5 to the Consolidated Financial Statements
incorporated by reference and under the caption "Certain Transactions" in the
Registrant's Proxy Statement dated March 17, 2000 and filed on March 15, 2000.
23
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- ------------
3.1 * Articles of Incorporation
3.2 * By-laws as amended
10.1 * Lease for Bank Site at 25 Bull Street and Assumption of Lease
10.5 * Form of Organizers' Stock Option Agreement
10.6 * Lease for Mall Boulevard Office dated February 14, 1992
10.7 * The Savannah Bancorp, Inc. Incentive Stock Option Plan
approved by shareholders on April 18, 1995.
10.8 * Amendment to The Savannah Bancorp, Inc. Incentive Stock
Option Plan approved by shareholders on April 16, 1996.
11 Computation of Earnings Per Share
13 1999 Annual Report to Shareholders
21 Subsidiaries of Registrant
22.1 Reports of Predecessor Independent Certified Public Accountants
22.2 Reports of Predecessor Independent Certified Public Accountants
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Moore Stephens Tiller LLC
27 Financial Data Schedule
*Items 3.1, 3.2, 10.1 and 10.5 were previously filed by the Company as
Exhibits (with the same respective Exhibit Numbers as indicated herein) to the
Company's Registration Statement (Registration No. 33-33405) filed in February
1990 and such documents are incorporated herein by reference.
Item 10.6 was filed as an exhibit with the 1992 Annual Report on Form 10-K in
March, 1993.
(b) REPORTS ON FORM 8-K. NONE
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on March
20, 2000 by the undersigned, thereunto duly authorized.
THE SAVANNAH BANCORP, INC.
By: /s/ ARCHIE H. DAVIS
Archie H. Davis, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT B. BRISCOE
Robert B. Briscoe, Chief
Financial Officer
(Principal Financial and Accounting Officer)
Directors:
/s/ J. WILEY ELLIS /s/ JACK M. JONES
J. Wiley Ellis Jack M. Jones
Chairman of the Board
/s/ E. JAMES BURNSED /s/
E. James Burnsed Aaron M. Levy
Vice Chairman
/s/ RUSSELL W. CARPENTER /s/ J. CURTIS LEWIS, III
Russell W. Carpenter J. Curtis Lewis, III
/s/ ARCHIE H. DAVIS /s/ M. LANE MORRISON
Archie H. Davis M. Lane Morrison
/s/ ROBERT H. DEMERE, JR. /s/ J. TOBY ROBERTS
Robert H. Demere, Jr. J. Toby Roberts, Sr.
/s/ L. CARLTON GILL /s/ JAMES W. ROYAL
L. Carlton Gill James W. Royal
/s/ /s/ JACK W. SHEAROUSE
Robert W. Groves III Jack W. Shearouse
/s/ PENELOPE S. JOHNSON /s/ ROBERT T. THOMPSON, JR.
Penelope S. Johnson Robert T. Thompson, Jr.
25
<PAGE>
Exhibit 11 - Computation of Per Share Earnings
Earnings per share has been calculated in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share"
issued by the Financial Accounting Standards Board. SFAS No. 128 requires
presentation of earnings per share on a basic computation and a diluted
computation. The basic computation divides net income by only the weighted
average number of common shares outstanding for the year and the diluted
computation gives effect to all diluted common shares that were outstanding
during the year. Earnings and outstanding shares for 1998 and 1997 have been
restated to give effect to the merger with Bryan Bancorp of Georgia, Inc. that
was consummated on December 15, 1998 and accounted for using the pooling of
interests accounting method.
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock.
Years Ended December 31, 1999 1998 1997
------------------------ ------ ------ ------
Income available to common shareholders:
Used in basic earnings per share $3,533 $2,626 $2,911
------ ------ ------
Used in diluted earnings per share $3,533 $2,626 $2,911
------ ------ ------
Weighted average number of common
shares used in basic earnings per share 2,704 2,661 2,640
Effect of dilutive securities:
Stock options 66 99 117
------ ------ ------
Weighted average number of common
and dilutive potential common shares
used in diluted earnings per share 2,770 2,760 2,757
------ ------ ------
The following information which is included in the Registrant's 1999 Annual
Report is incorporated into the Form 10-K by reference.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SECTION
INDEX
Page
Number
-------
Index to Financial Statement Section F-1
Management's Reponsibility for Financial Reporting F-2
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets
December 31, 1999 and 1998 F-4
Consolidated Statements of Income For the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in Shareholders'
Equity For the Years Ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows For the Years
Ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
Managements Discussion and Analysis of Financial
Condition and Results of Operations F-20
Selected Five-Year Financial Data - 1995-1999
Table 1 - Selected Financial Condition Highlights F-20
Table 2 - Selected Operating Highlights F-21
Liquidity and Interest Rate Sensitivity Management F-22
Financial Condition and Capital Ratios F-24
Results of Operations
1999 Compared to 1998 F-24
1998 Compared to 1997 F-25
Market Price Per Common Share Data - Quarterly - 1999 and 1998 F-27
Selected Quarterly Data F-27
F-1
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The Savannah Bancorp, Inc. is responsible for the preparation
of the financial statements, related financial data and other financial
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgment where appropriate. Financial
information appearing in this annual report is consistent with the financial
statements.
In meeting its responsibility both for the integrity and fairness of these
statements and information, management depends on the accounting system and
related internal control structures that are designed to provide reasonable
assurance that transactions are authorized and recorded in accordance with
established procedures, and that assets are safeguarded and proper and reliable
records are maintained.
The Audit Committee of The Savannah Bancorp, Inc.'s Board of Directors, composed
solely of outside directors, meets regularly with the Company's management,
independent certified public accountants and regulatory examiners to review
matters relating to financial reporting, internal control structure and the
nature, extent and results of the audit effort. The independent certified public
accountants have direct access to the Audit Committee with or without management
present.
The financial statements of 1999 have been audited by BDO Seidman LLP and the
1998 and 1997 financial statements have been audited by Arthur Andersen LLP,
independent certified public accountants. Their appointments were recommended by
the Audit Committee and approved by the Board of Directors. Their audits provide
an objective assessment of the degree to which the Company's management meets
its responsibility for financial reporting. Their opinions on the financial
statements are based on auditing procedures, which include reviewing internal
control structure and performing selected tests of transactions and records as
indicated in their report. These auditing procedures are designed to provide a
reasonable level of assurance that the financial statements are fairly presented
in all material respects.
/s/ ARCHIE H. DAVIS /s/ ROBERT B. BRISCOE
Archie H. Davis Robert B. Briscoe
President and Chief Chief Financial
Executive Officer Officer
January 24, 2000 January 24, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Savannah Bancorp, Inc.:
We have audited the accompanying consolidated balance sheet of The
Savannah Bancorp, Inc. (a Georgia Corporation) and its subsidiaries as of
December 31, 1999, and the related consolidated statements of income,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of The Savannah Bancorp, Inc.'s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The Savannah Bancorp, Inc.'s
consolidated financial statements as of December 31, 1998, and for each of the
two years then ended, were audited by other auditors whose report, dated January
25, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Savannah Bancorp, Inc. and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
Atlanta, Georgia
January 24, 2000
F-3
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
- --------------------------------------------------------------------------------
($ in thousands, except share data) 1999 1998
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 13,004 $ 17,355
Interest-bearing deposits in bank 314 -
Federal funds sold 2,892 10,178
Securities available for sale, at fair value (amortized
Cost of $59,845 in 1999 and $61,864 in 1998) 58,163 62,703
Loans 205,914 170,858
Less allowance for loan losses (2,794) (2,323)
- --------------------------------------------------------------------------------
Net loans 203,120 168,535
Premises and equipment, net 4,678 4,827
Other real estate owned 45 -
Other assets 3,882 2,782
- --------------------------------------------------------------------------------
Total assets $ 286,098 $ 266,380
- --------------------------------------------------------------------------------
Liabilities
Deposits:
Non interest-bearing demand $ 40,150 $ 39,353
Interest-bearing demand 40,186 44,269
Savings 12,213 11,632
Money market accounts 40,346 34,663
Time, $100,000 and over 38,889 41,723
Other time deposits 62,478 60,732
- --------------------------------------------------------------------------------
Total deposits 234,262 232,372
Federal Home Loan Bank Advances 18,248 4,450
Securities sold under repurchase agreements 5,562 2,674
Federal funds purchased 905 537
Other liabilities 1,890 1,872
- --------------------------------------------------------------------------------
Total liabilities 260,867 241,905
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 13 and 15)
Shareholders' Equity
Common stock, par value $1 per share: authorized
20,000,000 shares; issued 2,719,614 in 1999 and 1998 2,720 2,720
Preferred stock, par value $1 per share:
authorized 10,000,000 shares, none issued - -
Contributed capital 13,038 13,076
Retained earnings 10,727 8,438
Treasury stock, 10,675 and 37,050 shares
in 1999 and 1998, respectively (210) (275)
Accumulated other comprehensive income (1,044) 516
- --------------------------------------------------------------------------------
Total shareholders' equity 25,231 24,475
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 286,098 $ 266,380
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For Year Ended December 31,
($ in thousands, except share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest Income
Loans $16,769 $15,120 $13,481
Investment securities:
Taxable 3,026 2,739 2,159
Non-taxable 419 362 326
Deposits with banks 10 20 11
Federal funds sold 518 954 690
- --------------------------------------------------------------------------------
Total interest income 20,742 19,195 16,667
- --------------------------------------------------------------------------------
Interest Expense
Deposits 7,785 8,304 7,113
Other borrowings 491 227 162
Federal Home Loan Bank advances 464 205 68
- --------------------------------------------------------------------------------
Total interest expense 8,740 8,736 7,343
- --------------------------------------------------------------------------------
Net Interest Income 12,002 10,459 9,324
Provision for loan losses 545 435 480
- --------------------------------------------------------------------------------
Net interest income after
provision for loan losses 11,457 10,024 8,844
- --------------------------------------------------------------------------------
Other Income
Trust fees 192 60 -
Service charges on deposit accounts 1,032 849 825
Mortgage origination fees 601 933 479
Other income 432 459 365
- --------------------------------------------------------------------------------
Total other operating revenue 2,257 2,301 1,669
Gains on sales of securities 13 3 4
- --------------------------------------------------------------------------------
Total other income 2,270 2,304 1,673
- --------------------------------------------------------------------------------
Other Expense
Salaries and employee benefits 4,578 4,214 3,405
Occupancy expense 667 530 430
Equipment expense 594 480 416
Other operating expenses 2,682 2,223 1,843
Merger expenses - 619 -
- -------------------------------------------------------------------------------
Total other expense 8,521 8,066 6,094
- --------------------------------------------------------------------------------
Income before provision for income taxes 5,206 4,262 4,423
Provision for income taxes 1,673 1,636 1,512
- --------------------------------------------------------------------------------
Net income $ 3,533 $ 2,626 $ 2,911
================================================================================
Net income per share:
Basic $ 1.31 $ .99 $ 1.10
================================================================================
Diluted $ 1.28 $ .95 $ 1.06
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Other
Stock Contributed Retained Treasury Comprehensive
($ in thousands, except share data) Common Amount Capital Earnings Stock Income(Loss) Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,810,696 $1,810 $13,979 $ 4,849 ($554) ($30) $20,054
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 2,911 2,911
Change in unrealized gains on
securities available for sale, 148 148
net of tax -------
Total comprehensive income 3,059
Cash dividends - $.14 per share (239) (239)
Cash dividends of acquired banks (428) (428)
Three-for-two stock split 905,320 906 (906) -
Exercise of options 12,025 12 51 50 113
Tax benefit from exercise of options 38 38
Retirement of Bryan treasury stock (14,893) (15) (185) (200)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,713,148 $2,713 $12,977 $7,093 ($504) $118 $22,397
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 2,626 2,626
Other comprehensive income:
Change in unrealized gains on
securities available for sale,
net of tax 398 398
-------
Total comprehensive income 3,024
Cash dividends - $.34 per share (588) (588)
Cash dividends of acquired banks (693) (693)
Exercise of options 7,400 8 28 229 265
Tax benefit from exercise of options 86 86
Retirement of Bryan treasury stock (934) (1) (15) (16)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,719,614 $2,720 $13,076 $8,438 ($275) $516 $24,475
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 3,533 3,533
Other comprehensive income:
Change in unrealized losses on
securities available for sale,
net of tax (1,560) (1,560)
-----
Cash dividends - $.46 per share (1,244) (1,244)
Exercise of options (38) 272 234
Purchase of treasury stock (207) (207)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 2,719,614 $2,720 $13,038 $10,727 ($210) ($1,044) $25,231
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands) For the Year Ended December 31,
- --------------------------------------------------------------------------------
Operating Activities 1999 1998 1997
- --------------------------------------------------------------------------------
Net income $ 3,533 $ 2,626 $ 2,911
Adjustments to reconcile net income to cash
Provided by operating activities:
Provision for loan losses 545 435 480
Depreciation and amortization 584 471 392
Gain on sale of land - (57) -
Gains on sales of securities (13) (3) (4)
Amortization of investment securities discount-net 91 326 428
Increase in other assets (245) (715) (160)
Increase in other liabilities 81 450 75
- --------------------------------------------------------------------------------
Net cash provided by operating activities 4,576 3,533 4,122
- --------------------------------------------------------------------------------
Investing Activities
Purchases of investment securities (15,834) (36,419) (14,948)
Proceeds from sale of investment securities 1,008 2,002 1,810
Proceeds from maturities of investment securities 16,765 14,192 8,579
Net increase in loans made to customers (35,130) (16,815) (23,410)
Capital expenditures (435) (1,172) (992)
Proceeds from sale of land - 356 -
- -------------------------------------------------------------------------------
Net cash used in investing activities (33,626) (37,856) (28,961)
- --------------------------------------------------------------------------------
Financing Activities
Net increase in demand, savings and money market
accounts 2,978 22,868 17,269
Net (decrease) increase in certificates of deposit (1,088) 9,060 9,170
Net increase in securities sold under agreements
to repurchase 2,888 382 954
Net increase (decrease) in federal funds purchased 368 (551) 523
Net increase in FHLB advances 13,798 2,860 1,210
Purchase of treasury stock (207) - (150)
Dividend payments (1,244) (1,281) (668)
Exercise of options 234 335 63
- --------------------------------------------------------------------------------
Net cash provided by financing activities 17,727 33,673 28,371
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (11,323) (650) 3,532
Cash and cash equivalents at beginning of year 27,533 28,183 24,651
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $16,210 $27,533 $28,183
================================================================================
- --------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowings $ 8,736 $ 8,622 $ 7,296
Income taxes 1,665 1,703 1,644
Noncash investing activity:
Change in unrealized gain (loss) on investment
securities available for sale, net of income (1,560) 398 148
taxes
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
Notes to Consolidated Financial Statements
($ in thousands, except share data)
- --------------------------------------------------------------------------------
Note 1 - Organization and Summary of Significant Accounting Policies
Nature of Operations - The Savannah Bancorp, Inc. ("the Company") was
incorporated in Georgia on October 5, 1989, for the purpose of becoming a bank
holding company for The Savannah Bank, N.A. ("Savannah Bank"). The Company is a
two-bank holding company that offers a full range of lending, deposit,
residential mortgage origination and fiduciary trust products. The primary
service area of the Company is the city of Savannah, Georgia, surrounding
Chatham County, Richmond Hill, Georgia (20 miles south of downtown Savannah) and
Bryan County.
Merger - The Savannah Bancorp, Inc. merged with Bryan Bancorp of Georgia, Inc.,
a bank holding company for Bryan Bank & Trust ("Bryan Bank") in Richmond Hill,
Georgia on December 15, 1998. The merger was accounted for as a
pooling-of-interests transaction and consequently, the financial position and
results of operations and cash flows of the respective companies are restated as
though the companies were combined for all historical periods.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company, Savannah Bank and Bryan Bank. All material intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in the previous years have been reclassified to conform to the current year's
presentation.
Use of Estimates - The preparation of these financial statements in conformity
with generally accepted accounting principles requires the use of certain
estimates by management. These estimates include primarily the estimation of the
allowance for loan losses. Actual results could differ from these estimates.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, federal funds sold and
interest-bearing deposits with other banks.
Investment Securities Available for Sale --Management has classified the entire
investment security portfolio as available for sale. Securities available for
sale are carried at estimated fair value with unrealized gains and losses, net
of deferred income taxes, recorded as a separate component of shareholders'
equity.
Loans and Loan Fees - Loans are stated at principal amounts outstanding reduced
by an allowance for loan losses. Interest income on loans is recognized to
reflect a constant rate of return on net funds outstanding. Accrual of interest
income is discontinued when management believes the collection of interest or
principal is doubtful. Accrued interest is reversed and charged against current
income when management believes, after considering economic and business
conditions and collection efforts, that the ultimate collection of interest
accrued in the current year is doubtful. Interest accrued in prior years is
charged against the allowance for loan losses when collection is doubtful.
Generally, the Company recognizes loan fees to the extent costs are incurred in
the origination of the loans. For certain loans, fees in excess of origination
costs are deferred and amortized over the life of the loan. The methodology
applied by the Company does not differ materially from generally accepted
accounting principles.
Non-Performing and Impaired Loans - The accrual of interest is generally
discontinued on all loans, except consumer loans, that become 90 days past due
as to principal or interest unless collection of both principal and interest is
assured by way of collateralization, guarantees or other security. Generally
loans past due 180 days or more are placed on nonaccrual status regardless of
collateral. A loan is also considered impaired if its terms are modified in a
troubled debt restructuring or if it is in a nonaccruing status. For accruing
impaired loans, cash receipts are typically applied to principal and interest
receivable in accordance with the terms of the restructured loan agreement.
Allowance for Loan Losses - The allowance for loan losses is based on estimates
and maintained at a level considered adequate to provide for potential loan
losses. The adequacy of the allowance is based on management's continuing
evaluation of the loan portfolio under current economic conditions, underlying
collateral value securing loans and such other factors that deserve recognition
in estimating loan losses. Actual future losses may be different from estimates
due to unforeseen events. Loans that are determined to be uncollectible are
charged against the allowance.
F-8
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Premises and Equipment - Building, furniture, banking equipment and leasehold
improvements are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives or estimated lease terms including expected lease
renewals, ranging from three to fifty years, of the respective assets for
financial reporting purposes and using an accelerated method for income tax
purposes. Additions and major improvements are capitalized, while routine
maintenance and repairs and gain or loss on dispositions are recognized
currently.
Mortgage Origination Fees - The Company originates mortgage loans on behalf of
third parties. Such loans are originated pursuant to commitments from third
parties to acquire the loans that are in place prior to extension of a
commitment to make the loan. In connection therewith, the Company generally
charges certain origination fees to borrowers and may be paid amounts by
purchasers that exceed the Company's basis in the loan (for example, a servicing
release premium). Net cash gains from those activities are reported as mortgage
origination fees in the accompanying consolidated statements of income when the
loans are closed.
Income Taxes - Deferred tax assets and liabilities arise from temporary
differences in the recognition of revenues and expenses for income tax and
financial reporting purposes. They are reflected at currently enacted income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.
Earnings Per Share - Basic earnings per share are calculated based on
weighted-average number of shares of common stock outstanding. Diluted earnings
per share is calculated based on the weighted average number of shares of common
stock outstanding and common stock equivalents, consisting of outstanding stock
options. Common stock equivalents are determined using the treasury method for
diluted shares outstanding adjusted for the stock splits and stock dividend,
referred to above. The weighted average common shares outstanding used in the
computation of basic earnings per share were 2,704,000, 2,661,000, and 2,640,000
in 1999, 1998 and 1997, respectively. The weighted average common and common
equivalent diluted shares outstanding used in the computation of diluted
earnings per share were 2,770,000, 2,760,000, and 2,757,000 in 1999, 1998 and
1997, respectively. The difference between diluted and basic shares outstanding
are common stock equivalents from stock options outstanding in the years ended
December 31, 1999, 1998 and 1997.
Reporting Comprehensive Income - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting the components of
comprehensive income and requires that certain transactions and other economic
events that bypass the income statement be included in a financial statement
that is displayed with the same prominence as the other financial statements.
The Company's comprehensive income consists of net income and changes in
unrealized gains and (losses) on securities available-for-sale, net of income
taxes. The Company adopted the provisions of this statement in 1998 by reporting
comprehensive income in the consolidated statement of shareholders' equity.
These disclosure requirements had no impact on financial position or results of
operations.
Disclosures About Segments of an Enterprise and Related Information - In June,
1997, FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. The provisions of this statement require disclosure of
financial and descriptive information about an enterprise's operating segments
in annual and interim financial reports issued to shareholders. The statement
defines an operating segment as a component of an enterprise that engages in
business activities that generate revenue and incur expense, whose operating
results are reviewed by the chief operating decision maker in the determination
of resource allocation and performance, and for which discrete financial
information is available. The Company presently operates as two commercial banks
offering traditional banking services. Certain departmental revenues, asset and
liability volumes are used by executive management for performance and resource
allocation purposes, however, sufficient discrete financial information is not
available for presentation of segmented line of business financial information
to shareholders. These disclosure requirements had no impact on the Company's
financial position or results of operations.
Accounting for Derivative Instruments and Hedging Activities - In June, 1998 the
FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The provisions of this statement require that derivative instruments
be carried at fair value on the balance sheet along with various other related
F-9
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
accounting treatments. The provisions of this statement become effective for
quarterly and annual reporting periods beginning after June 15, 2000. The
Company presently has no derivative or hedging instruments applicable to the
provisions of this statement and therefore it has no impact on financial
position or results of operations.
Note 2 - Business Combinations
On December 15, 1998, the Company merged with Bryan Bancorp, headquartered in
Richmond Hill, Georgia. Each outstanding share of the Bryan Bancorp's common
stock was converted into and exchanged for 1.85 shares of the Company's common
stock, resulting in the issuance of approximately 937,000 shares. The
acquisition was accounted for as a pooling-of-interests, and accordingly, all
historical financial information for the Company has been restated to include
Bryan Bancorp's historical information for all periods presented herein.
Intercompany transactions prior to the merger have been eliminated, and certain
reclassifications were made to Bryan Bancorp's financial statements to conform
to the Company's presentations. No material adjustments were recorded to conform
Bryan Bancorp's accounting policies. In connection with the merger, the
Corporation recorded net nonrecurring charges of $555 for direct and other
merger-related items. The net after-tax charges include $544 for legal,
accounting, investment advisor and printing charges. Other nonrecurring items
include a $75 deductible expense for a data processing contract buyout and a
$57 taxable gain on sale of land.
The following table shows the revenues and net income for the individual and
combined companies prior to the merger for the periods presented. Merger
expenses have been excluded for comparative purposes.
For the 11.5 Months For the Year
Ended December 15, Ended December 31,
1998 1997
------------------- ------------------
Total revenues (net interest income &
other income)
Savannah Bancorp $ 7,787 $ 7,001
Bryan Bancorp 4,391 3,996
------- -------
Combined $12,178 $10,997
======= =======
Net income
Savannah Bancorp $ 1,865 $ 1,753
Bryan Bancorp 1,268 1,158
------- -------
Combined $ 3,133 $ 2,911
======= =======
Note 3 - Cash and Demand Balances Due from Banks
The Companies subsidiary banks are required by the Federal Reserve Bank to
maintain minimum cash reserves based on reserve requirements calculated on their
deposit balances. Cash reserves of $3,759 and $3,320 were required as of
December 31, 1999 and 1998, respectively.
F-10
<PAGE>
Note 4 - Securities Available for Sale
The aggregate amortized cost and fair value of securities available for sale as
of December 31, 1999 and 1998 were as follows:
1999
-----------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
Investment securities:
U. S. Treasury securities $ 4,009 $ - $ (24) $ 3,985
U. S. Government agencies 42,965 - (1,561) 41,404
Mortgage-backed securities 1,360 - (21) 1,339
State and municipal 9,407 40 (71) 9,376
Other taxable securities 2,104 - (45) 2,059
---------- ---------- ---------- ---------
$59,845 $40 $ (1,722) $58,163
========== ========== ========== =========
1998
-----------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
Investment securities:
U. S. Treasury securities $ 7,066 $ 85 $ - $7,151
U. S. Government agencies 41,508 393 - 41,901
Mortgage-backed securities 3,380 - (6) 3,374
State and municipal 8,520 351 - 8,871
Other taxable securities 1,390 16 - 1,406
---------- ---------- ---------- --------
$61,864 $845 $ (6) $62,703
========== ========== ========== ========
Proceeds from the sale or call of investment securities were $1,008, $2,002 and
$1,810 in 1999, 1998 and 1997, respectively. There was a gain of $13, $3 and $4
in 1999, 1998 and 1997, respectively.
The distribution of securities by maturity at December 31, 1999 is shown below.
Amortized
Cost Fair Value
Securities available for sale: --------- ----------
Due in one year or less $ 4,276 $ 4,260
Due after one year through five years 40,906 39,747
Due after five years through ten years 12,259 11,791
Due after ten years 2,404 2,365
--------- ---------
Total investment securities $59,845 $58,163
========= =========
At December 31, 1999 and 1998, investment securities with a carrying value of
$42,411 and $26,719 respectively, were pledged as collateral to secure public
funds and securities sold under repurchase agreements.
F-11
<PAGE>
Note 5 - Loans
The composition of the loan portfolio at December 31, 1999 and 1998 is presented
below.
Percent Percent
1999 of Total 1998 of Total
-------- -------- -------- --------
Commercial $ 32,299 15.7% $ 26,178 15.4%
Real estate - construction and development 24,018 11.7 19,861 11.6
Real estate - mortgage 132,085 64.1 107,330 62.8
Installment and other consumer 17,512 8.5 17,489 10.2
-------- -------- -------- --------
Total Loans $205,914 100.0% $170,858 100.0%
======== ======== ======== ========
At December 31, 1999 and 1998, there were $342 and $233 in non-performing
assets. At December 31, 1999 and 1998, nonaccruing loans were $229 and $233,
respectively.
Changes in the allowance for loan losses are summarized as follows:
1999 1998 1997
------ ------ ------
Balance at the beginning of the year $2,323 $2,063 $1,695
Provision for loan losses 545 435 480
Charge-offs (168) (258) (194)
Recoveries 94 83 82
------ ------ ------
Balance at the end of the year $2,794 $2,323 $2,063
====== ====== ======
The Bank has granted loans to certain directors of the Bank and to their
associates. The aggregate amounts of loans were $8,755 and $7,360 at December
31, 1999 and 1998, respectively. During 1999, $8,898 of new loans was made, and
repayments totaled $7,503. Unused lines of credit available to related parties
aggregated $2,249 and $1,004 at December 31, 1999 and 1998, respectively.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility.
Note 6 - Premises and Equipment
Bank premises and equipment at December 31, 1999 and 1998, are summarized as
follows:
Depreciable Lives 1999 1998
----------------- ------ ------
Land - $ 439 $ 429
Buildings 39 - 50 2,289 2,284
Furniture and banking equipment 5 - 15 3,009 2,902
Leasehold improvements 10 - 39 1,316 1,110
------ ------
7,053 6,725
Less accumulated depreciation and
amortization 2,375 1,898
------ ------
Premises and equipment, net $4,678 $4,827
====== ======
F-12
<PAGE>
Note 7 - Deposits
Total time deposits maturing in one to five years are as follow: 2000 - $82,830;
2001 - $10,642; 2002 - $3,182; 2003 - $3,696; and 2004 and thereafter - $1,017.
The following table indicates the amount of the Bank's time certificates of
deposit of $100,000 or more at December 31, 1999 by time remaining until
maturity.
Maturity Period Amount
--------------- -------
Three months or less $ 9,747
Over three through six months 9,486
Over six through twelve months 14,293
Over twelve months 5,363
-------
Total $38,889
=======
Note 8 - Federal Home Loan Bank Advances
Short-term Advances - Short-term advances from the Federal Home Loan Bank of
Atlanta ("FHLB") totaled $14.0 million at December 31, 1999. The average
interest rate was 5.74% for the year ended 1999. The maximum amount outstanding
at the end of any month was $14,000 and $0 during 1999 and 1998, respectively.
Long -term Advances - Long-term advances from the FHLB with maturities from 2000
to 2009 totaled $4,248 and $4,450 at December 31, 1999 and 1998, respectively.
The weighted-average interest rates on the long -term advances were 6.00% and
5.99% at December 31, 1999 and 1998. Aggregate maturities are $205 in 2000, $208
in 2001, $211 in 2002, $215 in 2003, $1,219 in 2004 and $2,190 thereafter.
Interest is generally payable monthly and scheduled principal reductions are
made quarterly, semi-annually or at maturity. The advances are secured by a
blanket floating lien agreement which provides a security interest in all
unencumbered first mortgage residential loans and by stock in the FHLB. The
long-term FHLB advances include prepayment penalties for each advance.
FHLB Advance Borrowing Capacity - The Savannah Bank and Bryan Bank are
shareholders of the Federal Home Loan Bank of Atlanta ("FHLB") and have access
to secured borrowings from the FHLB. Both subsidiary banks have a Blanket
Floating Lien Agreement with the FHLB. Under these agreements, the banks have
credit lines up to 75 percent of the book value of its 1-4 family first mortgage
loans, or approximately $18 million as of December 31, 1999. In addition, the
banks had approximately $19.5 million par value of investment securities pledged
as collateral at the FHLB. In aggregate, the Company had secured borrowing
capacity of approximately $36 million of which $18.2 million was advanced at
December 31, 1999. These credit arrangements serve as a core funding source as
well as liquidity backup for the banks. Additional advances are subject to
review and approval by FHLB for the purpose and reasons for the advances. The
Savannah Bank, N.A. and Bryan Bank & Trust have credit lines approved by the
FHLB of 20 percent and 16 percent of assets, respectively, subject to the FHLB
collateral requirements.
Note 9 - Short-Term Borrowings
As of December 31, 1999 and 1998, Savannah Bank and Bryan Bank had short-term
borrowings totaling $6,467 and $3,211, respectively. The average interest rates
were 4.72 percent and 5.21 percent for the years ended 1999 and 1998. Short-term
borrowings at December 31, 1999 and 1998 consist of securities sold under
agreement to repurchase and federal funds purchased. The maximum amount
outstanding at the end of any month was $12,887 and $5,121 during 1999 and 1998,
respectively. At December 31, 1999 federal funds borrowing arrangements
aggregating $20 million were available to the Savannah Bank and Bryan Bank from
correspondent banking institutions. There are no commitment fees, and
compensating balances are not required. These unused lines principally serve as
temporary liquidity back-up lines and are subject to availability of funds and
other specific limitations of the correspondent banks. Savannah Bank is a member
and shareholder of the Federal Reserve Bank of Atlanta and has access to
borrowings at the Federal Reserve Bank discount window.
F-13
<PAGE>
Note 10 - Income Taxes
The provision for income taxes is composed of the following for each of the
years ended December 31:
1999 1998 1997
------ ------ ------
Current federal $1,691 $1,541 $1,425
Current state 94 155 160
------ ------ ------
Total current 1,785 1,696 1,585
------ ------ ------
Deferred federal (101) (53) (60)
Deferred state (11) (7) (13)
------ ------ ------
Total deferred (112) (60) (73)
------ ------ ------
Provision for income taxes $1,673 $1,636 $1,512
====== ====== ======
A deferred tax asset of $640 at December 31, 1999 and a deferred tax liability
of $260 in 1998 has been recognized for the tax effect of the change in the
valuation account for unrealized gains and losses on available for sale
securities which are recorded net of tax in the equity section in accordance
with SFAS No. 115.
A reconciliation between the amount computed by applying the U.S. federal tax
rate of 34% to income before income taxes is as follows:
1999 1998 1997
------ ------ ------
Tax provision at 34% $1,770 $1,449 $1,504
State tax, net of federal tax benefit 63 103 108
Tax-exempt interest, net (133) (113) (114)
Nondeductible merger expenses - 185 -
Other (27) 12 14
------ ------ ------
Provision for income taxes $1,673 $1,636 $1,512
====== ====== ======
Deferred income tax assets and liabilities are comprised of the following at
December 31, 1999 and 1998:
1999 1998
Deferred tax assets: ------ ------
Allowance for loan losses $ 955 $ 784
Unrealized losses on securities 640 -
Other 27 50
------ ------
Total deferred tax assets 1,622 834
------ ------
Deferred tax liabilities:
Unrealized gains on securities - 260
Depreciation 323 282
Other 10 -
------ ------
Total deferred tax liabilities 333 542
------ ------
Net deferred tax assets $1,289 $ 292
====== ======
Note 11 - Stock Option Plan and Benefit Plans
In 1990, the Company granted options to the organizers permitting each organizer
to purchase up to 4,125 shares of Common Stock (74,250 shares in the aggregate)
at an option price of $6.06 per share. They may be exercised after the third
year and before the end of the tenth year following the date the options were
granted (April 10, 1990). In the event that the Company is required to raise
additional capital for the Bank, the options must be either forfeited or
exercised immediately for a price per share equal to the lesser of $6.06 or the
then book value per share of the Common Stock. Bryan Bancorp of Georgia, Inc.
granted two officers a total of 9,250 non-qualified options per year from 1990
to 1994 at exercise prices between $5.14 and $6.35. The unexercised options were
all converted at the exchange ratio and assumed by the Company as a part of the
merger agreement.
F-14
<PAGE>
Note 11 - Stock Option Plan and Benefit Plans (continued)
The Company also has an Incentive Stock Option Plan that provides for the
granting of incentive stock options (ISOs) to certain key officers for the
purchase of shares at the fair market value of the stock at the date of the
grant. There are 2,500 remaining ISOs authorized under this plan at December 31,
1999. Under this plan in April 1995, 44,550 ISOs were granted with an exercise
price of $7.50 for a period of ten years commencing April 18, 1995. In January
1996, another 44,550 ISOs were granted under this plan with an exercise price of
$13.33 for a period of ten years commencing January 2, 1996. In April 1996,
9,000 additional ISOs were granted to other key officers at an exercise price of
$13.33 per share. The April 1996 ISOs vest over five years and are exercisable
over ten years. In January, July and August 1997, 9,250 (assumed in merger),
9,000 and 3,000 ISOs were granted to key officers at an exercise price of
$10.27, $21.50 and $21.63 per share, respectively. The 1997 ISOs vest over five
years and are exercisable over ten years. In February 1998, 4,625 ISOs (assumed
in merger) were granted at an exercise price of $25.50 per share and 10,000 ISOs
were granted upon consummation of the merger at an exercise price of $25.63 per
share. The 1998 ISOs vest over five years and are exercisable over ten years. In
May, 1999, 4000 ISO's were granted at an exercise price of $23.94 and vest over
five year and are exerciseable over ten years.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning
of year 190,800 $11.08 219,575 $ 9.11 218,600 $ 8.05
Granted 4,000 23.94 14,625 21.53 21,250 16.33
Exercised (38,775) 6.10 (43,400) 6.06 (20,275) 5.56
------- ------- -------
Outstanding at end of year 156,025 12.65 190,800 11.08 219,575 9.11
------- ------- -------
Exercisable at end of year 129,525 10.62 161,175 9.07 191,125 8.12
======= ======= =======
</TABLE>
During 1999, 1998 and 1997, the weighted average fair value of options granted
was $7.05, $10.46 and $11.60 per option, respectively.
The Company has chosen to continue to account for its options under the
provisions of Accounting Principles Board Statement No. 25, "Accounting for
Stock Issued to Employees" and thus has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the options granted in 1999, 1998 and 1997 been determined
based on fair value at the grant date for awards in 1999, 1998 and 1997
consistent with the provisions of SFAS No. 123, the Corporation's net income and
net income per share would have been reduced to the pro forma amounts as shown
in the following table:
1999 1998 1997
------ ------ ------
Net Income - as reported $3,533 $2,626 $2,911
Net Income - pro forma $3,435 $2,552 $2,858
Net Income per share - basic -
as reported $1.31 $0.99 $1.10
Net Income per share - pro forma $1.27 $0.96 $1.08
Net Income per share - diluted -
as reported $1.28 $0.95 $1.08
Net Income per share - diluted -
pro forma $1.24 $0.92 $1.04
F-15
<PAGE>
Note 11 - Stock Option Plan and Benefit Plans (continued)
The assumptions regarding the stock options issued to executives in 1999, 1998
and 1997 are that the options shares vest equally between 2000-2004, 1999-2003
and 1998-2002, respectively. The assumptions regarding the stock options issued
to executives in 1996 are that 100% of such options vested on grant date, except
for the 9,000 granted in April, 1996 shares which vest equally between
1997-2001. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions. In
1999: dividend yield of 2.3%; expected volatility of 0.19%; risk free interest
rate of 5.00% and expected life of options of 8 years. In 1998: dividend yield
of 1.4%; expected volatility of 0.19%; risk-free interest rate of 5.50% and
expected life of options of 8 years. In 1997: dividend yield of .64%; expected
volatility of 0.19%; risk free interest rate of 6.37% and expected life of
options of 8 years.
The Company sponsors a 401(k) employee savings and profit-sharing plan in which
substantially all full-time employees are eligible to participate. This plan
allows eligible employees to save a portion of their salary on a pre-tax basis.
Contributions by the Company to the plan are discretionary. Contributions and
administrative expenses related to the plan aggregated $177 and $137 for the
years ended December 31, 1999 and 1998, respectively.
Note 12 - Capital Ratios and Dividend Restrictions
The subsidiary banks' primary regulators have adopted capital requirements that
specify the minimum level for which no prompt corrective action is required. In
addition, the Federal Deposit Insurance Corporation (FDIC) has adopted FDIC
insurance assessment rates based on certain "well-capitalized" risk-based and
equity capital ratios. Failure to meet minimum capital requirements can result
in the initiation of certain actions by the regulators that, if undertaken,
could have a material effect on the Company's and the Bank's financial
statements. Management believes as of December 31, 1999, that the Company and
the Banks meet all capital adequacy requirements to which they are subject. The
following table shows these capital ratios for the Company, the regulatory
minimum and the well-capitalized capital ratios at December 31, 1999 and 1998:
Capital Ratios 1999 1998
- -------------- -------- ---------
Qualifying Capital
- ------------------
Tier 1 capital $ 26,275 $ 23,956
Total capital 28,955 26,225
Average assets for the year 273,935 245,014
Adjusted risk-weighted assets 216,170 182,559
Well-
1999 1998 Minimum Capitalized
-------- --------- ------- -----------
Leverage Ratios
- ---------------
Tier 1 capital to average assets 9.59% 9.78% 4.0% 5.0%
Risk-based Ratios
- -----------------
Tier 1 capital to risk-weighted assets 12.15% 13.12% 4.0% 6.0%
Total capital to risk-weighted assets 13.39% 14.36% 8.0% 10.0%
The most recent notification from the subsidiary banks' primary regulators was
December 31, 1999 and it categorized the Savannah Bank and Bryan Bank as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, a Bank must maintain minimum total risk
based, Tier 1 risk-based, Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%,
respectively. There are no conditions or events since that notification that
management believes have changed the institution's category.
Bank regulators restrict the amount of dividends that banks may pay without
obtaining prior approval. At December 31, 1999, $2,540 in retained earnings of
the Banks was available for the payment of dividends, subject to maintaining
adequate capital ratios in the Bank. The Company is not subject to any
regulatory restrictions on the payment of dividends to its shareholders.
F-16
<PAGE>
Note 13 - Leases and Commitments
Future minimum payments under noncancelable land and office space operating
leases with remaining terms in excess of one year are presented as follows: 2000
- - $359; 2001 - $358; 2002 - $295; 2003 - $268; 2004 - $171 and $299 thereafter.
The land and office space leases contain customary escalation clauses.
Additionally, the Bank has entered into a non-cancelable data processing
servicing agreement which provides for minimum payments as follows: 2000 - $124;
2001 - $127; 2002 - $66. The agreement includes a termination clause where the
Company can buyout the remainder of the contract for 60% of the current monthly
contract times the remaining months.
The net rental expense for all office space operating leases amounted to $370 in
1999, $272 in 1998, and $210 in 1997. The leases on the office space have five
or ten-year renewal options and require increased rentals under cost of living
escalation clauses.
Note 14 - Other Operating Expenses
The components of other operating expenses for the years ended December 31,
1999, 1998 and 1997 were as follows:
1999 1998 1997
------ ------ ------
Outside data processing $ 809 $ 535 $ 430
Professional and directors fees 268 253 221
Postage and courier 211 197 181
Regulatory exams and audit fees 188 171 163
Stationery and supplies 167 197 172
Advertising and sales promotion 163 243 205
Taxes and licenses 125 111 104
Telephone 108 101 75
Correspondent bank charges 97 55 37
Loan costs 69 70 40
Dues and subscriptions 59 54 49
Insurance 38 39 45
Other expense 380 197 121
------ ------ ------
Total other operating expenses $2,682 $2,223 $1,843
====== ====== ======
Note 15 - Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheets. The
contract amounts of these instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank's exposure to credit losses in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. At December 31, 1999 unfunded commitments to extend
credit were $47,146. None of these commitments to extend credit exceeded one
year in duration. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Bank upon extension of credit is based on management's credit
F-17
<PAGE>
Note 15 - Financial Instruments with Off-Balance Sheet Risk (continued)
evaluation of the borrower. Collateral varies, but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. At December 31, 1999 and 1998,
commitments under letters of credit aggregated approximately $1,861 and $1,129,
respectively. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral varies but may include accounts receivable, inventory, equipment,
marketable securities and property. Since most of the letters of credit are
expected to expire without being drawn upon, they do not necessarily represent
future cash requirements.
The Company is not a party to any off-balance sheet derivative financial
instruments.
Note 16 - Fair Value of Financial Instruments
For the Company, as with most financial institutions, the majority of its assets
and liabilities are considered financial instruments. Many of the financial
instruments, however, lack an available trading market as characterized by a
willing buyer and willing seller engaging in an exchange transaction. Therefore,
significant estimations and present value calculations are used for the purpose
of this disclosure. Such estimations involve judgements as to economic
conditions, risk characteristics and future expected loss experience of various
financial instruments and other factors that cannot be determined with
precision.
Cash and due from banks, federal funds sold, variable rate loans, all deposits
except time deposits with remaining maturities over six months and other
borrowings have carrying amounts which approximate fair value primarily because
of the short repricing opportunities of these instruments.
Following is a description of the methods and assumptions used by the Company to
estimate the fair value of its financial instruments:
Investment Securities: Fair value is based upon quoted market prices, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans: The fair value for various types of fixed rate loans is estimated by
discounting the expected future cash flows using the Bank's current interest
rates at which loans would be made to borrowers with similar credit risk. As the
discount rates are based on current loan rates, as well as management estimates,
the fair values presented may not necessarily be indicative of the value
negotiated in an actual sale. The estimated fair value of the Bank's
off-balance-sheet commitments is nominal since the committed rates approximate
current rates offered for commitments with similar rate and maturity
characteristics and since the estimated credit risk associated with such
commitments is not significant.
Deposit liabilities: The fair value of fixed-maturity time deposits is estimated
using the rates currently offered for deposits of similar remaining maturities.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
December 31, 1999 December 31, 1998
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
Financial assets: -------- -------- -------- --------
Cash and federal funds sold $ 16,210 $ 16,210 $ 27,533 $ 27,533
Securities available for sale 58,163 58,163 62,703 62,703
Loans 205,914 204,175 170,858 171,571
Financial liabilities:
Deposits 234,262 $234,170 $232,372 $233,200
Securities sold under repurchase
agreements 5,562 5,562 2,674 2,674
Federal funds purchased 905 905 537 537
Federal Home Loan Bank advances 18,248 18,147 4,450 4,444
F-18
<PAGE>
Note 17 - The Savannah Bancorp, Inc.(Parent Company Only) Financial Information
<TABLE>
<CAPTION>
The following is a condensed statement of
condition of the Parent Company at The cash flows of the Parent Company are shown below for the three
December 31, 1999 and 1998: years ended December 31:
Assets 1999 1998 1999 1998 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash on deposit $ 203 $ 77 Operating Activities
Investment securities 101 - Net income $3,533 $2,626 $2,911
Investment in subsidiaries 24,446 24,602 Adjustments to reconcile net
Other assets 704 108 income to cash used for operations:
------- ------- Equity in undistributed
Total assets $25,454 $24,787 net income of subsidiaries (1,380) (2,266) (2,133)
======= ======= Gain on sale of assets - (57) -
Liabilities Increase in other assets (581) (45) -
Other liabilities $ 223 $ 312 (Decrease) increase in
------- ------- accrued expenses (89) 256 (3)
Total liabilities 223 312 ------- ------- -------
------- ------- Net cash provided by
Shareholders' Equity operating activities 1,483 514 775
Common stock 2,720 2,720 ------- ------- -------
Capital surplus 13,038 13,076 Investing Activities
Treasury stock (210) (275) Purchase of investment securities (140) - -
Accumulated other (1,044) 516 Proceeds from sale of land - 356 -
Retained earnings 10,727 8,438 ------- ------- -------
------- ------- Net cash provided by
Total liabilities and investing activities (140) 356 -
Shareholders' equity $25,454 $24,787 ------- ------- -------
======= =======
Financing Activities
The operating results of the Parent Company are shown below Exercise of options 234 336 (87)
for the three years ended December 31: Purchase of treasury stock (207) - -
Dividends paid (1,244) (1,281) (668)
1999 1998 1997 ------- ------- -------
------- ------- ------- Net cash used in
financing activities (1,217) (945) (755)
------- ------- -------
Dividend income $2,295 $1,000 $840 Increase (decrease) in cash
Interest income 3 4 3 and cash equivalents 126 (75) 20
------- ------- -------
Net interest & dividend income 2,298 1,004 843 Cash at January 1 77 152 132
------- ------- ------- ------- ------- -------
Gain on sale of property - 57 - Cash at December 31 $ 203 $ 77 $ 152
------- ------- ------- ======= ======= =======
Total expenses 230 758 99
------- ------- ------- No interest or income taxes were paid by the parent company
Income before income in any of the three years presented.
taxes and equity in
undistributed net income The Parent Company financial statements include the following
of subsidiaries 1,868 303 744 intercompany items: interest-bearing deposits on the balance
Credit for income taxes 85 57 34 sheet; dividend income, interest income and $14 of fees paid
------- ------- ------- each year to the Bank in other expenses on the income statements.
Income before equity in
undistributed net income
of subsidiaries 1,953 360 778
Equity in undistributed net
income of subsidiaries 1,380 2,266 2,133
------- ------- -------
Net income $3,533 $2,626 $2,911
======= ======= =======
</TABLE>
F-19
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
($ in thousands, except share data)
- -----------------------------------
For a comprehensive presentation of the Company's financial condition and
results of operations, the following selected financial data and analysis should
be reviewed along with the consolidated financial statements and the
accompanying notes to the consolidated financial statements. All dollar amounts,
except per share amounts, are in thousands.
Table 1 - Selected Financial Condition Highlights - Five-Year Comparison
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Average Balances
Total assets $273,935 $245,014 $205,032 $179,806 $151,577
Loans - net of unearned income 186,997 160,262 139,772 120,232 104,180
Securities 59,997 52,448 40,556 37,801 29,328
Other interest-earning assets 10,677 18,509 12,795 10,048 8,272
Total interest-earning assets 257,671 231,219 193,123 168,081 141,780
Interest-bearing deposits 191,818 181,976 151,478 132,870 111,547
Short-term borrowed funds 18,484 7,683 4,241 1,748 2,417
Total interest-bearing liabilities 210,302 189,659 155,719 134,618 113,964
Noninterest-bearing deposits 36,724 30,137 26,550 24,416 19,761
Total deposits 228,542 212,113 178,028 157,286 131,308
Loan to deposit ratio - average 82% 76% 79% 76% 79%
Shareholders' equity 24,941 23,445 21,040 19,020 17,448
Credit Quality Data
Nonperforming assets $ 342 $ 233 $ 497 $ 82 $ 39
Nonperforming loans 297 233 497 82 39
Net loan losses (recoveries) 74 175 111 79 20
Allowance for loan losses 2,794 2,323 2,063 1,695 1,489
Nonperforming assets to total loans 0.17% 0.14% 0.32% 0.06% 0.03%
Net loan losses (recoveries) to
average loans 0.04% 0.11% 0.08% 0.07% 0.02%
Allowance for loan losses
to total loans 1.36% 1.36% 1.34% 1.29% 1.32%
Allowance for loan losses / net
loan losses 38 13 19 21 74
Selected Financial Data at Period-End
Total assets $286,098 $266,380 $229,172 $197,665 $166,885
Interest-earning assets 268,737 242,669 209,920 177,618 156,089
Loans - net of unearned income 205,914 170,858 154,218 130,909 112,706
Deposits 234,262 232,372 200,444 174,005 143,044
Loan to deposit ratio 88% 74% 77% 75% 79%
Interest-bearing liabilities 218,827 200,680 171,833 144,851 123,149
Shareholders' equity 25,231 24,475 22,397 20,056 18,537
Shareholders' equity to total assets 8.82% 9.19% 9.77% 10.15% 11.11%
Dividend payout ratio 35.21% 48.78% 22.91% 19.22% 19.99%
Risk-based capital ratios:
Tier I capital to risk-based assets 12.15% 13.12% 14.20% 15.72% 16.04%
Total capital to risk-based assets 13.39% 14.36% 15.44% 16.90% 17.24%
Per share:
Book value $ 9.31 $ 9.12 $ 8.48 $ 7.61 $ 6.98
Common stock closing price (Nasdaq) $ 19.70 $ 26.00 $ 23.38 $ 16.33 $ 13.33
Common shares outstanding (000s) 2,709 2,683 2,640 2,635 2,657
</TABLE>
F-20
<PAGE>
Table 2 - Selected Operating Highlights - Five-Year Comparison
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income - taxable equivalent $ 20,990 $ 19,342 $ 16,803 $14,559 $12,802
Interest expense 8,740 8,736 7,343 6,388 5,551
-------- -------- -------- -------- --------
Net interest income - taxable equivalent 12,250 10,606 9,460 8,171 7,251
Taxable equivalent adjustment (248) (147) (136) (115) (86)
-------- -------- -------- -------- --------
Net interest income 12,002 10,459 9,324 8,056 7,165
Provision for loan losses 545 435 480 285 257
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 11,457 10,024 8,844 7,771 6,908
-------- -------- -------- -------- --------
Other operating revenue
Trust fees 192 60 - - -
Service charges on deposit accounts 1,032 849 749 741 615
Mortgage origination fees 601 933 479 211 176
Other income (a) 432 459 441 250 189
Gains (losses) on sale of securities 13 3 4 - (90)
-------- -------- -------- -------- --------
Total other income 2,270 2,304 1,673 1,202 890
-------- -------- -------- -------- --------
Personnel expense 4,578 4,214 3,405 2,722 2,285
Occupancy and equipment expense 1,261 1,010 846 717 588
Nonrecurring merger expenses (b) - 619 - - -
Other expense 2,682 2,223 1,843 1,692 1,649
-------- -------- -------- -------- --------
Total other expense 8,521 8,066 6,094 5,131 4,522
-------- -------- -------- -------- --------
Income before income taxes 5,206 4,262 4,423 3,842 3,276
Provision for income taxes 1,673 1,636 1,512 1,314 1,155
-------- -------- -------- -------- --------
Net income $ 3,533 $2,626 $2,911 $2,528 $2,121
======== ======== ======== ======== ========
Net income per share:
Basic $ 1.31 $ .99 $ 1.10 $ .96 $ .80
Diluted $ 1.28 $ .95 $ 1.06 $ .93 $ .78
Cash dividends paid per share (d) $ .46 $ .34 $ .14 $ .08 $ .07
Average basic shares outstanding 2,704 2,661 2,640 2,641 2,667
Average diluted shares outstanding 2,770 2,760 2,757 2,716 2,718
Performance Ratios (averages)
Net yield on interest-earning assets 4.75% 4.59% 4.90% 4.86% 5.11%
Return on assets 1.29% 1.07% 1.42% 1.41% 1.40%
Return on equity 14.17% 11.20% 13.84% 13.29% 12.16%
Overhead ratio 59.76% 63.21% 55.44% 55.42% 55.52%
Excluding Nonrecurring Items (c)
Operating net income $3,533 $3,181 $2,911 $2,528 $2,121
Operating net income per diluted share $ 1.28 $ 1.15 $ 1.06 $ 0.93 $ 0.78
Return on assets 1.29% 1.30% 1.42% 1.41% 1.40%
Return on equity 14.17% 13.57% 13.84% 13.29% 12.16%
Overhead ratio 59.76% 58.62% 55.44% 55.42% 55.52%
</TABLE>
(a) 1998 includes $57 first quarter Bryan gain on the sale of land
purchased for a new Bryan office.
(b) 1998 includes $75 non-recurring data processing buyout expens
incurred in the fourth quarter.
(c) Excludes the effects of after-tax merger expenses of $544 and
after-tax non-recurring items described in (a) and (b) of $11 in
net charges.
(d) Cash dividends per common share are those of The Savannah Bancorp,
Inc. (historical)
F-21
<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 or
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.
During 1999, loans increased $35.1 million, or 21%, and deposits increased $1.9
million, or 1% resulting in an increase in the loan to deposit ratio from 74% at
the beginning of the year to 88% at year-end. Loan growth was fueled by an
excellent local economy. Time deposit growth slowed due to deposit pricing
strategies in early 1999 that resulted in the runoff of certain higher rate time
deposits. Lower core deposit growth resulted from an extremely competitive
deposit market and less effective deposit marketing efforts than planned. Future
core deposit growth will be accomplished through management attention focused on
deposit growth, improved marketing strategies, deposit growth incentives and
higher interest rates.
Both subsidiary banks have a Blanket Floating Lien Agreement with the Federal
Home Loan Bank of Atlanta ("FHLB"). Under these agreements, the banks have
credit lines up to 75 percent of the book value of their 1-4 family first
mortgage loans, or approximately $18 million as of December 31, 1999. In
addition, the banks had approximately $19.5 million par value of investment
securities pledged as collateral at the FHLB. In aggregate, the Company had
secured borrowing capacity of approximately $36 million of which $18.2 million
was advanced at December 31, 1999. These credit arrangements serve as a core
funding source as well as liquidity backup for the banks. The Savannah Bank,
N.A. and Bryan Bank & Trust have credit lines approved by the FHLB of 20 percent
and 16 percent of assets, respectively, subject to the FHLB collateral
requirements. The subsidiary banks also have $20 million of federal funds
borrowing lines available from correspondent banks.
A continuing objective of the Bank's 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 December 31, 1999, was a
$17.9 million liability gap within one year, or 7 percent of total
interest-earning assets (see Table 3). Fixed rate earning assets with maturities
over five years totaled $24.6, or 9 percent of total interest-earning assets.
The maturity and repricing gap between one and five years will adjust
significantly each year through normal loan and deposit activity. Management
uses interest rate risk models run on a quarterly basis to measure interest rate
risk and reports the results of such models to the Credit/Asset Liability
Committee of the Board of Directors. The models indicate that changes in net
interest income resulting from interest rate increases or decreases are within
acceptable tolerances.
Although the Company is liability sensitive within one year, it is asset
sensitive in the 1-3 month range. The very short-term asset sensitivity position
of the Company indicates that net interest income will be impacted positively
when the prime rate and deposit rates increase. However, once rates stop
increasing, time deposits that reprice within one year will cause a negative
impact on net interest income.
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
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
December 31, 1999, the Company had unfunded commitments to extend credit of
$47,146 and outstanding stand-by letters of credit of $1,861. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company uses the same credit policies in establishing commitments and issuing
letters of credit as it does for on-balance sheet instruments. Management does
not anticipate that funding obligations arising from these financial instruments
will adversely impact its ability to fund future loan growth or deposit
withdrawals.
F-22
<PAGE>
Table 3 - Long-Term Maturity Gap and Repricing Data
The following is the long-term maturity and repricing data for the Company as of
December 31, 1999:
<TABLE>
<CAPTION>
($ 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 4,276 3,948 5,480 16,982 14,496 14,663 59,845
6.16% 6.67% 6.22% 6.14% 6.13% 6.21% 6.18%
Interest-bearing deposits 314 - - - - - 314
5.50% - - - - - 5.50%
Federal funds sold 2,892 - - - - - 2,892
5.50% - - - - - 5.50%
Loans - fixed rates 50,236 25,065 30,420 10,044 10,645 5,427 131,837
8.53% 8.84% 8.63% 8.32% 8.10% 8.44% 8.56%
Loans - variable rates 37,156 14,556 10,171 4,224 4,589 3,153 73,849
9.22% 9.11% 9.22% 8.79% 8.84% 9.19% 9.15%
------- ------- ------- ------- ------- ------- -------
Total earning assets 94,874 43,569 46,071 31,250 29,730 23,243 268,737
8.58% 8.73% 8.47% 7.20% 7.25% 7.10% 8.16%
Interest bearing deposits:
NOW and savings 5,240 5,240 5,240 5,240 5,239 26,200 52,399
2.33% 2.33% 2.33% 2.33% 2.33% 2.33% 2.33%
Money market accts 4,050 4,050 4,050 4,050 4,050 20,096 40,346
4.07% 3.92% 3.92% 3.92% 3.92% 3.92% 3.93%
Time, $100 and over 33,526 3,135 1,097 799 332 - 38,889
5.29% 5.73% 5.84% 5.97% 5.29% - 5.35%
Other Time 49,303 7,507 2,084 2,898 686 - 62,478
5.10% 5.41% 5.75% 5.89% 5.43% - 5.20%
------- ------- ------- ------- ------- ------- -------
Total interest bearing
Deposits 92,119 19,932 12,471 12,987 10,307 46,296 194,112
4.97% 4.35% 3.73% 3.84% 3.26% 3.02% 4.19%
Funds Purchased 6,467 - - - - - 6,467
5.48% - - - - - 5.48%
Federal Home Loan Bank Advances 14,205 208 211 215 1,219 2,190 18,248
5.46% 6.00% 6.00% 6.00% 6.00% 6.00% 5.57%
------- ------- ------- ------- ------- ------- -------
Total interest bearing liabilities 112,791 20,140 12,682 13,202 11,526 48,486 218,827
5.05% 4.37% 3.76% 3.88% 3.55% 3.17% 4.35%
GAP-Excess Assets (17,917) 23,429 33,389 18,048 18,204 (25,243) 49,910
------- ------- ------- ------- ------- ------- -------
GAP-Cumulative-12/31/99 (17,917) 5,512 38,901 56,949 75,153 49,910 49,910
------- -------- ------- ------- ------- ------- -------
</TABLE>
(a) estimated cash flow runoff of 10% per year has been assumed.
F-23
<PAGE>
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. Good loan and core deposit growth resulted in an
increase of $1,543, or 15 percent, in net interest income. The Company increased
its investment in callable U.S. Government agency securities in 1999. In
general, investments have expected maturities of less than five years.
Tax-exempt bank qualified municipals total $9.4 million, or approximately 16
percent of the investment portfolio, and have weighted average maturities of
approximately 5.4 years. At December 31, 1999, approximately 18.5 percent of
equity capital, or $4,678, was invested in bank premises and equipment.
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.
In 1999, an increase in U.S. Treasury market rates of approximately 75 to 125
basis points caused net unrealized losses on available for sale securities of
$1,044 compared to net unrealized gains of $516 at December 31, 1998. These
amounts are included in shareholders' equity at December 31, 1999 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 December 31, 1999, the Company and the Bank exceed the minimum
requirements necessary to be classified as "well-capitalized."
Total equity capital for the Company is $25,231, or 8.8% of total assets.
Management expects that the Company's and the Bank's capital ratios will
continue to remain above the well-capitalized capital ratio level, even in the
event of future substantial increases in market rates. The high capital ratio
and expected future earnings will allow the bank to continue its aggressive
growth objectives without having to raise additional capital in the near future.
Results of Operations
1999 compared with 1998
For 1999, the Company had operating net income of $3,533, up 11 percent from
$3,181 in 1998. This represented annualized returns of 14.17 percent on average
equity and 1.29 percent on average assets for 1999. Operating earnings were
$1.28 per diluted share in 1999 compared to $1.15 in 1998, an increase of 11
percent.
Earnings in 1998 include $555,000 in after-tax, nonrecurring charges related to
the merger of Bryan Bancorp of Georgia into The Savannah Bancorp on December 15,
1998. Including the nonrecurring items, net income per diluted share was 95
cents for the year with net income totaling $2,626. The merger with Bryan
Bancorp of Georgia has been accounted for under the pooling-of-interests
accounting method.
Operating net interest income growth included a higher net yield on
interest-earning assets (net interest margin) caused by rising interest rates
and excellent growth in the loan portfolio. Overhead expenses were higher due to
F-24
<PAGE>
one full-service office opening in September 1998 and the implementation of
image check processing in September 1998. Year 2000 expenses consisting of
consulting, education and implementation costs were also incurred. The Company's
facilities and staff are well positioned to add significant asset growth with a
much lower overhead growth.
Net interest income was $12,002 in 1999 compared to $10,459 in 1998, an increase
of $1,543, or 15%. Average interest-earning assets were up $26.5 million, or 11%
in 1999 over 1998. The prime rate increased 75 basis points to 8.50% during July
through December 1999 and time deposit rates increased between 50 and 100 basis
points during 1999. The net yield on interest earning assets increased to 4.75%
in 1999 from 4.59% in 1998.
The provision for loan losses was $545 in 1999 compared to $435 in 1998. Net
loan charge-offs totaled $74 in 1999 and $175 in 1998. There was $342 in
non-performing assets at December 31, 1999 and $233 at December 31, 1998. The
allowance for possible loan losses was 1.36% of loans at December 31, 1999 and
December 31, 1998.
Other income was $2,270 in 1999 compared to $2,304 in 1998. Other income
included mortgage origination fees of $602 in 1999 and $933 in 1998. Higher
mortgage rates during 1999 caused declines in mortgage origination fee income
during 1999. Trust fee income was $192 in 1999 and $60 in 1998. Other income in
1998 also included the $57 gain from the sale of land by Bryan.
Other expenses were $8,521 in 1999 compared to $8,066 in 1998, an increase of
$455. Excluding 1998 merger costs of $619, other expenses increased $1,074, an
increase of 13 percent. Salary and employee benefit expense increased to $4,578
in 1999 from $4,214, an increase of 9 percent. Other operating expenses
increased to $ 2,682 or 21 percent for increases in data processing related
primarily to check imaging and Year 2000. Occupancy expense and equipment
increased because of the Medical Arts Office that opened in November 1998 and
additional space for the Trust Department, Operations and the Bluffton, SC
mortgage office.
The provision for income taxes was $1,673 in 1999 and $1,636 in 1998. The
effective federal and state tax rates were 32.1% and 38.4% in 1999 and 1998,
respectively. The decrease in the effective rate was primarily due to certain
non-deductible merger expenses in 1998. The Company has not recorded a valuation
allowance against deferred tax assets. All deferred tax assets are considered to
be realizable due to expected future taxable income.
Results of Operations
1998 compared with 1997
For 1998, the Company had operating net income of $3,181, up 9 percent from
$2,911 in 1997. This represented annualized returns of 13.57 percent on average
equity and 1.30 percent on average assets for 1998. Operating earnings were
$1.15 per diluted share in 1998 compared to $1.06 in 1997, an increase of 8
percent.
Operating earnings exclude $555 in special after-tax, nonrecurring merger items
taken during 1998 as Bryan Bancorp of Georgia was merged into The Savannah
Bancorp on December 15, 1998. Special charges include legal, accounting,
advisory and data processing contract buyout costs totaling $619,000 associated
with the merger. A first quarter gain on sale of land of $57 has also been
excluded as a non-recurring item. Including the nonrecurring items, net income
per diluted share was 95 cents for the year with net income totaling $2,626. The
merger with Bryan Bancorp of Georgia has been accounted for under the
F-25
<PAGE>
pooling-of-interests accounting method. The financial results for all periods
presented have been restated to show the results of the two companies as if they
had been one.
Operating net interest income growth was moderated by a lower net yield on
interest-earning assets (net interest margin) caused by falling rates and very
competitive loan pricing. Overhead expenses were higher due to two full-service
offices opening in October 1997 and September 1998 and the addition of five new
officers. Year 2000 expenses consisting of consulting, education and
implementation costs were also incurred. The Company's facilities and people are
now well-positioned to add significant asset growth with a much lower overhead
growth.
Net interest income was $10,459 in 1998 compared to $9,324 in 1997, an increase
of $1,135, or 12%. Average interest-earning assets were up $38.1 million, or 20%
in 1998 over 1997. The prime rate decreased 75 basis points to 7.75% during
September through November 1997 and time deposit rates decreased between 50 and
100 basis points during 1998. The net yield on interest earning assets decreased
to 4.59% in 1998 from 4.90% in 1997.
The provision for loan losses was $435 in 1998 compared to $480 in 1997. Net
loan charge-offs totaled $175 in 1998 and $111 in 1997. There was $233 in
non-performing assets at December 31, 1998 and $497 at December 31, 1997. The
allowance for possible loan losses was 1.36% of loans at December 31, 1998 and
1.34% at December 31, 1997.
Other income was $2,304 in 1998 compared to $1,673 in 1997. Other income
included mortgage origination fees of $933 in 1998 and $479 in 1997. Lower
mortgage rates during 1998 stimulated the growth in mortgage origination fee
income during 1998. A trust department was started in December, 1996 and trust
fee income was $60 in 1998 and $30 in 1997. Other income in 1998 also included
the $57 gain from the sale of land by Bryan.
Other expenses were $8,066 in 1998 compared to $6,094 in 1997, an increase of
$1,972. The increase included $619 of expenses related to the merger with Bryan
Bancorp of Georgia, Inc. Salary and employee benefit expense increased to $4,214
in 1998 from $3,405 in 1997 due to new positions being added in late 1997 and
1998 for two new branches, a credit administration officer a technology position
and an expanded mortgage staff.. Other operating expenses increased $2,223 or
21% for increases in data processing related to check imaging, Year 2000 and
upgrading our communications network. Other increases such as postage, supplies
and other related to the increasing volume of loan and deposit accounts and the
costs necessary to acquire and service them. Occupancy expense and equipment
increased primarily because of the Islands Towne Center Office that opened in
October 1997 and the Medical Arts lease which was assumed in July 1998..
The provision for income taxes was $1,636 in 1998 and $1,512 in 1997. The
effective federal and state tax rates were 38.4% and 34.2% in 1998 and 1997,
respectively. The increase in the effective rate was primarily due to certain
non-deductible merger expenses. 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.
F-26
<PAGE>
Table 4 - Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock was sold in an initial public offering on April 10,
1990. It is traded in the over-the-counter market and is quoted on the Nasdaq
National Market under the symbol SAVB. The quarterly high, low and closing stock
trading prices for 1999 and 1998 are listed below. On December 15, 1998
approximately 937,000 additional shares were issued to shareholders of Bryan
Bancorp of Georgia, Inc. in exchange for all of the outstanding stock in Bryan
Bancorp of Georgia, Inc. There were approximately 650 holders of record of
Company Common Stock and, according to information available to the Company,
approximately 600 additional shareholders through brokerage accounts at February
29, 2000.
Market Price per Common Share
----------------------------------------
Fourth Third Second First
1999 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
High $20.75 $22.50 $24.00 $25.00
Low 19.00 19.75 21.00 21.50
Close 19.70 20.13 22.00 22.44
1998
----
High $26.00 $27.00 $28.25 $31.00
Low 21.00 21.50 25.50 23.38
Close 26.00 21.50 26.00 27.50
Table 5 - Selected Quarterly Data
The following is a summary of unaudited quarterly results for 1999 and 1998 that
has been restated for the merger with Bryan Bancorp of Georgia on December 15,
1998, using the pooling of interests accounting method.
<TABLE>
<CAPTION>
1999 1998
-------------------------------- -------------------------------
Condensed Income Statements Fourth Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $3,215 $3,092 $2,946 $2,749 $2,738 $2,681 $2,584 $2,456
Provision for loan losses 155 165 120 105 160 85 90 100
- ---------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,060 2,927 2,826 2,644 2,578 2,596 2,494 2,356
Non-interest income 593 555 557 552 624 582 533 562
Securities transactions - - 8 5 1 1 1 -
Non-interest expense 2,277 2,107 2,111 2,026 2,062 1,879 1,749 1,757
Merger expenses - - - - 619 - - -
- ---------------------------------------------------------------------------------------------------
Income before income taxes 1,376 1,375 1,280 1,175 522 1,300 1,279 1,161
Applicable income taxes 430 444 415 384 352 450 448 386
- ---------------------------------------------------------------------------------------------------
Net income $ 946 $ 931 $ 865 $ 791 $ 170 $ 850 $ 831 $ 775
===================================================================================================
(a) (b)
Net income per share:
Basic $ 0.35 $ 0.34 $ 0.32 $ 0.29 $ 0.06 $ 0.32 $ 0.31 $ 0.29
===================================================================================================
Diluted $ 0.34 $ 0.34 $ 0.31 $ 0.29 $ 0.06 $ 0.31 $ 0.30 $ 0.28
===================================================================================================
(a) - 1998 includes after-tax merger expenses of $591 or $0.21 per share.
(b) - 1998 includes $57 pretax gain related to merger of sale of land by
Bryan for future office.
Average shares outstanding:
Basic 2,710 2,710 2,706 2,689 2,677 2,665 2,648 2,647
===================================================================================================
Diluted 2,766 2,772 2,776 2,772 2,764 2,769 2,775 2,774
===================================================================================================
</TABLE>
F-27
Exhibit 21 - Subsidiaries of the Registrant
Name State of Incorporation
---- ----------------------
The Savannah Bank, National Association United States
Bryan Bank & Trust Georgia
EXHIBIT 22.1
REPORT OF PREDECESSOR INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Savannah Bancorp, Inc.:
We have audited the accompanying consolidated balance sheet of The
Savannah Bancorp, Inc. (a Georgia Corporation) and its subsidiary as of December
31, 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the two years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated financial
statements of Bryan Bancorp of Georgia, Inc. for the year ended December 31,
1997, a company acquired during 1998 in a transaction accounted for as a pooling
of interests, as discussed in Note 2. Such statements are included in the
consolidated financial statements of The Savannah Bancorp, Inc. and reflect
total assets of 30% as of December 31, 1998, and total revenues of 33% and 34%
for each of the two years in the period ended December 31, 1998 of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for Bryan Bancorp of Georgia, Inc., is based solely upon the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of The Savannah Bancorp, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Jacksonville, Florida
January 25, 1999
EXHIBIT 22.2
REPORT OF PREDECESSOR INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Bryan Bancorp of Georgia, Inc.
Richmond Hill, Georgia
We have audited the consolidated statements of income, shareholders' equity, and
cash flows of Bryan Bancorp of Georgia, Inc. and Subsidiary for the year then
ended December 31, 1997 (not included herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and cash flows
of Bryan Bancorp of Georgia, Inc. and Subsidiary for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ MOORE STEPHENS TILLER LLC
(formerly Tiller, Stewart & Company LLC)
Savannah, Georgia
January 30, 1998
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No.333-69175 on Form S-8.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Atlanta, Georgia
March 20, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No.333-69175 on Form S-8.
/s/ ARTHUR ANDERSEN LLP
Jacksonville, Florida
March 20, 2000
EXHIBIT 23.3
CONSENT OF MOORE STEPHENS TILLER LLC
(formerly Tiller, Stewart & Company LLC)
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No.333-69175 on Form S-8.
/s/ MOORE STEPHENS TILLER LLC
Savannah, Georgia
March 20, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE - ARTICLE 9 EDGAR DISCLOSURES
<ARTICLE> 9
<CIK> 0000860519
<NAME> THE SAVANNAH BANCORP, INC.
<MULTIPLIER> 1000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 13004
<INT-BEARING-DEPOSITS> 314
<FED-FUNDS-SOLD> 2892
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 59845
<INVESTMENTS-MARKET> 58163
<LOANS> 205914
<ALLOWANCE> (2794)
<TOTAL-ASSETS> 286098
<DEPOSITS> 234262
<SHORT-TERM> 20467
<LIABILITIES-OTHER> 1890
<LONG-TERM> 4248
<COMMON> 2720
0
0
<OTHER-SE> 22511
<TOTAL-LIABILITIES-AND-EQUITY> 286098
<INTEREST-LOAN> 16769
<INTEREST-INVEST> 3445
<INTEREST-OTHER> 528
<INTEREST-TOTAL> 20742
<INTEREST-DEPOSIT> 7785
<INTEREST-EXPENSE> 8740
<INTEREST-INCOME-NET> 12002
<LOAN-LOSSES> 545
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 8521
<INCOME-PRETAX> 5206
<INCOME-PRE-EXTRAORDINARY> 3533
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3533
<EPS-BASIC> 1.31
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.75
<LOANS-NON> 274
<LOANS-PAST> 68
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 68
<ALLOWANCE-OPEN> 2323
<CHARGE-OFFS> 168
<RECOVERIES> 74
<ALLOWANCE-CLOSE> 2794
<ALLOWANCE-DOMESTIC> 2794
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
