UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
one)
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2009
or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
The
Savannah Bancorp, Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Georgia
|
0-18560
|
58-1861820
|
State
of Incorporation
|
SEC
File Number
|
Tax
I.D. Number
|
25
Bull Street, Savannah, Georgia 31401
|
(Address
of principal executive offices) (Zip
Code)
|
912-629-6486
|
(Registrant's
telephone number, including area
code)
|
[None]
|
(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
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer [ ]
|
Accelerated
filer [X]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes [ ]No [X]
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date.
Class
|
Outstanding as of
April
3
0
, 200
9
|
Common
stock, $1.00 par value per share
|
5,933,789
|
The
Savannah Bancorp, Inc. and Subsidiaries
Form
10-Q Index
March
31, 2009
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Page
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Cover
Page
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1
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Form
10-Q Index
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2
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Part
I – Financial Information
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Item
1. Financial Statements
|
|
|
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Consolidated
Balance Sheets
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March
31, 2009 and 2008 and December 31, 2008
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3
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|
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Consolidated
Statements of Operations
|
|
for
the Three Months Ended March 31, 2009 and 2008
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4
|
|
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Consolidated
Statements of Changes in Shareholders’ Equity
|
|
for the Three
Months Ended March 31, 2009 and 2008
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5
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Consolidated
Statements of Cash Flows
|
|
for
the Three Months Ended March 31, 2009 and 2008
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6
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Condensed
Notes to Consolidated Financial Statements
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7-8
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|
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Item
2. Management’s Discussion and Analysis of Financial
Condition
|
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and Results of
Operations
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8-15
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Item
3. Quantitative and Qualitative Disclosures about Market
Risk
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16-19
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Item
4. Controls and Procedures
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19
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Part
II – Other Information
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Item
1. Legal Proceedings
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20
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Item
1A. Risk Factors
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20
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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20
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Item
3. Defaults Upon Senior Securities
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20
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Item
4. Submission of Matters to a Vote of Security
Holders
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20
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Item
5. Other Information
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20
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Item
6. Exhibits
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20
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Signatures
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21
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Part
I – Financial Information
Item
1. Financial Statements
The
Savannah Bancorp, Inc. and Subsidiaries
Consolidated
Balance Sheets
($ in
thousands, except share data)
|
March
31,
|
December
31,
|
March
31,
|
|
2009
|
2008
|
2008
|
Assets
|
(Unaudited)
|
|
(Unaudited)
|
Cash
and due from banks
|
$ 23,180
|
$ 15,088
|
$ 14,816
|
Federal
funds sold
|
565
|
9,701
|
4,998
|
Interest-bearing
deposits in banks
|
6,460
|
3,312
|
2,344
|
Cash
and cash equivalents
|
30,205
|
28,101
|
22,158
|
Securities
available for sale, at fair value (amortized
|
|
|
|
cost
of $72,131, $79,447 and $60,529, respectively)
|
74,589
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81,619
|
62,367
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Loans
held for sale
|
49
|
291
|
793
|
Loans,
net of allowance for loan losses of $15,309,
|
|
|
|
$13,300
and $12,128, respectively
|
849,617
|
851,674
|
822,606
|
Premises
and equipment, net
|
10,946
|
11,107
|
8,237
|
Other
real estate owned
|
8,342
|
8,100
|
2,025
|
Bank-owned
life insurance
|
6,271
|
6,216
|
6,044
|
Goodwill
and other intangible assets, net
|
2,606
|
2,642
|
2,750
|
Other
assets
|
17,275
|
17,534
|
18,657
|
Total
assets
|
$
999,900
|
$
1,007,284
|
$
945,637
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|
|
|
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Liabilities
|
|
|
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Deposits:
|
|
|
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Noninterest-bearing
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$ 84,739
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$ 82,723
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$ 86,329
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Interest-bearing
demand
|
116,804
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128,965
|
117,854
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Savings
|
16,219
|
14,370
|
16,060
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Money
market
|
204,711
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199,194
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208,531
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Time deposits
|
420,046
|
406,763
|
342,489
|
Total
deposits
|
842,519
|
832,015
|
771,263
|
Short-term
borrowings
|
51,830
|
67,787
|
64,685
|
Federal
Home Loan Bank advances – long-term
|
10,167
|
10,169
|
11,895
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Subordinated
debt to nonconsolidated subsidiaries
|
10,310
|
10,310
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10,310
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Other
liabilities
|
5,430
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6,071
|
8,599
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Total
liabilities
|
920,256
|
926,352
|
866,752
|
|
|
|
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Shareholders'
equity
|
|
|
|
Preferred
stock, par value $1 per share:
|
|
|
|
authorized
10,000,000 shares, none issued
|
-
|
-
|
-
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Common
stock, par value $1 per share: authorized
|
|
|
|
20,000,000
shares; issued 5,933,789,
|
|
|
|
5,933,789
and 5,931,008 shares, respectively
|
5,934
|
5,934
|
5,931
|
Additional
paid-in capital
|
38,540
|
38,516
|
38,327
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Retained
earnings
|
32,525
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33,552
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31,474
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Treasury
stock, 1,443, 318 and 318 shares
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(4)
|
(4)
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(4)
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Accumulated
other comprehensive income, net
|
2,649
|
2,934
|
3,157
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Total
shareholders' equity
|
79,644
|
80,932
|
78,885
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Total
liabilities and shareholders' equity
|
$
999,900
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$
1,007,284
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$
945,637
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The
accompanying notes are an integral part of these consolidated financial
statements.
The
Savannah Bancorp, Inc. and Subsidiaries
Consolidated
Statements of Operations
($ in
thousands, except per share data)
(Unaudited)
|
For the
Three Months Ended
March 31,
|
|
2009
|
2008
|
Interest
and dividend income
|
|
|
Loans,
including fees
|
$ 11,643
|
$
14,211
|
Loans
held for sale
|
3
|
12
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Investment
securities:
|
|
|
Taxable
|
881
|
678
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Tax-exempt
|
17
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22
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Dividends
|
7
|
82
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Deposits
with banks
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13
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67
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Federal
funds sold
|
2
|
53
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Total
interest and dividend income
|
12,566
|
15,125
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Interest
expense
|
|
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Deposits
|
4,481
|
6,124
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Short-term
borrowings
|
255
|
691
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Federal
Home Loan Bank advances
|
55
|
49
|
Subordinated
debt
|
109
|
190
|
Total
interest expense
|
4,900
|
7,054
|
Net
interest income
|
7,666
|
8,071
|
Provision
for loan losses
|
3,720
|
1,070
|
Net
interest income after
|
|
|
provision
for loan losses
|
3,946
|
7,001
|
Noninterest
income
|
|
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Trust
and asset management fees
|
587
|
724
|
Service
charges on deposit accounts
|
467
|
387
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Mortgage
related income, net
|
92
|
63
|
Other
operating income
|
283
|
306
|
Gain
on hedges
|
396
|
284
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Gain
on sale of securities
|
184
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-
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Total
noninterest income
|
2,009
|
1,764
|
Noninterest
expense
|
|
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Salaries
and employee benefits
|
3,351
|
3,473
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Occupancy
and equipment
|
1,008
|
889
|
Information
technology
|
438
|
393
|
Loss
on sale of other real estate owned
|
164
|
1
|
Other
operating expense
|
1,514
|
1,395
|
Total
noninterest expense
|
6,475
|
6,151
|
(Loss)
income before income taxes
|
(520)
|
2,614
|
Income
tax (benefit) expense
|
(235)
|
910
|
Net
(loss) income
|
$ (285)
|
$ 1,704
|
Net
(loss) income per share:
|
|
|
Basic
|
$ (0.05)
|
$
0.29
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Diluted
|
$ (0.05)
|
$ 0.29
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Dividends
per share
|
$ 0.125
|
$ 0.125
|
The
accompanying notes are an integral part of these consolidated financial
statements.
The
Savannah Bancorp, Inc. and Subsidiaries
Consolidated
Statements of Changes in Shareholders' Equity
(
$ in thousands, except share
data
)
(Unaudited)
|
For the
Three Months Ended
March 31,
|
|
2009
|
2008
|
Common
shares issued
|
|
|
Shares,
beginning of period
|
5,933,789
|
5,923,797
|
Common
stock issued
|
-
|
7,211
|
Exercise
of options
|
-
|
-
|
Shares,
end of period
|
5,933,789
|
5,931,008
|
Treasury
shares owned
|
|
|
Shares,
beginning of period
|
318
|
318
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Unvested
restricted stock
|
1,125
|
-
|
Shares,
end of period
|
1,443
|
318
|
Common
stock
|
|
|
Balance,
beginning of period
|
$ 5,934
|
$ 5,924
|
Common
stock issued
|
-
|
7
|
Balance,
end of period
|
5,934
|
5,931
|
Additional
paid-in capital
|
|
|
Balance,
beginning of period
|
38,516
|
38,279
|
Common
stock issued, net of issuance costs
|
-
|
(7)
|
Stock-based
compensation, net
|
24
|
55
|
Balance,
end of period
|
38,540
|
38,327
|
Retained
earnings
|
|
|
Balance,
beginning of period
|
33,552
|
30,512
|
Net
(loss) income
|
(285)
|
1,704
|
Dividends
|
(742)
|
(742)
|
Balance,
end of period
|
32,525
|
31,474
|
Treasury
stock
|
|
|
Balance,
beginning and end of period
|
(4)
|
(4)
|
Accumulated
other comprehensive income (loss), net
|
|
|
Balance,
beginning of period
|
2,934
|
1,561
|
Change
in unrealized gains/losses on securities
|
|
|
available
for sale, net of tax
|
176
|
636
|
Change
in fair value of derivative instruments, net of tax
|
(461)
|
960
|
Balance,
end of period
|
2,649
|
3,157
|
Total
shareholders' equity
|
$
79,644
|
$
78,885
|
Other
comprehensive (loss) income, net
Net
(loss) income
|
$ (285)
|
$ 1,704
|
Change
in unrealized gains/losses on securities
|
|
|
available
for sale, net of tax
|
176
|
636
|
Change
in fair value of derivative instruments, net of tax
|
(461)
|
960
|
Other
comprehensive (loss) income, net
|
$ (570)
|
$ 3,300
|
The
accompanying notes are an integral part of these consolidated financial
statements.
The
Savannah Bancorp, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
($ in
thousands)
(Unaudited)
|
For the
Three Months Ended
March 31,
|
|
2009
|
2008
|
Operating
activities
|
|
|
Net
(loss) income
|
$ (285)
|
$ 1,704
|
Adjustments
to reconcile net (loss) income to cash
|
|
|
provided
by operating activities:
|
|
|
Provision
for loan losses
|
3,720
|
1,070
|
Loans
originated for sale
|
-
|
(5,652)
|
Proceeds
from sale of loans originated for sale
|
242
|
5,054
|
Net
amortization (accretion) of securities
|
27
|
(73)
|
Depreciation
and amortization
|
313
|
273
|
Accretion
of gain on termination of derivatives
|
(320)
|
(404)
|
Proceeds
from termination of derivatives
|
512
|
2,369
|
Amortization
of client list
|
36
|
36
|
Stock-based
compensation expense
|
38
|
55
|
Increase
in deferred income taxes, net
|
-
|
(85)
|
Gain
on sale of loans and securities, net
|
(184)
|
(15)
|
Loss
on sales of foreclosed assets
|
164
|
1
|
Write-down
of other real estate owned
|
-
|
86
|
Equity
in net income of nonconsolidated subsidiary
|
(19)
|
(21)
|
Increase
in CSV of bank-owned life insurance policies
|
(55)
|
(59)
|
Change
in other assets and other liabilities, net
|
(1,140)
|
1,590
|
Net
cash provided by operating activities
|
3,049
|
5,929
|
|
|
|
Investing
activities
|
|
|
Activity
in available for sale securities
|
|
|
Purchases
|
(1,086)
|
(5,260)
|
Sales
|
4,721
|
-
|
Maturities
and calls
|
3,838
|
5,047
|
Loan
originations and principal collections, net
|
(2,863)
|
(28,075)
|
Proceeds
from sale of foreclosed assets
|
794
|
185
|
Additions
to premises and equipment
|
(152)
|
(1,680)
|
Net
cash provided by (used in) investing activities
|
5,252
|
(29,783)
|
|
|
|
Financing
activities
|
|
|
Net
increase (decrease) in noninterest-bearing deposits
|
2,016
|
(2,174)
|
Net
increase in interest-bearing deposits
|
8,488
|
9,219
|
Net
decrease in short-term borrowings
|
(15,957)
|
(5,914)
|
Net
(decrease) increase in FHLB advances – long-term
|
(2)
|
8,922
|
Payment
on note payable
|
-
|
(603)
|
Dividends
paid
|
(742)
|
(742)
|
Net
cash (used in) provided by financing activities
|
(6,197)
|
8,708
|
Increase
(decrease) in cash and cash equivalents
|
2,104
|
(15,146)
|
Cash
and cash equivalents, beginning of period
|
28,101
|
37,304
|
Cash
and cash equivalents, end of period
|
$
30,205
|
$
22,158
|
The
accompanying notes are an integral part of these consolidated financial
statements.
The
Savannah Bancorp, Inc. and Subsidiaries
Condensed
Notes to Consolidated Financial Statements
For
the Three Months Ended March 31, 2009 and 2008
(Unaudited)
Note
1 - Basis of Presentation
The
accompanying unaudited consolidated financial statements of The Savannah
Bancorp, Inc. (the “Company”) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Securities and Exchange
Commission (“SEC”) Form 10-Q and Article S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three
month period ended March 31, 2009, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009. 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, 2008. Certain prior period balances and
formats have been reclassified to conform to the current period
presentation.
Note
2 - Restrictions on Cash and Demand Balances Due from Banks and Interest-Bearing
Bank Balances
The
Savannah Bank, N.A. (“Savannah”), Bryan Bank & Trust and Harbourside
Community Bank (“Harbourside”) (collectively referred to as the “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 $331,000, $507,000 and $435,000 were
required as of March 31, 2009, December 31, 2008 and March 31, 2008,
respectively. The Company pledged interest-bearing cash balances at
the Federal Home Loan Bank of Atlanta (“FHLB”) in lieu of investment securities
to secure public fund deposits and securities sold under repurchase
agreements. Pledged cash balances were $2,000,000, $2,000,000 and
$500,000 at March 31, 2009, December 31, 2008 and March 31, 2008,
respectively.
Note
3 - Earnings (Loss) Per Share
Basic
earnings (loss) per share represent net income (loss) divided by the
weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share reflect additional common
shares that would have been outstanding if dilutive potential common shares had
been issued, as well as any adjustment to income that would result from the
assumed issuance. Potential common shares that may be issued by the
Company relate solely to outstanding stock options, and are determined using the
treasury stock method. For the quarter ended March 31, 2009, the
Company excluded approximately 4,000 shares from the calculation of diluted
earnings (loss) per share due to their anti-dilutive
effect. Earnings (loss) per common share have been computed
based on the following:
|
For the
|
|
Three Months Ended
|
|
March 31,
|
(Amounts
in thousands)
|
2009
|
2008
|
Average
number of common shares outstanding - basic
|
5,933
|
5,927
|
Effect
of dilutive options
|
-
|
24
|
Average
number of common shares outstanding - diluted
|
5,933
|
5,951
|
Note
4 - Short-Term Borrowings
At March
31, 2009, the Company did not meet a certain covenant contained in a loan
agreement; however, the Company obtained a waiver.
Note
5 - Subsequent Events
In April
2009, the Company filed an application with the appropriate regulatory agencies
to consolidate Harbourside with Savannah under a national commercial bank
charter.
During
the first quarter 2009, the Company entered into an agreement to purchase the
previously leased main office of Harbourside on Hilton Head Island for
$5,750,000. On April 28, 2009, the Company consummated the
purchase.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking
Statements
The
Company may, from time to time, make written or oral “forward-looking
statements,” including statements contained in the Company’s filings with the
SEC (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.
This
MD&A and other Company communications and statements may contain
"forward-looking statements." These forward-looking statements may include,
among others, statements about our beliefs, plans, objectives, goals,
expectations, estimates and intentions that are subject to significant risks and
uncertainties and which may change based on various factors, many of which are
beyond our control. The words "may," "could," "should," "would,"
“will,” "believe," "anticipate," "estimate," "expect," "intend," “indicate,”
"plan" and similar words are intended to identify expressions of the
future. 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 rates, market and monetary fluctuations;
competitors’ products and services; 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 exhaustive.
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.
Overview
For a
comprehensive presentation of the Company’s financial condition at March 31,
2009 and 2008 and results of operations for the three month periods ended March
31, 2009 and 2008, the following analysis should be reviewed with other
information including the Company’s December 31, 2008 Annual Report on Form 10-K
and the Company’s Condensed Consolidated Financial Statements and the Notes
thereto included in this report.
The
Savannah Bancorp, Inc. and Subsidiaries
First
Quarter Financial Highlights
($ in
thousands, except share data)
(Unaudited)
Balance
Sheet Data at March 31
|
2009
|
|
2008
|
|
%
Change
|
Total
assets
|
$
999,900
|
|
$
945,637
|
|
5.7
|
Interest-earning
assets
|
920,205
|
|
866,483
|
|
6.2
|
Loans
|
864,926
|
|
834,734
|
|
3.6
|
Other
real estate owned
|
8,342
|
|
2,025
|
|
312
|
Deposits
|
842,519
|
|
771,263
|
|
9.2
|
Interest-bearing
liabilities
|
830,087
|
|
771,824
|
|
7.5
|
Shareholders'
equity
|
79,644
|
|
78,885
|
|
1.0
|
Loan
to deposit ratio
|
102.66
|
%
|
108.23
|
%
|
(5.1)
|
Equity
to assets
|
7.97
|
%
|
8.34
|
%
|
(4.4)
|
Tier
1 capital to risk-weighted assets
|
10.26
|
%
|
10.29
|
%
|
(0.3)
|
Total
capital to risk-weighted assets
|
11.52
|
%
|
11.54
|
%
|
(0.2)
|
Outstanding
shares
|
5,934
|
|
5,931
|
|
0.1
|
Book
value per share
|
$ 13.42
|
|
$ 13.30
|
|
0.9
|
Tangible
book value per share
|
$ 12.98
|
|
$ 12.84
|
|
1.1
|
Market
value per share
|
$ 7.01
|
|
$ 17.50
|
|
(60)
|
|
|
|
|
|
|
Loan
Quality Data
|
|
|
|
|
|
Nonaccruing
loans
|
$
23,927
|
|
$
16,915
|
|
41
|
Loans
past due 90 days – accruing
|
268
|
|
596
|
|
(55)
|
Net
charge-offs
|
1,711
|
|
1,806
|
|
(5.3)
|
Allowance
for loan losses
|
15,309
|
|
12,128
|
|
26
|
Allowance
for loan losses to total loans
|
1.77
|
%
|
1.45
|
%
|
22
|
Nonperforming
assets to total loans and OREO
|
3.73
|
%
|
2.33
|
%
|
60
|
|
|
|
|
|
|
Performance
Data for the First Quarter
|
|
|
|
|
|
Net
(loss) income
|
$ (285)
|
|
$ 1,704
|
|
(117)
|
Return
on average assets
|
(0.12)
|
%
|
0.73
|
%
|
(116)
|
Return
on average equity
|
(1.43)
|
%
|
8.76
|
%
|
(116)
|
Net
interest margin
|
3.36
|
%
|
3.70
|
%
|
(9.2)
|
Efficiency
ratio
|
66.93
|
%
|
62.54
|
%
|
7.0
|
Per
share data:
|
|
|
|
|
|
Net
(loss) income – basic
|
$ (0.05)
|
|
$ 0.29
|
|
(117)
|
Net
(loss) income – diluted
|
$ (0.05)
|
|
$ 0.29
|
|
(117)
|
Dividends
|
$ 0.125
|
|
$ 0.125
|
|
0.0
|
Average
shares (000s):
|
|
|
|
|
|
Basic
|
5,933
|
|
5,928
|
|
0.1
|
Diluted
|
5,933
|
|
5,951
|
|
(0.3)
|
Introduction
Management's
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) provides supplemental information, which sets forth the major
factors that have affected the Company's financial condition and results of
operations and should be read in conjunction with the Consolidated Financial
Statements and related notes. The MD&A is divided into
subsections entitled:
Introduction
Critical
Accounting Estimates
Results
of Operations
Financial
Condition and Capital Resources
Liquidity
and Interest Rate Sensitivity Management
Off-Balance
Sheet Arrangements
These
discussions should facilitate a better understanding of the major factors and
trends that affect the Company's earnings performance and financial condition
and how the Company's performance during the three month period ended March 31,
2009 compared with the same period in 2008. Throughout this section, The
Savannah Bancorp, Inc., and its subsidiaries, collectively, are referred to as
"SAVB" or the "Company." The Savannah Bank, N.A. is referred to as
"Savannah," Bryan Bank & Trust is referred to as “Bryan” and Harbourside
Community Bank is referred to as “Harbourside.” Minis & Co.,
Inc., a registered investment advisor and wholly-owned subsidiary, is referred
to as “Minis.” The Company formed a new subsidiary, SAVB Holdings,
LLC (“SAVB Holdings”), in the third quarter 2008 for the purpose of holding
problem loans and other real estate. Collectively,
Savannah, Bryan and Harbourside are referred to as the “Subsidiary
Banks.”
The
averages used in this report are based on the sum of the daily balances for
each respective period divided by the number of days in the reporting
period.
The
Company is headquartered in Savannah, Georgia and, as of March 31, 2009, had ten
banking offices and twelve ATMs in Savannah and surrounding Chatham County,
Georgia, Richmond Hill, Georgia and Hilton Head Island and Bluffton, South
Carolina. The Company also has mortgage lending offices in Savannah,
Richmond Hill and Hilton Head Island and an investment management office in
Savannah. In addition, the Company has a loan production office on
St. Simons Island, Georgia.
Savannah
and Bryan are in the relatively diverse and growing Savannah Metropolitan
Statistical Area. The diversity of major employers includes
manufacturing, port related transportation, construction, military, healthcare,
tourism, education, warehousing and the supporting services and products for
each of these major employers. The real estate market is experiencing
moderate government and commercial growth and slower residential growth. Coastal
Georgia and South Carolina continue to be desired retiree residential
destinations.
Harbourside
specifically targets real estate lending and related full service banking
opportunities in the coastal South Carolina market. Harbourside’s
primary market has continued to show deterioration in real estate
prices.
The
primary risks to the Company include those disclosed in Item 1A in the Company’s
Annual Report on Form 10-K for December 31, 2008.
The
primary strategic objectives of the Company are growth in loans, deposits,
assets under management, product lines and service quality in existing markets,
and quality expansion into new markets, within acceptable risk parameters, which
result in enhanced shareholder value.
Critical
Accounting Estimates
Allowance for Loan
Losses
The
Company considers its policies regarding the allowance for loan losses to be its
most critical accounting estimate due to the significant degree of management
judgment involved. The allowance for loan losses is established through
charges to earnings in the form of a provision for loan losses based on
management's continuous evaluation of the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The
amount of the allowance reflects management's opinion of an adequate level to
absorb probable losses inherent in the loan portfolio at March 31, 2009.
The amount charged to the provision and the level of the allowance is
based on management's judgment and is dependent upon growth in the loan
portfolio, the total amount of past due loans and nonperforming loans, known
loan deteriorations and concentrations of credit. Other factors affecting
the allowance include market interest rates, loan sizes, portfolio maturity and
composition, collateral values and general economic conditions. Finally,
management's assessment of probable losses, based upon internal credit grading
of the loans and periodic reviews and assessments of credit risk associated with
particular loans, is considered in establishing the amount of the
allowance.
No
assurance can be given that the Company will not sustain loan losses which would
be sizable in relationship to the amount reserved or that subsequent evaluation
of the loan portfolio, in light of conditions and factors then prevailing, will
not require significant changes in the allowance for loan losses by future
charges or credits to earnings. The allowance for loan losses is also
subject to review by various regulatory agencies through their periodic
examinations of the Subsidiary Banks. Such examinations could result in
required changes to the allowance for loan losses.
The
allowance for loan losses totaled $15,309,000, or 1.77 percent of total loans,
at March 31, 2009. This is compared to an allowance of $13,300,000, or
1.54 percent of total loans, at December 31, 2008. For the three
months ended March 31, 2009, the Company reported net charge-offs of $1,711,000
compared to net charge-offs of $1,806,000 for the same period in
2008.
During
the first three months of 2009 and 2008, a provision for loan losses of
$3,720,000 and $1,070,000, respectively, was added to the allowance for loan
losses. The higher provision for loans losses in 2009 was primarily
due to continued weakness in the Company’s local residential real estate
markets. Approximately $1.6 million of the first quarter 2009
provision was related to deterioration in two significant residential
relationships in the Hilton Head Island/Bluffton, South Carolina
market.
The
Company's nonperforming assets consist of other real estate owned, loans on
nonaccrual status and loans which are contractually past due 90 days or more on
which interest is still being accrued. Nonaccrual loans of
$23,927,000 and loans past due 90 days or more of $268,000 totaled $24,195,000,
or 2.80 percent of gross loans, at March 31, 2009. Nonaccrual loans
of $26,277,000 and loans past due 90 days or more of $1,326,000 totaled
$27,603,000, or 3.19 percent of gross loans, at December 31,
2008. Generally, loans are placed on nonaccrual status when the
collection of the principal or interest in full becomes doubtful. In
the first quarter 2009, the Company successfully settled its largest single
nonperforming loan of approximately $4 million. The Company recovered
the full principal and interest due on the loan. Nonperforming assets
also included $8,342,000 and $8,100,000 of other real estate owned at March 31,
2009 and December 31, 2008, respectively. Management is aggressively
pricing and marketing the other real estate owned.
If the
allowance for loan losses had changed by five percent, the effect on net income
would have been approximately $500,000. If the allowance had to be
increased by this amount, it would not have changed the holding company or the
Subsidiary Banks’ status as well-capitalized financial
institutions.
Impairment of
Loans
The
Company measures impaired loans based on the present value of expected future
cash flows discounted at the loan’s effective interest rate, the loan’s
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent. A loan is considered impaired when it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. A loan is not considered impaired during a period of
delay in payment if the ultimate collection of all amounts due is
expected. The Company maintains a valuation allowance to the extent
that the measure of value of an impaired loan is less than the recorded
investment.
Other Real Estate
Owned
Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less costs to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, management
periodically performs valuations of the foreclosed assets based on updated
appraisals, general market conditions, length of time the properties have been
held, and our ability and intention with regard to continued ownership of the
properties. The Company may incur additional write-downs of
foreclosed assets to fair value less costs to sell if valuations indicate a
further other than temporary deterioration in market
conditions.
The
following table provides historical information regarding the allowance for loan
losses and nonperforming loans and assets for the most recent five quarters
ended March 31, 2009.
The
Savannah Bancorp, Inc. and Subsidiaries
|
Allowance
for Loan Losses and Nonperforming Loans
|
(Unaudited)
|
|
|
2009
|
2008
|
|
First
|
Fourth
|
Third
|
Second
|
First
|
($
in thousands)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
|
|
|
Balance
at beginning of period
|
$
13,300
|
$
12,390
|
$
12,445
|
$
12,128
|
$
12,864
|
Provision
for loan losses
|
3,720
|
2,270
|
1,505
|
1,155
|
1,070
|
Net
charge-offs
|
(1,711)
|
(1,360)
|
(1,560)
|
(838)
|
(1,806)
|
Balance
at end of period
|
$
15,309
|
$
13,300
|
$
12,390
|
$
12,445
|
$
12,128
|
|
|
|
|
|
|
As
a % of loans
|
1.77%
|
1.54%
|
1.45%
|
1.48%
|
1.45%
|
As
a % of nonperforming loans
|
63.27%
|
48.18%
|
56.25%
|
66.61%
|
69.26%
|
As
a % of nonperforming assets
|
47.05%
|
37.25%
|
43.94%
|
59.18%
|
62.08%
|
|
|
|
|
|
|
Net
charge-offs as a % of average loans (a)
|
0.82%
|
0.65%
|
0.75%
|
0.40%
|
0.90%
|
|
|
|
|
|
|
Risk
element assets
|
|
|
|
|
|
Nonaccruing
loans
|
$
23,927
|
$
26,277
|
$
17,753
|
$
16,991
|
$
16,915
|
Loans
past due 90 days – accruing
|
268
|
1,326
|
4,274
|
1,693
|
596
|
Total
nonperforming loans
|
24,195
|
27,603
|
22,027
|
18,684
|
17,511
|
Other
real estate owned
|
8,342
|
8,100
|
6,168
|
2,346
|
2,025
|
Total
nonperforming assets
|
$
32,537
|
$
35,703
|
$
28,195
|
$
21,030
|
$
19,536
|
|
|
|
|
|
|
Loans
past due 30-89 days
|
$
16,906
|
$
8,269
|
$
8,841
|
$
6,528
|
$
11,014
|
|
|
|
|
|
|
Nonperforming
loans as a % of loans
|
2.80%
|
3.19%
|
2.58%
|
2.22%
|
2.10%
|
Nonperforming
assets as a % of loans
|
|
|
|
|
|
and
other real estate owned
|
3.73%
|
4.09%
|
3.28%
|
2.50%
|
2.33%
|
|
|
|
|
|
|
(a)
Annualized
|
Impaired
loans under Statement of Financial Accounting Standards No. 114 totaled
$38,492,000 and $37,730,000 at March 31, 2009 and December 31, 2008,
respectively.
Results
of Operations
First
Quarter, 2009 Compared to the First Quarter, 2008
Net loss
for the first quarter 2009 was $285,000, versus net income of $1,704,000 in
the first quarter 2008. Net loss per share was 5 cents in the first
quarter 2009 compared to net income of 29 cents per diluted share in the
first quarter 2008. The decline in first quarter earnings results primarily
from a higher provision for loan losses. Return on average equity was
(1.43) percent, return on average assets was (0.12) percent and the efficiency
ratio was 66.93 percent in the first quarter 2009.
First
quarter average interest-earning assets increased 5.7 percent to $926 million in
2009 from $876 million in 2008. First quarter net interest income was
$7,666,000 in 2009 compared to $8,071,000 in 2008, a decrease of $405,000 or 5.0
percent. First quarter average loans were $840 million in 2009, 4.9
percent higher when compared to $801 million in 2008. First quarter
net interest margin decreased to 3.36 percent in 2009 from 3.70 percent in the
same period in 2008. The prime rate decreased from 5.25 percent to
3.25 percent during the twelve month period ended March 31, 2009. As
shown in Table 2, the decline in net interest margin was primarily due to lower
loan market rates, competitive local deposit pricing and higher levels of
noninterest-earning assets.
As shown
in Table 1, the Company’s balance sheet is asset-sensitive since the
interest-earning assets reprice faster than interest-bearing
liabilities. Deposit pricing in the Savannah and Bryan markets has
also been impacted by new entrants into the market paying special deposit rates
that are significantly higher than market deposit rates.
First
quarter provision for loan losses was $3,720,000 for 2009, compared to
$1,070,000 for the comparable period in 2008. First quarter net
charge-offs were $1,711,000 for 2009 compared to $1,806,000 in the same quarter
in 2008. Loan growth was flat in the first quarter 2009 compared to
$26 million in loan growth in the first quarter 2008. The
significantly higher provision for loan losses was primarily related to weakness
in residential real estate-related loans in the Hilton Head Island / Bluffton,
South Carolina market.
Noninterest
income increased $245,000, or 14 percent in the first quarter 2009 versus the
same period in 2008. The increase was due to higher service charges
on deposits of $80,000 and mortgage related income of $29,000, a higher gain on
hedges of $112,000 and a gain on the sale of securities of $184,000 partially
offset by $137,000 in lower trust and asset management fees. The
higher service charges were primarily due to a new payment optimization program
started in the first quarter 2008.
Noninterest
expense increased to $6,475,000, up $324,000 or 5.3 percent, in the first
quarter 2009 compared to the first quarter 2008. Noninterest expense
included $139,000 of higher Federal Deposit Insurance Corporation (“FDIC”)
insurance premiums and a loss on the sale of other real estate owned of
$164,000. The remainder of the increase was due to higher occupancy
and equipment and information technology expense partially offset by lower
salaries and employee benefits.
The first
quarter income tax benefit was $235,000 in 2009 and income tax expense was
$910,000 in 2008. The combined effective federal and state tax rates
were 45.2 percent and 34.8 percent in the first quarter of 2009 and 2008,
respectively. The higher effective tax rate in the first quarter 2009
was due to the impact of tax credits on lower taxable income. The
Company has never recorded a valuation allowance against deferred tax
assets. All significant deferred tax assets are considered to be
realizable due to expected future taxable income.
Financial
Condition and Capital Resources
Balance
Sheet Activity
The
changes in the Company’s assets and liabilities for the current and prior period
are shown in the consolidated statements of cash flows. Loans were
flat for the first quarter of 2009. The $7 million decrease in
investment securities and $11 million increase in deposits was used primarily to
pay down short-term borrowings.
Average
total assets increased 7 percent to $1 billion in the first three months of 2009
from $935 million in the same period in 2008. Total assets were $1
billion and $946 million at March 31, 2009 and 2008, respectively, an increase
of 6 percent.
The
Company has classified all investment securities as available for
sale. The unrealized gain/loss on investment securities and the net
change in the fair value of derivative instruments are included in shareholders’
equity at March 31, 2009 and 2008 as accumulated other comprehensive income
(loss), net of tax.
Brokered
time deposits and institutional money market accounts totaled $220
million at March 31, 2009 compared to $222 million at December 31, 2008.
At March 31, 2009 and December 31, 2008, brokered time deposits include
$39 million and $38 million, respectively, of deposits from our local customers
that are classified as brokered because they are included in the CDARS
network for deposit insurance purposes.
Loans
The
following table shows the composition of the loan portfolio as of March 31, 2009
and December 31, 2008, including a more detailed breakdown of real
estate-secured loans by collateral type and purpose.
($
in thousands)
|
3/31/09
|
%
of
Total
|
12/31/08
|
%
of
Total
|
%
Dollar Change
|
Non-residential
real estate
|
|
|
|
|
|
Owner-occupied
|
$
140,879
|
16
|
$
137,742
|
16
|
2.3
|
Non
owner-occupied
|
139,334
|
16
|
124,502
|
14
|
12
|
Construction
|
11,893
|
1
|
26,965
|
3
|
(56)
|
Commercial
land and lot development
|
42,837
|
5
|
42,590
|
5
|
0.6
|
Total
non-residential real estate
|
334,943
|
38
|
331,799
|
38
|
0.9
|
Residential
real estate
|
|
|
|
|
|
Owner-occupied
– 1-4 family
|
89,054
|
10
|
89,774
|
10
|
(0.8)
|
Non
owner-occupied – 1-4 family
|
153,602
|
18
|
147,396
|
17
|
4.2
|
Construction
|
24,768
|
3
|
43,431
|
5
|
(43)
|
Residential
land and lot development
|
104,296
|
12
|
98,715
|
12
|
5.7
|
Home
equity lines
|
57,243
|
7
|
55,092
|
6
|
3.9
|
Total
residential real estate
|
428,963
|
50
|
434,408
|
50
|
(1.3)
|
Total
real estate loans
|
763,906
|
88
|
766,207
|
88
|
(0.3)
|
Commercial
|
85,405
|
10
|
81,348
|
10
|
5.0
|
Consumer
|
15,804
|
2
|
17,628
|
2
|
(10)
|
Unearned
fees, net
|
(189)
|
-
|
(209)
|
-
|
(9.6)
|
Total
loans, net of unearned fees
|
$
864,926
|
100
|
$
864,974
|
100
|
0.0
|
Capital
Resources
The
banking regulatory agencies have adopted capital requirements that specify the
minimum level for which no prompt corrective action is required. In
addition, the FDIC assesses FDIC insurance premiums based on certain
“well-capitalized” risk-based and equity capital ratios. As of March
31, 2009, the Company and the Subsidiary Banks exceeded the minimum requirements
necessary to be classified as “well-capitalized.”
Total
tangible equity capital for the Company was $77.0 million, or 7.70 percent of
total assets at March 31, 2009. The table below includes the
regulatory capital ratios for the Company and each Subsidiary Bank along with
the minimum capital ratio and the ratio required to maintain a well-capitalized
regulatory status.
|
|
|
|
|
|
Well-
|
($
in thousands)
|
Company
|
Savannah
|
Bryan
|
Harbourside
|
Minimum
|
Capitalized
|
|
|
|
|
|
|
|
Qualifying
Capital
|
|
|
|
|
|
|
Tier
1 capital
|
$
84,389
|
$
54,395
|
$
20,780
|
$
5,227
|
-
|
-
|
Total
capital
|
94,730
|
61,309
|
23,270
|
5,973
|
-
|
-
|
|
|
|
|
|
|
|
Leverage
Ratios
|
|
|
|
|
|
|
Tier
1 capital to
average
assets
|
8.41%
|
8.18%
|
8.63%
|
7.24
|
4.00%
|
5.00%
|
|
|
|
|
|
|
|
Risk-based
Ratios
|
|
|
|
|
|
|
Tier
1 capital to risk-
weighted
assets
|
10.26%
|
9.88%
|
10.45%
|
8.99%
|
4.00%
|
6.00%
|
Total
capital to risk-
weighted
assets
|
11.52%
|
11.14%
|
11.70%
|
10.28%
|
8.00%
|
10.00%
|
Tier 1
and total capital at the Company level includes $10 million of subordinated debt
issued to the Company’s nonconsolidated subsidiaries. Total capital
also includes the allowance for loan losses up to 1.25 percent of risk-weighted
assets.
The
capital ratios are above the well-capitalized threshold. The Company
currently has the regulatory capacity to add approximately $14 million of trust
preferred borrowings and has access to the capital markets, if needed, to
maintain the well-capitalized status of the Subsidiary
Banks. However, due to the recent events in the capital markets, the
cost of trust preferred borrowings has increased from three-month LIBOR plus 150
basis points to the same index plus 400 to 450 basis points and the availability
is currently less certain than in the past.
The
Company is evaluating the TARP and other liquidity programs provided by the
United States Treasury Department. If approved, and if the Company
elects to participate, the Company is eligible to issue up to $24 million of
preferred stock under the guidelines of the Capital Purchase
Program.
REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
Liquidity
and Interest Rate Sensitivity Management
The
objectives of balance sheet management include maintaining adequate liquidity
and preserving reasonable balance between the repricing of interest sensitive
assets and liabilities at favorable interest rate spreads. The
objective of liquidity management is to ensure the availability of adequate
funds to meet the loan demands 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
and borrow funds in the money markets.
During
the first three months of 2009, portfolio loans were flat at $865 million while
deposits increased $11 million to $843 million. The loan to deposit
ratio was 103 percent at March 31, 2009. In addition to local deposit
growth, primary funding and liquidity sources include borrowing capacity with
the FHLB, temporary federal funds purchased lines with correspondent banks and
non-local institutional and brokered deposits. Contingency funding
and liquidity sources include the ability to sell loans, or participations in
certain loans, to investors and borrowings from the Federal Reserve Bank (“FRB”)
discount window.
The
Subsidiary Banks have Blanket Floating Lien Agreements with the
FHLB. Under these agreements, the Subsidiary Banks have credit lines
up to 75 percent of the FHLB qualifying collateral value of their 1-4 family
first mortgage loans and up to 50 percent of the FHLB qualifying collateral
value of their home equity lines of credit and second mortgage residential
loans. The Subsidiary Banks’ individual borrowing limits range
from 10 to 25 percent of assets. In aggregate, the Subsidiary Banks
had secured borrowing capacity of approximately $158 million of which
$24 million was advanced at March 31, 2009. These credit
arrangements serve as a core funding source as well as liquidity backup for the
Subsidiary Banks. The Subsidiary Banks also have conditional federal
funds borrowing lines available from correspondent banks that management
believes can provide up to $20 million of funding needs for 30-60
days. The Subsidiary Banks have been approved to access the FRB
discount window to borrow on a secured basis at 25 basis points over the Federal
Funds Target Rate. The amount of credit available is subject to the
amounts and types of collateral available when borrowings are
requested. Savannah and Bryan were approved by the FRB under the
borrower-in-custody of collateral (“BIC”) arrangement. This temporary
liquidity arrangement allows collateral to be maintained at Savannah and Bryan
rather than being delivered to the FRB or a third-party custodian. At
March 31, 2009, the Company had secured borrowing capacity of $132 million with
the FRB and $10 million outstanding.
A
continuing objective of interest rate sensitivity management is to maintain
appropriate levels of variable rate assets, including variable rate loans and
shorter maturity investments, relative to interest rate sensitive liabilities,
in order to control potential negative impacts upon earnings due to changes in
interest rates. Interest rate sensitivity management requires
analyses and actions that take into consideration volumes of assets and
liabilities repricing and the timing and magnitude of their price changes to
determine the effect upon net interest income. The Company utilizes
hedging strategies to reduce interest rate risk as noted below.
The
Company’s cash flow, maturity and repricing gap at March 31, 2009 was $42
million at one year, or 4.6 percent of total interest-earning
assets. At December 31, 2008 the gap at one year was $29 million,
or 3.1 percent of total interest-earning
assets. Interest-earning assets with maturities over five years
totaled approximately $62 million, or 6.7 percent of total interest-earning
assets. See Table 1 for cash flow, maturity and repricing
gap. The gap position between one and five years is of less concern
because management has time to respond to changing financial conditions and
interest rates with actions that reduce the impact of the longer-term gap
positions on net interest income. However, interest-earning assets
with maturities and/or repricing dates over five years may include significant
rate risk and market value of equity concerns in the event of significant
interest rate increases.
The
Company is asset-sensitive within one year. The decreases in the
prime rate from 5.25 percent to 3.25 percent over the past year through March
31, 2009, the level of nonaccruing loans and changes in the deposit mix have
negatively impacted net interest income and net interest margin in the first
three months of 2009 compared to the same period in 2008. Over the
past year earning assets repriced faster than deposits, however time deposits
continue to reprice lower after the prime rate stops decreasing. On a
linked quarter basis, the first quarter 2009 net interest margin increased 12
basis points to 3.36 percent from 3.24 percent in the fourth quarter
2008.
The
Company has implemented various strategies to reduce the Company’s
asset-sensitive position, primarily through the increased use of fixed rate
loans, short maturity funding sources and hedging strategies such as interest
rate floors, collars and swaps. In the first quarter of 2009, the Company
terminated a $15 million interest rate collar position for net proceeds of
$512,000. In April 2009, the Company terminated a $25 million
interest rate collar position for net proceeds of $787,000. The
amounts in other comprehensive income related to the terminated transactions
will be reclassified into earnings over the remaining lives of the original
hedged transactions. As of April 2009, the Company has terminated all
derivative positions. These actions have reduced the Company’s
exposure to falling interest rates.
Management
monitors interest rate risk quarterly using rate-sensitivity forecasting models
and other balance sheet analytical reports. If and when projected
interest rate risk exposures are outside of policy tolerances or desired
positions, specific strategies to return interest rate risk exposures to desired
levels are developed by management, approved by the Asset-Liability Committee
and reported to the Board of Directors.
Table
1 – Cash Flow/Maturity Gap and Repricing Data
The
following is the cash flow/maturity and repricing data for the Company as of
March 31, 2009:
|
|
0-3
|
3-12
|
1-3
|
3-5
|
Over
5
|
|
($
in thousands)
|
Immediate
|
months
|
months
|
years
|
years
|
years
|
Total
|
Interest-earning
assets
|
|
|
|
|
|
|
|
Investment
securities
|
$ -
|
$ 14,749
|
$ 23,365
|
$ 18,400
|
$ 5,344
|
$ 10,273
|
$ 72,131
|
Interest-bearing
deposits
|
5,401
|
197
|
352
|
510
|
-
|
-
|
6,460
|
Federal
funds sold
|
565
|
-
|
-
|
-
|
-
|
-
|
565
|
Loans
held for sale
|
-
|
49
|
-
|
-
|
-
|
-
|
49
|
Loans
- fixed rates
|
-
|
73,728
|
136,386
|
144,737
|
38,669
|
38,058
|
431,578
|
Loans
- variable rates
|
-
|
370,720
|
9,652
|
8,222
|
7,254
|
13,574
|
409,422
|
Total
interest-earnings assets
|
5,966
|
459,443
|
169,755
|
171,869
|
51,267
|
61,905
|
920,205
|
Interest-bearing
liabilities
|
|
|
|
|
|
|
|
NOW
and savings
|
-
|
6,651
|
13,302
|
33,256
|
39,907
|
39,907
|
133,023
|
Money
market accounts
|
-
|
109,094
|
39,372
|
22,498
|
33,747
|
-
|
204,711
|
Time
deposits
|
-
|
124,420
|
238,300
|
49,183
|
7,983
|
160
|
420,046
|
Short-term
borrowings
|
40,830
|
10,000
|
1,000
|
-
|
-
|
-
|
51,830
|
FHLB
advances - long-term
|
-
|
-
|
4
|
11
|
12
|
10,140
|
10,167
|
Subordinated
debt
|
-
|
10,310
|
-
|
-
|
-
|
-
|
10,310
|
Total
interest-bearing liabilities
|
40,830
|
260,475
|
291,978
|
104,948
|
81,649
|
50,207
|
830,087
|
Gap-Excess
assets (liabilities)
|
(34,864)
|
198,968
|
(122,223)
|
66,921
|
(30,382)
|
11,698
|
90,118
|
Gap-Cumulative
|
$
(34,864)
|
$
164,104
|
$ 41,881
|
$ 108,802
|
$ 78,420
|
$
90,118
|
$
90,118
|
Cumulative
sensitivity ratio *
|
0.15
|
1.54
|
1.07
|
1.16
|
1.10
|
1.11
|
1.11
|
* Cumulative
interest-earning assets / cumulative interest-bearing
liabilities
Table
2 – Average Balance Sheet and Rate/Volume Analysis – First Quarter, 2009 and
2008
The
following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
interest paid during the first quarter of 2009 and 2008.
|
|
|
|
|
|
Taxable-Equivalent
|
|
(a)
Variance
|
Average
Balance
|
Average
Rate
|
|
|
Interest
(b)
|
|
Attributable
to
|
QTD
|
QTD
|
QTD
|
QTD
|
|
|
QTD
|
QTD
|
Vari-
|
|
|
3/31/09
|
3/31/08
|
3/31/09
|
3/31/08
|
|
|
3/31/09
|
3/31/08
|
ance
|
Rate
|
Volume
|
($
in thousands)
|
(%)
|
|
|
($
in thousands)
|
|
($
in thousands)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
$ 3,817
|
$ 6,910
|
1.38
|
3.89
|
|
Interest-bearing
deposits
|
$ 13
|
$ 67
|
$ (54)
|
$ (43)
|
$ (11)
|
76,748
|
58,423
|
4.70
|
5.23
|
|
Investments
- taxable
|
890
|
762
|
128
|
(76)
|
204
|
1,573
|
1,916
|
5.41
|
5.44
|
|
Investments
- non-taxable
|
21
|
26
|
(5)
|
-
|
(5)
|
3,602
|
6,598
|
0.23
|
3.22
|
|
Federal
funds sold
|
2
|
53
|
(51)
|
(49)
|
(2)
|
108
|
734
|
11.27
|
6.56
|
|
Loans
held for sale
|
3
|
12
|
(9)
|
9
|
(18)
|
839,683
|
801,441
|
5.62
|
7.11
|
|
Loans
(c)
|
11,645
|
14,213
|
(2,568)
|
(2,944)
|
376
|
925,531
|
876,022
|
5.51
|
6.93
|
|
Total
interest-earning assets
|
12,574
|
15,133
|
(2,559)
|
(3,067)
|
508
|
77,537
|
58,734
|
|
|
|
Noninterest-earning
assets
|
|
|
|
|
|
$1,003,068
|
$934,756
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
$
123,346
|
$115,485
|
0.53
|
1.56
|
|
NOW
accounts
|
160
|
449
|
(289)
|
(293)
|
4
|
15,067
|
15,990
|
0.73
|
0.88
|
|
Savings
accounts
|
27
|
35
|
(8)
|
(6)
|
(2)
|
107,227
|
135,539
|
1.79
|
2.75
|
|
Money
market accounts
|
473
|
930
|
(457)
|
(321)
|
(136)
|
98,091
|
51,667
|
1.80
|
3.89
|
|
MMA
- institutional
|
436
|
501
|
(65)
|
(266)
|
201
|
144,346
|
146,914
|
3.77
|
5.10
|
|
CDs,
$100M or more
|
1,342
|
1,867
|
(525)
|
(482)
|
(43)
|
122,728
|
69,871
|
2.65
|
4.41
|
|
CDs,
broker
|
803
|
769
|
34
|
(303)
|
337
|
140,807
|
129,993
|
3.57
|
4.85
|
|
Other
time deposits
|
1,240
|
1,573
|
(333)
|
(410)
|
77
|
751,612
|
665,459
|
2.42
|
3.69
|
|
Total
interest-bearing deposits
|
4,481
|
6,124
|
(1,643)
|
(2,084)
|
441
|
10,545
|
5,733
|
2.12
|
3.43
|
|
FHLB
advances - long-term
|
55
|
49
|
6
|
(19)
|
25
|
62,134
|
83,349
|
1.66
|
3.33
|
|
Short-term
borrowings
|
255
|
691
|
(436)
|
(343)
|
(93)
|
10,310
|
10,310
|
4.29
|
7.39
|
|
Subordinated
debt
|
109
|
190
|
(81)
|
(79)
|
(2)
|
|
|
|
|
|
Total
interest-bearing
|
|
|
|
|
|
834,601
|
764,851
|
2.38
|
3.70
|
|
liabilities
|
4,900
|
7,054
|
(2,154)
|
(2,489)
|
335
|
81,126
|
83,522
|
|
|
|
Noninterest-bearing
deposits
|
|
|
|
|
|
6,468
|
8,173
|
|
|
|
Other
liabilities
|
|
|
|
|
|
80,873
|
78,210
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
$1,003,068
|
$934,756
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
3.13
|
3.23
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
3.36
|
3.70
|
|
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
$
7,674
|
$
8,079
|
$
(405)
|
$
(578)
|
$
173
|
$ 90,930
|
$111,171
|
|
|
|
Net
earning assets
|
|
|
|
|
|
$
832,738
|
$748,981
|
|
|
|
Average
deposits
|
|
|
|
|
|
|
|
2.18
|
3.28
|
|
Average
cost of deposits
|
|
|
|
|
|
101%
|
107%
|
|
|
|
Average
loan to deposit ratio
|
|
|
|
|
|
|
(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 rate changes
or solely due to volume changes are attributed to
volume.
|
|
(b)
The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense and was $8 in the first quarter 2009
and 2008, respectively.
|
(c) Average nonaccruing loans have been excluded from total average loans
and categorized in noninterest-earning
assets.
|
Table
3 - Off-Balance Sheet Arrangements
In order
to meet the financing needs of its customers, the Company is a party to
financial instruments with off-balance sheet risks in the normal course of
business. At March 31, 2009, the Company had unfunded commitments to
extend credit of $104 million and outstanding stand-by letters of credit of $7
million. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company uses the same credit policies
in establishing commitments and issuing letters of credit as it does for
on-balance sheet instruments. Management does not anticipate that
funding obligations arising from these financial instruments will adversely
impact its ability to fund future loan growth or deposit
withdrawals.
On
February 24, 2006, Harbourside entered into a 20-year noncancellable operating
lease for the main office building. In April 2009, the Company
purchased Harbourside’s main office and thus has excluded those lease payments
below. In March 2007, Harbourside entered into a ten-year lease
agreement for a branch office location in Bluffton, South
Carolina. Also in March 2007, the Company entered into a five-year
data processing agreement with its current processor. Except as
noted, each of these obligations is included in the table below.
The
following table includes a breakdown of short-term and long-term payment
obligations due under long-term contracts:
|
Payments
due by period
|
|
|
Less
than
|
1-3
|
3-5
|
More
than
|
Contractual
obligations
|
Total
|
1
year
|
years
|
years
|
5
years
|
FHLB
advances – long-term
|
$
10,167
|
$
1,000
|
$ -
|
$ -
|
$ 9,167
|
Subordinated
debt
|
10,310
|
-
|
-
|
-
|
10,310
|
Operating
leases – buildings
|
2,387
|
576
|
831
|
595
|
385
|
Information
technology contracts
|
3,587
|
1,195
|
2,392
|
-
|
-
|
Total
|
$
26,451
|
$
2,771
|
$
3,223
|
$ 595
|
$
19,862
|
Item
4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
-
We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q as required by Rule 13a-15 of the Securities
Exchange Act of 1934, as amended. This evaluation was carried out
under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer. Based on
this evaluation, the chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in our periodic SEC filings.
Changes in Internal Control over
Financial Reporting
- No change in our internal control over financial
reporting occurred during the first fiscal quarter covered by this Quarterly
Report on Form 10-Q that materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
Part
II – Other Information
Item
1. Legal Proceedings.
Management
is not aware of any significant pending legal proceedings.
Item
1A. Risk Factors.
In
addition to the other information set forth in this Quarterly Report on Form
10-Q, you should carefully consider the risk factors discussed in “Item 1A.
Risk Factors” of Part I of the 2008 Form 10-K, which could materially
affect our business, financial condition and/or operating results. There
have been no material changes from those risk factors previously disclosed in
“Item 1A. Risk Factors” of Part I of the 2008 Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds. 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.
Exhibit
11 Computation of Earnings Per Share
Ø
|
Data
required by Statement of Financial Accounting Standards No. 128, “Earnings
per Share,” is provided in Note 3 to the condensed consolidated financial
statements in this report.
|
Exhibit
31.1 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
31.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
The Savannah Bancorp, Inc.
(Registrant)
|
|
|
Date:
5/11/09
|
/
s/ John
C. Helmken II
John
C. Helmken II
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
Date:
5/11/09
|
/
s/
Michael
W. Harden, Jr.
Michael
W. Harden, Jr.
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|
- 21
-
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