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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18560
THE SAVANNAH BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1861820
------------------------------- ---------------
(State or other jurisdiction of (IRS Employer incorporation or organization)
Identification No.)
25 Bull Street, Savannah, GA 31401
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
912-651-8200
---------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and
former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 2000
2,701,607 shares of Common Stock, $1.00 par value per share
================================================================
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THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
SEPTEMBER 30, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Review Report of Independent Certified Public Accountants 2
Consolidated Balance Sheets - September 30, 2000 and 1999
and December 31, 1999 3
Consolidated Statements of Income for the Third Quarter and
for the Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders' Equity
for the Nine months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
for the Nine months Ended September 30, 2000 and 1999 6
Condensed Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
EXHIBITS
Financial Data Schedules Exhibit 27
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Audit Committee of the
Board of Directors of
The Savannah Bancorp, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of The
Savannah Bancorp, Inc. and subsidiaries as of September 30, 2000, and the
related condensed consolidated statements of income for the three-month and
nine-month periods then ended and the related condensed consolidated statements
of changes in shareholders' equity and cash flows for the nine-month period then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Atlanta, Georgia
November 1, 2000
2
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
ASSETS (Unaudited) (Unaudited)
----------- ----------- ------------
Cash and due from banks $ 11,179 $ 13,004 $ 12,667
Interest-bearing deposits in bank 115 314 -
Federal funds sold 6,226 2,892 6,376
Securities available for sale, at
fair value (amortized cost of $58,628
on 9/30/00, $59,845 on 12/31/99
and $59,511 on 9/30/99) 57,525 58,163 58,511
Loans 243,144 205,914 197,323
Less allowance for loan losses (3,254) (2,794) (2,682)
----------- ----------- ------------
Net loans 239,890 203,120 194,641
Premises and equipment, net 4,636 4,678 4,705
Other real estate owned - 45 45
Other assets 4,050 3,882 3,340
----------- ----------- ------------
TOTAL ASSETS $ 323,621 $ 286,098 $ 280,285
=========== =========== ============
LIABILITIES
Deposits:
Non interest-bearing demand $ 41,341 $ 40,150 $ 37,362
Interest-bearing demand 45,565 40,186 43,090
Savings 11,620 12,213 11,934
Money market accounts 32,306 40,346 35,391
Time, $100,000 and over 57,325 38,889 38,562
Other time deposits 85,588 62,478 61,046
----------- ----------- ------------
Total deposits 273,745 234,262 227,385
Federal Home Loan Bank Advances 11,105 18,248 16,309
Securities sold under repurchase 8,906 5,562 8,857
agreements
Federal funds purchased 326 905 561
Other liabilities 2,294 1,890 1,994
----------- ----------- ------------
TOTAL LIABILITIES 296,376 260,867 255,106
----------- ----------- ------------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share:
authorized 20,000,000 shares; issued
2,719,614 shares 2,720 2,720 2,720
Preferred stock, par value $1 per
share:Authorized 10,000,000 shares,
none issued - - -
Capital surplus 12,821 13,038 13,076
Retained earnings 12,730 10,727 10,106
Treasury stock, 18,007 shares at
9/30/00, 10,675 shares at12/31/99,
and 9,800 shares at 9/30/99 (342) (210) (107)
Accumulated other comprehensive losses (684) (1,044) (616)
----------- ----------- ------------
TOTAL SHAREHOLDERS' EQUITY 27,245 25,231 25,179
----------- ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 323,621 $ 286,098 $ 280,285
=========== =========== ============
See the condensed notes to the consolidated financial statements.
3
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share data)
FOR THE QUARTER FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------- -------
Interest income $6,869 $5,286 $18,932 $15,182
Interest expense 3,285 2,194 8,675 6,395
------ ------ ------- -------
NET INTEREST INCOME 3,584 3,092 10,257 8,787
Provision for loan losses 195 165 570 390
------ ------ ------- -------
Net interest income after
provision for loan losses 3,389 2,927 9,687 8,397
------ ------ ------- -------
OTHER INCOME
Trust fees 63 53 229 137
Service charges on deposit
accounts 331 268 936 726
Mortgage origination fees 142 126 361 497
Other income 114 108 344 304
------ ------ ------- -------
Total other operating income 650 555 1,870 1,664
Gains on sales of assets 0 0 0 13
------ ------- ------- --------
Total other income 650 555 1,870 1,677
------ ------ ------- -------
OTHER EXPENSE
Salaries and employee benefits 1,313 1,124 3,843 3,418
Occupancy expense 168 171 501 491
Equipment expense 153 144 452 422
Other operating expenses 739 668 2,141 1,913
------ ------ ------- -------
Total other expense 2,373 2,107 6,937 6,244
------ ------ ------- -------
Income before provision for 1,666 1,375 4,620 3,830
income taxes
Provision for income taxes 537 444 1,480 1,243
------ ------ ------- -------
NET INCOME $1,129 $ 931 $ 3,140 $ 2,587
====== ====== ======= =======
NET INCOME PER SHARE:
BASIC $ 0.42 $ 0.34 $ 1.16 $ 0.96
====== ====== ======= =======
DILUTED $ 0.41 $ 0.34 $ 1.14 $ 0.93
====== ====== ======= =======
See the condensed notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
($ in thousands, except share data) Common Stock Capital Retained Treasury Comprehensive
Shares Amount Surplus Earnings Stock Income Total
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 2,719,614 $2,720 $13,076 $8,438 ($275) $516 $24,475
Comprehensive income:
Net income 2,587 2,587
Change in unrealized losses on
securities available for sale, net of tax (1,132) (1,132)
-------
Total comprehensive income 1,455
Cash dividends - $.34 per share (919) (919)
Exercise of options 168 168
------------------------------------------------------------------------------
Balance, September 30, 1999 2,719,614 $2,720 $13,076 $10,106 ($107) ($616) $25,179
==============================================================================
Balance, December 31, 1999 2,719,614 $2,720 $13,038 $10,727 ($210) ($1,044) $25,231
Comprehensive income:
Net income 3,140 3,140
Change in unrealized losses on
securities available for sale, net of tax 360 360
-------
Total comprehensive income 3,500
Cash dividends - $.42 per share (1,137) (1,137)
Exercise of options (217) 315 98
Purchase of treasury stock (447) (447)
--------------------------------------------------------------------------------
Balance, September 30, 2000 2,719,614 $2,720 $12,821 $12,730 ($342) ($684) $27,245
================================================================================
</TABLE>
See the condensed notes to the consolidated financial statements.
5
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE
FOR THE NINE MONTHS ENDED YEAR ENDED
($ in thousands) SEPTEMBER 30, DECEMBER 31,
------------------------- ------------
OPERATING ACTIVITIES 2000 1999 1999
-------- -------- --------
Net income $ 3,140 $ 2,587 $ 3,533
Adjustments to reconcile net income
to cash Provided by operating
activities:
Provision for loan losses 570 390 545
Depreciation of premises and equipment 422 417 584
Gains on sale or calls of investment
securities - (13) (13)
Amortization of investment securities
discount 27 77 91
Increase in other assets (309) (34) (245)
Increase in other liabilities 368 260 81
-------- -------- --------
Net cash provided by operating
activities 4,218 3,684 4,576
-------- -------- --------
INVESTING ACTIVITIES
Purchases of investment securities (2,510) (12,952) (15,834)
Proceeds from sales or calls of
investment - 2,762 1,008
Proceeds from maturities of investment
securities 3,703 12,479 16,765
Net increase in loans made to customers (37,340) (26,496) (35,130)
Capital expenditures (380) (295) (435)
-------- -------- --------
Net cash used in investing activities (36,527) (24,502) (33,626)
-------- -------- --------
FINANCING ACTIVITIES
Net (decrease) increase in demand,
savings and money market accounts (2,063) (2,140) 2,978
Net increase (decrease) in certificates
of deposits 41,546 (2,846) (1,088)
Net increase in securities sold under
agreements to repurchase 3,344 6,183 2,888
Net (decrease) increase in FHLB advances (7,143) 11,859 13,798
Net (decrease) increase in federal
funds purchased (579) 23 368
Purchase of treasury stock (447) - (207)
Dividend payments (1,137) (919) (1,244)
Exercise of options 98 168 234
-------- -------- --------
Net cash provided by financing
activities 33,619 12,328 17,727
-------- -------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENts 1,310 (8,490) (11,323)
Cash and cash equivalents at
beginning of period 16,210 27,533 27,533
-------- -------- --------
Cash and cash equivalents at end of
period $ 17,520 $ 19,043 $ 16,210
======== ======== ========
See the condensed notes to the consolidated financial statements.
6
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto, included in the Company's annual report on
Form 10-K for the year ended December 31, 1999.
NOTE 2 - SHARES USED IN COMPUTING NET INCOME PER SHARE
Net income per diluted share is computed using the weighted-average number of
common and dilutive common equivalent shares outstanding during the periods. The
diluted weighted-average shares outstanding are calculated as follow:
Third Quarter Nine Months
(thousands) 2000 1999 2000 1999
----- ----- ----- -----
Basic shares outstanding 2,701 2,710 2,706 2,702
Common stock equivalents 44 62 4 71
----- ----- ----- -----
Diluted shares outstanding 2,745 2,772 2,749 2,773
===== ===== ===== =====
The Company had no amortization of merger related intangible assets and
therefore no separate earnings per share, excluding the amortization of
intangibles has been presented.
NOTE 3 - FORWARD LOOKING STATEMENTS
The Savannah Bancorp, Inc. (the Company) may from time to time make written or
oral "forward-looking statements," including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
quarterly report on Form 10-Q and, in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and
7
<PAGE>
NOTE 3 - FORWARD LOOKING STATEMENTS (CONTINUED)
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.
8
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For a comprehensive presentation of The Savannah Bancorp, Inc.'s financial
condition at September 30, 2000 and December 31, 1999 and results of operations
for the quarters ended September 30, 2000 and 1999, the following analysis
should be reviewed along with other information including the Company's December
31, 1999 Annual Report on Form 10-K.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
THIRD QUARTER FINANCIAL HIGHLIGHTS
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Percent
BALANCE SHEET DATA Increase
AT SEPTEMBER 30 2000 1999 (Decrease)
-------------------------------------------------------------------------------
(thousands, except per share data)
Total assets $ 323,621 $ 280,285 15
Interest-earning assets 307,787 263,280 17
Loans 243,144 197,323 23
Allowance for loan losses 3,254 2,682 21
Nonperforming assets 341 133 156
Deposits 273,745 227,385 20
Interest-bearing liabilities 252,741 215,750 17
Shareholders' equity 27,245 25,179 8
Allowance for possibl
loan losses to total loans 1.34% 1.36% (1)
Loan to deposit ratio 88.82% 86.78% 2
Equity to assets 8.42% 8.98% (6)
Tier 1 capital to risk-
weighted assets 11.50% 12.42% (7)
Book value per share $ 10.08 $ 9.29 9
Outstanding shares 2,702 2,710 0
KEY PERFORMANCE DATA
FOR THE THIRD QUARTER
NET INCOME $1,129 $ 931 21
Return on average assets 1.39% 1.34% 4
Return on average equity 16.80% 14.81% 13
Net interest margin 4.73% 4.78% (1)
Efficiency ratio ** 56.05% 57.77% (3)
NET INCOME PER SHARE:
Basic $ 0.42 $ 0.34 24
Diluted $ 0.41 $ 0.34 21
AVERAGE SHARES:
Basic 2,701 2,710 0
Diluted 2,745 2,772 (1)
9
<PAGE>
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
SECOND QUARTER FINANCIAL HIGHLIGHTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Percent
KEY PERFORMANCE DATA Increase
FOR THE FIRST NINE MONTHS 2000 1999 (Decrease)
------------------------------------------------------------------------------
(thousands, except per share data)
NET INCOME $ 3,140 $ 2,587 21
Return on average assets 1.36% 1.29% 5
Return on average equity 16.15% 13.95% 16
Net interest margin 4.78% 4.71% 1
Efficiency ratio ** 57.20% 59.75% (4)
NET INCOME PER SHARE:
Basic $ 1.16 $ 0.96 21
Diluted $ 1.14 $ 0.93 23
AVERAGE SHARES:
Basic 2,706 2,702 0
Diluted 2,749 2,773 (1)
** - Efficiency ratio = other expense / (net interest income + other income)
10
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LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The objectives of funds management include maintaining adequate liquidity and
reasonable harmony between the repricing of sources and uses of funds for
interest sensitive assets and liabilities. The goal of liquidity management is
to ensure the availability of adequate funds to meet the loan demand and the
deposit withdrawal needs of customers. This is achieved through maintaining a
combination of sufficient liquid assets, core deposit growth and unused capacity
to purchase funds in the money markets.
Between December 31, 1999 and September 30, 2000, loans increased $37.2 million
to $243.1 million, while deposits increased $39.5 million to $273.7 million. The
loan to deposit ratio increased from 87.90% at December 31, 1999 to 88.82% at
September 30, 2000. Loan growth continues to be fueled by an excellent local
economy. Developing strategies to grow deposits through marketing plans,
incentives and higher rates is a high management priority for the current year.
Approximately $8 million of time deposit growth in the third quarter was
attributed to non-local deposits acquired through an Internet bulletin board
service designed to connect subscribing time deposit issuers and investors
across the nation. The rates paid were comparable to local market rates.
Additional significant time deposit growth was generated by matching the higher
rates in the market and without advertising such rates. Sources have also been
identified to acquire brokered deposits and to sell participations in certain
loans as a part of our contingency plan for liquidity needs.
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 $36.8 million as of September 30, 2000. In
addition, the banks had approximately $22.7 million par value of investment
securities pledged as collateral at the FHLB. In aggregate, the Company had
secured borrowing capacity of approximately $57.5 million of which $11.1 million
was advanced at September 30, 2000. 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 temporary federal
funds borrowing lines available from correspondent banks.
A continuing objective of asset liability management is to maintain a high level
of variable rate assets, including variable rate loans and shorter-maturity
investments, to balance increases in interest rate sensitive liabilities.
Interest sensitivity management and its effects on the net interest margin
require analyses and actions that take into consideration volumes repriced and
the timing and magnitude of their change.
The Company is a party to financial instruments with off-balance sheet risks in
the normal course of business to meet the financing needs of its customers. At
September 30, 2000, the Company had unfunded commitments to extend credit of
$54.7 million and outstanding stand-by letters of credit of $1.8 million. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The Company uses the same credit policies in establishing commitments and
11
<PAGE>
issuing letters of credit as it does for on-balance sheet instruments.
Management does not anticipate that funding obligations arising from these
financial instruments will adversely impact its ability to fund future loan
growth or deposit withdrawals.
FINANCIAL CONDITION AND CAPITAL RESOURCES
The financial condition of the Company can be assessed by examining the changes
and relationships in the sources and uses of funds as shown in the consolidated
statements of cash flows. At September 30, 2000, the investment in bank premises
and equipment totaled $4.6 million, or approximately 17 percent of equity
capital.
All investment securities are classified as available for sale. Net unrealized
losses on available for sale securities decreased during the third quarter, 2000
due to the decline in bond market interest rates. These amounts are included in
shareholders' equity in other accumulated comprehensive income.
The Company announced a stock repurchase program on October 19, 1999 for up to
50,000 shares of common stock. Through September 30, 2000, 33,800 shares had
been repurchased at an average price of $19.31 per share. Repurchased shares
will be held in the Company's treasury and will be available for resale to meet
the Company's obligation from the exercise of stock options and for general
corporate purposes.
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 September 30, 2000, the Company and the subsidiary banks exceed the
minimum requirements necessary to be classified as "well-capitalized."
Total equity capital for the Company is $27.2 million, or 8.4% of total assets
at September 30, 2000. Tier 1 Capital is 11.50% of Risk-Weighted Assets at the
same date. The adequate capital and strong earnings ratios should allow the
subsidiary banks to continue their aggressive growth objectives without having
to raise additional capital.
RESULTS OF OPERATIONS
THIRD QUARTER 2000 COMPARED WITH THIRD QUARTER 1999
Net income for the third quarter 2000 was $1,129,000, up 21 percent from
$931,000 in the third quarter 1999. This represented annualized returns of 16.80
percent on average equity and 1.39 percent on average assets for the third
quarter, 2000. Diluted earnings per share were $0.41 in the third quarter, 2000
compared to $0.34 for the same period in 1999, an increase of 21 percent.
12
<PAGE>
Net interest income was $3,584,000 as compared to $3,092,000 in 1999, an
increase of $492,000, or 16 percent. Average loans were $240.3 million, or 25
percent, higher in the third quarter 2000 as compared to the third quarter 1999.
The prime rate remained at 9.50 percent during the third quarter 2000. The net
yield on interest earning assets decreased to 4.73 percent in 2000 from 4.78
percent in 1999, primarily as a result of higher deposit rates.
The provision for loan losses was $195,000 in 2000 compared to $165,000 in 1999.
Net loan charge-offs totaled $1,000 for the third quarter 2000 and $3,000 in
1999. There was $341,000 in non-performing assets at September 30, 1999 and
$133,000 at September 30, 1999. The allowance for possible loan losses was 1.34
percent of loans at September 30, 2000 and 1.36 percent at September 30, 1999.
Other income was $650,000 in 2000 compared to $555,000 in 1999. Service charges
on deposit accounts were $331,000 in 2000 and $268,000 in 1999. The increase is
primarily due to fewer waived service charges and an improved commercial
analysis system implemented in January 2000. Other income included mortgage
origination fees of $142,000 and $126,000 in 2000 and 1999, respectively. Fee on
trust services increased to $63,000 in 2000 from $53,000 in 1999.
Other expenses were $2,373,000 in 2000 compared to $2,107,000 in 1999, an
increase of $266,000, or 13 percent. Personnel expense increased $189,000, or 17
percent in 2000.
The provision for income taxes was $537,000 in 2000 and $444,000 in 1999. The
effective federal and state tax rates were 32.2 percent in 2000 and 32.9 percent
in1999. The Company has never recorded a valuation allowance against deferred
tax assets. All deferred tax assets are considered to be realizable due to
expected future taxable income.
FIRST NINE MONTHS 2000 COMPARED WITH NINE MONTHS 1999
Net income for the first nine months 2000 was $3,140,000, up 21 percent from
$2,587,000 in the first nine months 1999. This represented annualized returns of
16.15 percent on average equity and 1.36 percent on average assets for the first
nine months 2000. Diluted earnings per share were $1.14 in the first nine
months, 2000 compared to $0.93 for the same period in 1999, an increase of 23
percent.
Net interest income was $10,257,000 as compared to $8,787,000 in 1999, an
increase of $1,470,000, or 17 percent. Average loans were $226.6 million, or 24
percent, higher in the first nine months 2000 as compared to the first nine
months 1999. The prime rate increased 100 basis points to 9.50 percent during
the first nine months 2000 compared to an increase from 7.75 percent to 8.25
during the first nine months of 1999. Time deposit market rates also increased
during the same periods, offsetting some of the benefits of the higher loan
rates. The net yield on interest earning assets increased to 4.78 percent in
2000 from 4.71 percent in 1999 as a result of higher interest rates and
significant loan growth.
13
<PAGE>
The provision for loan losses was $570,000 in 2000 compared to $390,000 in 1999.
Net loan charge-offs totaled $111,000 for the first nine months 2000 and $31,000
in 1999. The higher provision is due to the increased loans and net charge-offs.
Other income was $1,870,000 in 2000 compared to $1,664,000 in 1999 and increase
of 12 percent. Service charges on deposit accounts were $936,000 in 2000 and
$726,000 in 1999. The increase is primarily due to fewer waived service charges
and an improved commercial analysis system implemented in January 2000. Other
income included mortgage origination fees of $361,000 and $497,000 in 2000 and
1999, respectively. Higher loan rates caused decreases in mortgage origination
volumes and fees throughout the industry. Fee on trust services increased to
$229,000 in 2000 from $137,000 in 1999.
Other expenses were $6,937,000 in 2000 compared to $6,244,000 in 1999, an
increase of $693,000, or 11 percent. Personnel expense increased $425,000 or 12
percent in 2000.
The provision for income taxes was $1,480,000 in 2000 and $1,243,000 in 1999.
The effective federal and state tax rates were 32.0 percent and 32.5 percent in
2000 and 1999, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. The Company has little or no risk
related to trading accounts, commodities or foreign exchange.
Interest rate risk is the exposure of a banking organization's financial
condition and earnings ability to adverse movements in interest rates. The
Company has analyzed the assumed market value risk and earnings risk inherent in
its interest rate sensitive instruments related to interest-rate swings of 200
basis points over a 12 month horizon, both above and below current levels (rate
shock analysis). Based on the presently expected principal cash flows and
interest rates and the policies and procedures in place to monitor interest rate
risk, management believes interest rate risk is being adequately managed within
reasonable earnings fluctuation tolerances.
Earnings and fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. There have been no significant changes in the
Company's overall market risk exposure since December 31, 1999 as disclosed in
the Company's Annual Report on Form 10-K..
14
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PART II - OTHER INFORMATION
Item 1. Legal proceedings. None
Item 2. Changes in securities. None
Item 3. Defaults upon senior securities. None
Item 4. Submission of matters to a vote of security holders. None
Item 5. Other information. None
Item 6. Exhibits or reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Savannah Bancorp, Inc.
---------------------------------
(Registrant)
Date 11/3/00 /s/ Archie H. Davis
--------- ---------------------------------
Archie H. Davis - President & CEO
Date 11/3/00 /s/ Robert B. Briscoe
--------- ---------------------------------
Robert B. Briscoe
Chief Financial Officer
(Principal Accounting Officer)
15
