ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
GENERAL
The Savannah Bancorp, Inc. (the "Company") was incorporated as a Georgia business corporation on October 5, 1989, for the purpose of becoming a bank holding company by acquiring all of the common stock of The Savannah Bank, National Association, Savannah, Georgia (the "Savannah Bank"). The Company became a bank holding company within the meaning of the Federal Bank Holding Company Act (the "Act") and the Georgia Bank Holding Company Act (the "Georgia Act") upon the acquisition of 100 percent of the common stock of Savannah Bank on August 22, 1990.
In February 1998, the Company entered into a plan of merger to exchange 1.85 shares of its stock for each share of the Bryan Bancorp of Georgia, Inc. ("Bryan"), the bank holding company for Bryan Bank & Trust ("Bryan Bank"). Based on the Company's closing stock price of $25.50 per share on February 10, 1998, the transaction was valued at approximately $24 million. The merger, which was accounted for as a pooling of interests, was a tax-free reorganization for federal income tax purposes. The merger was consummated on December 15, 1998. Bryan was merged into the Company and Bryan Bank became a wholly-owned subsidiary of the Company on the merger date.
As of December 31, 2001, Savannah Bank had five full service offices, total assets of $266 million, total loans of $201 million, total deposits of $219 million, total stockholders' equity of $21.2 million and $2.8 million in 2001 net income. As of December 31, 2001, Bryan Bank had one full service office, total assets of $110 million, total loans of $83 million, total deposits of $90 million, total stockholders' equity of $10.1 million and $1.7 million in 2001 net income.
Savannah Bank and Bryan Bank (the "Subsidiary Banks") currently are the sole operating subsidiaries of the Company. Savannah Bank received its charter from the Office of the Comptroller of the Currency (OCC) to commence business and opened for business on August 22, 1990. Bryan Bank received its charter from the Georgia Department of Banking and Finance (the "GDBF") in December 1989. The deposits at the Subsidiary Banks are insured by the Federal Deposit Insurance Corporation (the "FDIC").
(B) INFORMATION ABOUT INDUSTRY SEGMENTS
In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The provisions of this statement require disclosure of financial and descriptive information about an enterprise's operating segments in annual and interim financial reports issued to shareholders. The statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense, whose operating results are reviewed by the chief operating decision maker in the determination of resource allocation and performance, and for which discrete financial information is available. The Company presently operates as two commercial banks offering traditional banking services. Certain departmental revenues, asset and liability volumes are used by executive management for performance and resource allocation purposes; however, sufficient discrete financial information is not available for presentation of segmented line of business financial information to shareholders. These disclosure requirements had no impact on the Company's financial position or results of operations.
(C) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company is authorized to engage in any activity permitted by law to a corporation, subject to applicable Federal regulatory restrictions on the activities of bank holding companies. The Company was formed for the purpose of becoming a holding company to own 100 percent of the stock of the Subsidiary Banks. The holding company structure provides the Company with greater flexibility than a bank would otherwise have to expand and diversify its business activities, through newly formed subsidiaries or through acquisitions. While the Company has no present plans to engage actively in any nonbanking business activities, management anticipates studying the feasibility of establishing or acquiring subsidiaries to engage in other business activities to the extent permitted by law.
BANKING SERVICES
The Subsidiary Banks have approximately 107 full-time and 19 part-time employees and offer a full range of deposit services, including checking accounts, savings accounts and various time deposits ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are tailored to the principal market areas at rates competitive to those offered in the area. In addition, retirement accounts such as IRA (Individual Retirement Account) and SEP (Simplified Employee Pension) accounts are offered. The FDIC insures all deposit accounts up to the maximum amount (currently $100,000 per account). The Subsidiary Banks solicit these accounts from individuals, businesses, foundations and organizations, and governmental authorities.
The Subsidiary Banks offer a full range of short-term and medium-term commercial, real estate and personal loans. The Bank's primary lending focus is business, real estate and consumer lending. Commercial loans include both secured and a limited volume of unsecured loans. Consumer loans include secured loans for financing automobiles, home improvements, real estate and other personal investments. Unsecured consumer loans are limited and generally made to our most creditworthy borrowers. The Subsidiary Banks originate fixed and variable rate mortgage loans and offer real estate construction and acquisition loans.
The Subsidiary Banks' lending policies generally require an 80 percent loan-to-value ratio on secured term real estate lending. Additionally, the existence of a reliable source of repayment/cash flow is usually required before making any loans, regardless of the security. Appraisals are obtained as required, and lending officers make on-site inspections. New loans over $25,000 are reported to the Credit/ALCO (Executive Committee of Bryan Bank) Committee, and this Committee approves loans over $750,000, prior to the loan being made. Generally, lending relationships over $100,000 are reported to the full Board of Directors.
Both management and the directors are aware that environmental liabilities may negatively impact the financial condition of borrowers, the value of real property and the contingent environmental clean-up liabilities the Subsidiary Banks could incur by having a lien on environmentally deficient property. The Subsidiary Banks generally decline to make loans secured by property with environmental deficiencies. Environmental surveys are required when there is reason for concern about potential environmental liabilities.
Both Subsidiary Banks operate residential mortgage loan origination departments. The departments take mortgage loan applications, obtain rate commitments and complete various origination documentation and follow-up for an origination and service release fee from third-party mortgage bankers. In addition to generating fee income, the department also generates banking relationships from its customers and real estate-related contacts. These loans are funded by other mortgage investors and have not been warehoused on the Subsidiary Banks' books.
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
The Subsidiary Banks have a multi-faceted program designed to control and continually monitor the credit risks inherent in its loan portfolio. This begins with a structured loan approval process in which the Board of Directors delegates authority for various types and amounts of loans to loan officers on a basis commensurate with seniority and lending experience. The Subsidiary Banks use an asset classification system that is consistent with regulatory classifications, which applies to all assets of an insured institution and requires each institution to periodically classify its assets.
There are four risk grades of "criticized" assets: Special Mention, Substandard, Doubtful and Loss. Assets classified as substandard, doubtful or loss are considered "classified". The classification of assets is subject to regulatory review and re-classification. The Subsidiary Banks include aggregate totals of criticized assets, and general and specific valuation reserves in quarterly reports to the Board of Directors, which approves the overall loan loss reserve evaluation. The Subsidiary Banks' loan classification systems utilize both the account officer and loan review function to monitor the classification of the Subsidiary Banks' loans.
The account officers are charged with the responsibility of monitoring changes in loan quality within his or her loan portfolio and reporting changes directly to loan review and senior management. Additionally, loan review performs a review of the Subsidiary Banks' loans to determine that the appropriate risk grade has been assigned to each borrowing relationship. Delinquencies are monitored on all loans as a basis for potential inclusion in general valuation
reserves or, ultimately, for potential charge-off. Loans that are delinquent 90 days (four payments) or longer generally are placed on nonaccrual status unless the collectibility of principal and accrued interest is assured beyond a reasonable doubt. In certain cases, loans less than 90 days (four payments) delinquent are placed on nonaccrual status when uncertainty exists as to the loan's collectibility. Real estate acquired through foreclosure is classified as substandard unless there is sufficient evidence to indicate such classification is not warranted.
Loan loss reserves are determined based on management's internal review of nonperforming loans, delinquency trends, the level of rated assets and charge-off trends. Additionally, management assesses general and specific economic trends both nationally and locally and regulatory information to determine the impact of those external factors on loan loss reserve levels. Based on the internal and external reviews, the Subsidiary Banks segregate their loan portfolio by type of loans and by loan classification within each loan type. Reserve percentages are applied based on historical loss rates and inherent risk to each loan group to determine the required amount of allocated general loan loss reserves.
OTHER BANKING SERVICES
In November 1996, Savannah Bank applied for and received trust powers from the OCC. Savannah Bank hired a Trust Department Manager/Trust Officer and an assistant. The employee benefit administration and certain money management functions are being outsourced to third parties, at least for the early years of the department. Using these resources, the Trust Department offers a full array of trust services, including investment management, personal trusts, custodial accounts, estate administration and employee benefit administration. The Trust Department entered into a contract with Marshall & Ilsley Trust Company in 1998 to outsource trust data processing, securities safekeeping and certain other operational functions for the Trust Department.
The Subsidiary Banks also offer cash management services, Internet access to account data, a non-cash deposit courier service, safe deposit boxes, travelers checks, direct deposit of payroll, U.S. Savings bonds, official bank checks and money orders and automatic drafts for various accounts. The Subsidiary Banks are members of the STAR networks of automated teller machines that may be used by customers in our market area and other cities. Both Subsidiary Banks issue ATM and debit cards and have seven automated teller machines in the area. The Subsidiary Banks also offer both VISA and MasterCard credit cards, on an agent bank basis, which have a pre-authorized line of credit for personal purchases and expenses.
LOCATION AND SERVICE AREA
The primary service area of the Subsidiary Banks is the city of Savannah, Georgia, certain contiguous areas of Chatham County and the Richmond Hill and Bryan County market, which is 20 miles south of downtown Savannah. Its secondary service area is the remainder of Chatham County and communities in Bryan, Effingham and Liberty Counties, Georgia, and Beaufort and Jasper Counties, South Carolina. The Subsidiary Banks' target markets are individuals residing in the primary service area, small to medium size businesses, including retail shops and professional service businesses in the community. The Subsidiary Banks are also targeting individuals who meet certain net worth and income requirements as potential customers for private banking services.
The Savannah Bank's main office, known as the Johnson Square Office, is located in the primary business district in downtown Savannah on Johnson Square, where most of the commercial banks in the primary service area have their main Savannah offices. In recent years, regional banks with headquarter outside of the state of Georgia have acquired several of the banks in the primary service area. The Savannah Bank emphasizes that it is based in Savannah, and that its directors and the executive officers are committed to the economic development of the Savannah area.
Bryan Bank's main office opened in December 1989 and is located in the primary commercial area of the city of Richmond Hill. Bryan Bank has limited competition in the Richmond Hill market. One other community bank, a branch office of a community bank located 50 miles south in Darien and one grocery store branch office are located in Richmond Hill. Bryan Bank has approximately 65 percent of the commercial bank deposits in the Richmond Hill market. Richmond Hill is experiencing substantial residential growth due to its proximity to Savannah, its school system and affordable single-family residences.
On October 1, 1992, Savannah Bank opened its second office at 400 Mall Boulevard. The Mall Boulevard Office competes in the area of Savannah that has the second largest concentration of deposits. This office is in the primary
commercial and retail district in Savannah and includes a high concentration of professional and service-related businesses.
On November 20, 1995, Savannah Bank opened its third office, the West Chatham Office, at 100 Chatham Parkway. West Chatham is a full service office located six miles west of the main office location in a significant commercial and industrial growth area of Chatham County.
On October 1, 1997, the fourth office at 4741 Highway 80 East on Whitemarsh Island, six miles east of the main office location opened for business. Deposits, mortgage loan origination and consumer loans are the primary opportunities for this location that will serve a large concentration of higher net worth individuals, as well as a young adult population in apartments and first homes.
On October 8, 1998, Savannah Bank opened its fifth Savannah location in the Medical Arts Shopping Center. This office is strategically located near two major hospitals and numerous medical, dental and professional practices. This location is approximately four miles southeast of the main office. The lease term began in July 1998.
In February, 2002, Savannah Bank entered into a lease agreement, effective May 1, 2002, for approximately 5,000 square feet of office space at 450 Mall Boulevard, next to our existing branch office at 400 Mall Boulevard. The image item processing, statement rendering, operations research, information technology and deposit operations and branch operations support functions will be relocated into this space. These functions all work closely together and relocating them from different offices to one location provides an environment and opportunity for significant service enhancement efficiencies and synergies. A senior operations officer position is being added to manage these operations functions.
The Subsidiary Banks' business plans rely principally upon local advertising and promotional activity and upon personal contacts by its directors, officers and stockholders to attract business and to acquaint potential customers with the Subsidiary Banks' personalized services. Both Subsidiary Banks emphasize a high degree of personalized customer service in order to be able to provide for each customer's banking needs. The marketing approach emphasizes the advantages of dealing with an independent, locally-owned and relationship-oriented bank to meet the particular needs of individuals, professionals and small to medium-size businesses in the community. All banking services are continually evaluated with regard to their profitability, and efforts will be made to modify the business plan if the plan does not prove successful.
ASSET AND LIABILITY MANAGEMENT
Assets of the Subsidiary Banks consist primarily of loans and an investment portfolio. In an effort to maintain adequate levels of liquidity and minimize fluctuations in the net interest margin (the difference between interest income and interest expense), the rate sensitivity of the loan and investment portfolios are matched to the maturities and rate sensitivity of the liabilities.
The Subsidiary Banks invest the majority of its investment portfolio in highly marketable medium-term and short-term maturity assets, such as Federal Funds, U.S. Treasury securities, U.S. agency securities, marketable mortgage-backed securities and high quality bank-qualified tax-exempt securities. By pricing loans on a variable rate structure, or by keeping the maturity of the investment and loan portfolios relatively short-term, the Bank expects to be able to maintain loan interest, or to reinvest securities proceeds, at prevailing market rates. These policies will help to maintain a generally consistent spread over the interest rates paid by the Subsidiary Banks on the deposits which are used to fund the investment and loan portfolios. However, when interest rates move dramatically up or down, interest spreads and margins move up or down. Loan customers refinance fixed rate loans and time deposit customers withdraw low rate time deposits during and after dramatic moves in interest rates.
Deposit accounts represent the majority of the liabilities of the Subsidiary Banks. These include noninterest-bearing checking accounts and interest-bearing NOW accounts, savings accounts, money market accounts and certificates of deposit, including Individual Retirement Accounts (IRAs). Most time deposits have maturities of 12 months and less, but the maturities may be extended based on liquidity position, interest rate expectations and the rate sensitivity in the loan portfolio of the Subsidiary Banks. In managing its liabilities, both Subsidiary Banks attempt to attract deposits from customers who, assuming rates are competitive, are inclined to maintain an ongoing relationship with the Subsidiary Banks.
The Company has no investment risk in off-balance sheet derivative-related investments.
INTEREST RATE RISK
Interest rate risk is a measure of exposure to changes in net interest income or the theoretical market value of portfolio equity due to changes in market interest rates. The differential (known as "gap") between interest rate sensitive assets and interest rate sensitive liabilities over a specified period of time represents a measure of sensitivity of net interest income to changes in interest rates. A positive gap indicates an excess of rate sensitive assets over rate sensitive liabilities, while a negative gap indicates an excess of rate sensitive liabilities over rate sensitive assets.
The Subsidiary Banks operate under an interest rate risk policy through an Investment/Interest Risk Committee of the holding company board and the Credit/ALCO Committee at Savannah Bank and the Executive Committee at Bryan Bank. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a certain cash flow and repricing analyses which projects the impact of changes in interest rates on the Subsidiary Banks assets and liabilities. Additionally, the committees may set other interest rate risk objectives. The policy also outlines responsibility for monitoring interest rate risk, the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Company's interest rate risk objectives.
FEDERAL AND STATE LAWS AND REGULATION OF BANKS AND BANK HOLDING COMPANIES
Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable law or regulation may have a material effect on the business of the Company and its subsidiaries.
Savannah Bank is subject to extensive supervision and regulation by the OCC, and Bryan Bank is subject to extensive supervision by the GBDF and the FDIC. The regulator of each bank is responsible for overseeing the affairs of all banks and periodically examines banks to determine their compliance with laws and regulations. Banks must make quarterly call reports of their financial condition and results of operations to the FDIC, who reviews the call report information for accuracy, consistency and reasonableness. Quarterly Call Report financial information is made available to regulators and the public approximately 90 days after each quarter-end. Regulators use this data for quarterly offsite monitoring of the financial condition of banks. Quarterly holding company reports are filed with the Federal Reserve Bank of Atlanta (FRB) within 45 days of each quarter-end. This financial information is reviewed by the FRB for accuracy, consistency and reasonableness and is also made available to holding company database providers within 120 days of the end of each quarter. Bank analysts, regulators and consultants regularly use this information in analyzing historical and expected performance of banks and bank holding companies.
In addition, the regulators have authority to issue cease and desist orders against banks and bank holding companies, which are about to engage, are engaging or have engaged in an unsafe or unsound practice in the conduct of their business. The regulators can order affirmative action to correct any harm resulting from a violation of practice, including, but not limited to, making restitution and providing reimbursement or guarantees against loss in certain cases. Regulators also administer several federal statutes such as the Community Reinvestment Act and the Depository Institution Management Interlocks Act, which apply to national banks. The Subsidiary Banks also are subject to special examination by the FDIC and to certain FDIC regulations.
Regulators have adopted risk-based capital requirements that specify the minimum level for which no prompt corrective action is required. In addition, the FDIC adopted FDIC insurance assessment rates based on certain risk-based and equity capital ratios. The table in Note 12 of the notes to the consolidated financial statements in the 2001 Annual Report shows the capital ratios for the Company, and the regulatory minimum capital ratios at December 31, 2001. The capital ratios of the Company and each Subsidiary Bank exceeded the ratios required to be "well-capitalized" by the FDIC.
A national banking association is insured by the FDIC and must be a member of the Federal Reserve System. Therefore, the Subsidiary Banks are subject to applicable provisions of the Federal Reserve Act, which restrict the ability of any national bank to extend credit to its parent holding company. Additionally, a national banking association cannot extend credit to any affiliate (including its parent and non-bank subsidiaries of its parent) to purchase the assets thereof, to issue a guarantee, acceptance or letter of credit (including an
endorsement or standby letter of credit) to its affiliates, or to invest in the stock or securities thereof or to take such stock or securities as collateral for loans to any borrower.
Stockholders of banks (including bank holding companies which own stock in banks, such as the Company) may be compelled by bank regulatory authorities to invest additional capital in the event their bank's capital shall have become impaired by losses or otherwise. Failure to pay such an assessment could cause a forced sale of the holder's bank stock. In addition, the Company may also be required to provide additional capital to any additional banks that it acquires as a condition to obtaining the approvals and consents of regulatory authorities in connection with such acquisitions.
The earnings of the Subsidiary Banks and, consequently of the Company, are affected significantly by the policies of the Federal Reserve Board, which regulates the money supply in order to mitigate recessionary and inflationary pressures. Among the techniques used to implement these objectives are open market operations in United States Government securities, changes in the rate paid by banks on bank borrowings, changes in reserve requirements against bank deposits and limitations on interest rates that banks may pay on time and savings deposits. These techniques are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.
In view of changing conditions in the national economy and money markets, as well as the effect of actions by monetary and fiscal authorities, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Company and the Bank.
The Company, as a bank holding company, is required to register as such with the Federal Reserve Board and the Georgia Department of Banking and Finance. It is required to file with both of these agencies quarterly and annual reports and other information regarding its business operation and those of its subsidiaries. It is also subject to examination by these two agencies and will be required to obtain their approval before acquiring directly or indirectly, ownership or control of any voting shares of a bank or bank subsidiary of a bank holding company if, after such acquisition, it would own or control directly or indirectly, more than five percent of the voting stock of such bank or banking subsidiary of a bank holding company. Furthermore, a bank holding company is prohibited from acquiring direct or indirect ownership or control of any voting stock of any company which is not a bank or bank holding company, with limited exceptions. It must engage only in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. During 1996, the Federal Reserve Board enacted regulations that are slightly less restrictive of the types of businesses which bank holding companies may own.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Act) has introduced a process that enables nationwide interstate banking through bank subsidiaries and interstate bank mergers. Separately, the Act also permits bank subsidiaries to act as agents for each other across state lines. Since September 29, 1995, adequately capitalized and managed bank holding companies have been permitted to acquire control of a bank in any state. Any acquisitions are subject to concentration limits. Beginning June 1, 1997, banks were permitted to merge with one another across state lines. The Interstate Banking Act also permits de novo branching to the extent that a particular state "opts into" the de novo branching provisions. The legislation preserves the state laws which require that a bank must be in existence for a minimum period of time before being acquired as long as the requirement is five years or less. This legislation has immediate relevance for the banking industry due to increased competitive forces from institutions which may consolidate through mergers and those which may move into new markets through enhanced opportunities to branch across state lines.
A bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit or provision of any property or service. Thus, a bank may not extend credit, lease or sell property or furnish any service or fix or vary the consideration for such on the condition that (i) the customer should obtain or provide some additional credit, property or service from or to such bank (other than a loan, discount, deposit or trust service related to and usually provided in connection with a loan, discount, deposit or trust service), its bank holding company or any other subsidiary of its bank holding company or (ii) the customer may not obtain some other credit, property or service from a competitor, except to the extent reasonable conditions are imposed in a credit transaction to assure the soundness of the credit extended.
The Federal Reserve Board has cease and desist powers over parent bank holding companies and non-banking subsidiaries should their actions constitute a serious threat to the safety, soundness or stability of a subsidiary bank. The Company is also subject to certain restrictions with respect to engaging in the business of issuing, underwriting and distributing securities.
Although the Company is not presently subject to any direct regulatory restrictions on dividends (other than those of Georgia corporate law), the Company's long-term ability to pay cash dividends will depend on the amount of dividends paid by the Subsidiary Banks and any other subsequently acquired entities. OCC regulations restrict the amount of dividends, which the Savannah Bank may pay without obtaining prior approval. Based on such regulatory restrictions, the Savannah Bank is limited from paying dividends in a calendar year, which exceeds the current year's net income combined with the retained net profits of the preceding two years. Bryan Bank is limited to paying 50 percent of the prior year net income without getting approval from the GDBF. Banks also have a financial advantage in the form of lower FDIC assessments if they are classified as "well-capitalized" by the FDIC. Dividend payout plans of the Subsidiary Banks will always consider maintaining their "well-capitalized" classification an important objective.
Both Subsidiary Banks are members of the Federal Home Loan Bank ("FHLB") System, which consists of 12 regional FHLBs subject to supervision and regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs maintain central credit facilities primarily for member institutions. The Subsidiary Banks, as a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount at least equal to the greater of: (i) 1 percent of the aggregate outstanding principal amount of its unpaid residential mortgage loans, home purchase contracts and similar obligations as of the beginning of each year, (ii) 5 percent of its advances (borrowings) from the FHLB of Atlanta, or (iii) $500,000. Additionally, during 1996, the FHLB of Atlanta imposed a maximum investment in its capital stock equal to $500,000 and over the required minimum. The Subsidiary Banks are in compliance with this requirement at December 2001.
Each FHLB serves as a reserve or central bank for its member institutions within its assigned regions. It is funded primarily from proceeds derived from the sale of obligations of the FHLB System. The FHLB makes advances (i.e., loans) to members in accordance with policies and procedures established by its Board of Directors. The Subsidiary Banks are authorized to borrow funds from the FHLB of Atlanta to meet demands for withdrawals of savings deposits, to meet seasonal requirements and for the expansion of its loan portfolio. Advances may be made on a secured or unsecured basis depending upon a number of factors, including the purpose for which the funds are being borrowed and existing advances. Interest rates charged for advances vary depending upon maturity, the cost of funds to the regional FHLB and the purpose of the borrowing.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act of 1977 ("CRA") requires the federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low- and moderate-income borrowers in their local communities. In May 1995, the federal bank regulatory agencies published final amended regulations promulgated pursuant to the CRA. The final regulations eliminate the 12 assessment factors under the former regulation and replace them with performance tests. Institutions are no longer required to prepare CRA statements or extensively document director participation, marketing efforts or the ascertainment of community credit needs. Under the final rule, an institution's size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions will be examined using a performance-based lending, investment and service test. Small institutions will be examined using a streamlined approach. All institutions have the option of being evaluated under a strategic plan formulated with community input and pre-approved by the applicable bank regulatory agency.
CRA regulations provide for certain disclosure obligations. In accordance with the CRA, each institution must post a CRA notice advising the public of the right to comment to the institution and its regulator on the institution's CRA performance and to review the CRA public file. Each lending institution must maintain for public inspection a public file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities, and any written comments from the public on its performance in meeting community credit needs. Large institutions also are required to collect certain data, including the amount and location of originated and purchased small business, small farm, community development, and home mortgage loans, and to report this data to their regulatory agencies.
Public disclosure of written CRA evaluations of financial institutions made by regulatory agencies is required under the CRA. This promotes enforcement of CRA requirements by providing the public with the status of a particular
institution's community reinvestment record. The Bank received a "satisfactory" rating on the most recent performance evaluation of its CRA efforts by the OCC.
Congress and various federal agencies responsible for implementing fair lending laws have been increasingly concerned with discriminatory lending practices. In 1994, those federal agencies announced a Joint Policy Statement detailing specific discriminatory practices prohibited under the Equal Opportunity Act and the Fair Housing Act. In the Policy Statement, three methods of proving lending discrimination were identified: (i) overt evidence of discrimination, where a lender blatantly discriminates on a prohibited basis; (ii) evidence of disparate treatment, when a lender treats applicants differently based upon a prohibited factor, even where there is no showing that the treatment was motivated by intention to discriminate; and (iii) evidence of disparate impact, when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect, even where such practices are neutral in appearance and applied equally. Lenders are particularly uncertain about the application of the "disparate impact" criteria by virtue of the vague nature of the Policy Statement. The Policy Statement notes that "the precise contours of the law on disparate impact as it applies to lending discrimination are under development."
RECENT BANKING LEGISLATION
Bills are presently pending before the United States Congress and certain state legislatures, and additional bills may be introduced in the future in the Congress and the state legislatures, which, if enacted, may alter the structure, regulation and competitive relationships of the nation's financial institutions. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Company or the Subsidiary Banks may be affected thereby.
The Gramm-Leach-Bliley Act ("the Act"), formerly known as the Financial Modernization Act was enacted on November 12, 1999. The new statute is the most sweeping financial services legislation enacted in decades. It repeals depression-era laws and eliminates the barriers preventing affiliations among banks, insurance companies, and securities firms. Key provisions to the Act are summarized in the following paragraphs.
Repeal of the Glass-Stegall Act - At its core, the Act repeals, effective 120 days after enactment, the anti-affiliation provisions in sections 20 and 32 of the Banking Act of 1933 (also known as the Glass-Steagall Act) and amends provisions in the Bank Holding Company Act of 1956 to permit financial companies to offer a broad array of banking, insurance, securities, and other financial products, either through financial holding companies ("FHCs") or through operating subsidiaries qualifying under the Act.
In general, Congress decided to preserve the Federal Reserve's role as the umbrella supervisor for holding companies. The Board will work, however, within a system of functional regulation designed to take advantage of the traditional strengths of the federal and state financial supervisors. In addition, the legislation establishes a mechanism for coordination between the Federal Reserve and Treasury regarding the approval of new financial activities for both holding companies and national bank financial subsidiaries.
Banking organizations are prohibited under the Act from participating in new financial affiliations unless their depository institution subsidiaries are well-capitalized and well-managed. Regulators are required to address any failure to maintain safety and soundness standards in a prompt manner. In addition, regulators must prohibit holding companies from participating in new financial affiliations if, at the time of certification, any insured depository affiliate had received a less than "satisfactory" Community Reinvestment Act ("CRA") rating at its most recent examination.
Affiliation Authority - The Act amends section 4 of the Bank Holding Company Act ("BHCA") to provide a new framework for engaging in new financial activities. Those bank holding companies ("BHCs") that qualify to engage in the new financial activities are designated as financial holding companies ("FHCs"). New provisions of the BHCA permit BHCs that qualify as FHCs to engage in activities, and acquire companies engaged in activities that are financial in nature or incidental to such financial activities. FHCs are also permitted to engage in activities that are "complementary" to financial activities if the Board of Governors of the Federal Reserve Bank ("FRB Board") determines that the activity does not pose a substantial risk to the safety or soundness of the institution or the financial system in general.
The FRB Board may act by either regulation or order in determining what activities are financial in nature, incidental to financial in nature, or complementary. In doing so, the FRB Board must notify the Treasury of requests to engage in new financial activities and may not determine that an activity is financial or incidental to a financial activity if Treasury objects.
Furthermore, Treasury may propose that the Board find a particular activity financial in nature or incidental to a financial activity. The Act establishes a similar procedure with regard to the Treasury's (acting through the Office of the Comptroller of the Currency ("OCC")) determination of financial activities and activities that are incidental to financial activities for subsidiaries of national banks. Congress intends for the Federal Reserve and Treasury to establish a consultative process that will negate the need for either agency to veto a proposal of the other agency.
Federal Home Loan Bank Reform - The Act reforms the Federal Home Loan Bank System, including greatly expanding the collateral that a community bank can pledge against FHLB System advances, thus giving smaller banks access to a substantial new liquidity source. FHLB members under $500 million in assets can now pledge small business and agricultural loans (or securities representing a whole interest in such loans) as collateral for advances.
Privacy - The Act imposes a number of new restrictions on the ability of financial institutions - read as any entity offering financial products, including banks, insurance companies, securities houses, and credit unions - to share nonpublic personal information with nonaffiliated third parties. Specifically, the bill:
o requires financial institutions to establish privacy policies and disclose them annually to all their customers, setting forth how the institutions share nonpublic personal financial information with affiliates and third parties o directs regulators to establish regulatory standards that ensure the security and confidentiality of customer information o permits customers to prohibit ("opt out" of permitting) such institutions from disclosing personal financial information to nonaffiliated third parties o prohibits transfer of credit card or other account numbers to third-party marketers o prohibits pretext calling (that is, makes it illegal for information brokers to call banks to obtain customer information with the intent to defraud the bank or customer) o protects stronger state privacy laws, as well as those not "inconsistent" with these Federal rules o requires the Treasury and other Federal regulators to study the appropriateness of sharing information with affiliates, including considering both negative and positive aspects of such sharing for consumers.
The bill also imposes an affirmative obligation on banks to respect their customers' privacy interests. Language protects a community bank's ability to share information with third parties selling financial products (for example, insurance or securities) to bank customers. Community banks can thus continue such sales practices without being subject to the opt-out provisions contained elsewhere in the legislation.
Bankruptcy Legislation - Although proposed bankruptcy legislation is not finalized and signed into law, it appears that the final legislation may assist in reducing the number of voluntary liquidation bankruptcies. This legislation may be of long-term benefit to financial institutions and other creditors.
Various other legislative proposals are expected in Congress concerning the banking industry. Given the uncertainty of the legislative process, management cannot assess the effect any such legislation would have on the Company's financial condition or results of operations.
COMPETITION
The banking business is highly competitive. The Subsidiary Banks compete with other commercial banks and savings and loan associations in their Primary Service Areas.
Banks generally compete with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. The Subsidiary Banks encounter competition from most of the financial institutions in the Subsidiary Banks' Primary Service Areas. In the conduct of certain areas of its banking business, the Subsidiary Banks also compete with credit unions, consumer finance companies, insurance companies, money market mutual funds, brokerage firms and other financial institutions, some of which are not subject to the same degree of regulation and restrictions imposed upon the Subsidiary Banks. Many of these competitors have substantially greater resources and lending limits than the Subsidiary Banks and offer certain services, such as international banking services, that the Subsidiary Banks do not provide currently.
Many of these competitors have more branch offices in the Savannah Bank's Primary Service Area. However, the Company's plan is to expand into the markets which will best serve our targeted customers. Management believes that competitive pricing, local ownership, local decisions, local control and personalized, relationship-oriented service provide the Subsidiary Banks with a method to compete effectively for prospective customers.
The Subsidiary Banks generally benefit from regional bank mergers in the local market and experience the most competition from new local community bank entrants into the market area. Recent mergers affecting the local market area include First Union and Wachovia. Each bank had approximately 10 local offices. The deposits of three First Union offices were sold to the National Bank of Commerce, Nashville, TN and additional office closings are expected. BB&T acquired First Liberty Bank in 2000, its initial entrant into the market, and then acquired Century South Banks with three offices in 2001.
New entrants into the market include The Tattnall Bank in 2000 which opened a branch office and then subsequently sold the branch office assets and leased the building to a new de novo bank, First Chatham Bank. The First Chatham Bank has local organizers and management and a mission and objectives similar to those The Savannah Bank, N.A. had in 1990.
Both Subsidiary Banks offer the full range of deposit services that are typically available from financial institutions, including NOW accounts, demand, savings and other time deposits ranging from money market accounts to longer term certificates of deposit. In addition, retirement accounts such as Individual Retirement Accounts are available. All deposit accounts are insured by the FDIC up to the maximum amount permitted by law.
Competition in the area of deposit growth is a substantial challenge facing the banking industry and the Subsidiary Banks. It is likely that deposit growth in competitive markets will require higher than historical deposit interest rates. Higher costs of funds without corresponding higher rates on earning assets will have a long-term negative impact on net interest income. Higher market share growth on lower costing core deposits, higher revenue growth on fee based services and lower overhead growth rates are the key items required to accomplish the Company's earnings growth objectives.
SELECTED STATISTICAL INFORMATION OF THE COMPANY
The following statistical information is provided for the Company for the years ended December 31, 2001 and 2000. The data is presented using daily average balances. This data should be read in conjunction with the financial statements appearing elsewhere in this report. The Company has no foreign operations and, accordingly, there are no assets or liabilities attributable to foreign operations.
TABLE 1 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS - 2001 AND 2000
The following table presents average balances of the Company and the Subsidiary Banks on a consolidated basis, the taxable-equivalent interest earned and the rate paid thereon during 2001 and 2000.
(a) This table shows the changes in interest income and interest expense for the comparative periods based on either changes in average volume or changes in average rates for interest-earning assets and interest-bearing liabilities. Changes which are not solely due to volume changes or solely due to rate changes have been attributed to rate.
(b) The taxable equivalent adjustment results from tax exempt income less non-deductible TEFRA interest expense.
TABLE 2 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS - 2000 AND 1999
The following table presents average balances of the Company and the Subsidiary Banks on a consolidated basis, the taxable-equivalent interest earned and the rate paid thereon during 2000 and 1999.
(a) This table shows the changes in interest income and interest expense for the comparative periods based on either changes in average volume or changes in average rates for interest-earning assets and interest-bearing liabilities. Changes which are not solely due to volume changes or solely due to rate changes have been attributed to rate.
(b) The taxable equivalent adjustment results from tax exempt income less non-deductible TEFRA interest expense.
TABLE 3 - INVESTMENTS - WEIGHTED AVERAGE YIELDS BY MATURITY
The following table sets forth the amortized cost, fair value and tax-equivalent yields by investment type and maturity category at December 31, 2001
Taxable Amortized Fair Equivalent Cost Value Yield (a) ------- ------- -------- (Thousands) (%) SECURITIES AVAILABLE FOR SALE: U.S. Treasury, other U.S. Government Agencies and mortgage-backed: Within one year $17,486 $17,765 6.23 One year to five years 32,112 33,218 5.94 Five years to ten years 2,545 2,574 6.10 Over ten years 39 40 6.38 ------- ------- -------- Total 52,182 53,597 6.04 ------- ------- --------
Other interest-earning investments: Within one year 1,325 1,335 7.00 One year to five years 4,565 4,708 6.82 Five years to ten years 2,350 2,414 6.91 Over ten years 2,275 2,308 7.42 ------- ------- -------- Total 10,515 10,765 7.00 ------- ------- -------- Total securities available-for-sale $62,997 $64,662 6.23 ======= ======= ========
(a) the yield is calculated on the amortized cost of the securities.
LOANS
The following tables set forth certain information regarding the Subsidiary Banks' loan portfolio as of December 31, 2001.
TABLE 4 - LOAN REPRICING OPPORTUNITIES
The following table sets forth certain loan maturity information as of December 31, 2001. Loan renewals generally reprice relative to the prime rate in effect at the time of the renewal. Management expects that certain real estate mortgage loans that have maturities of one to three years and longer amortization periods will renew at maturity. After One One year Over year Through Five Loan Category or less Five years Years Total ------------- --------- ---------- --------- -------- Real estate-construction and development $ 36,503 $ 2,788 $ - $ 39,291 Commercial 15,913 10,489 865 27,267 --------- ---------- --------- -------- Total $ 52,416 $ 13,277 $ 865 $ 66,558 ========= ========== ========= ========
Loans with floating and adjustable rates $ 45,055 $ 78,966 $ 7,783 $131,804 Loans with fixed rates 86,261 --------- ---------- --------- -------- Total $131,316 $ 78,966 $ 7,783 $218,065 ========= ========== ========= ========
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
At December 31, 2001 and 2000, nonperforming loans were $587 and $694, respectively. Interest income of $0 and $15 was recognized from nonaccrual loans in 2001 and 2000. At December 31, 2001, the Subsidiary Banks had $503 nonaccrual loans and had $84 in loans past due over 90 days.
Except for consumer loans, the Company's policy is to place a loan on nonaccrual status when, in management's judgment, the collection of principal and interest appears doubtful. Interest receivable accrued in prior years and subsequently determined to have doubtful collectibility will be charged to the allowance for possible loan losses. Interest on loans that are classified as nonaccrual is recognized when received. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.
LOAN CONCENTRATIONS Most of the Subsidiary Banks' business activity is with customers located within the Chatham and Bryan County area. As of December 31, 2001, the Subsidiary Banks had a concentration of credit risk aggregating $226,567 million on loans secured by real estate. The Subsidiary Banks have no exposure to highly leveraged transactions and has no foreign credits in its loan portfolio.
TABLE 5 - PROVISION FOR POSSIBLE LOAN LOSSES
Changes in the allowance for loan losses in 2001 though 1997 are summarized as follows:
($ in thousands) 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Balance at the beginning of the year $3,369 $2,794 $2,323 $2,063 $1,695 Charge-offs - Commercial (5) (33) (80) (145) (96) Charge-offs - Consumer (167) (168) (78) (84) (98) Charge-offs - Real estate (98) (63) (10) (29) - ------ ------ ------ ------ ------ Charge-offs - Total (270) (264) (168) (258) (194) ------ ------ ------ ------ ------ Recoveries - Commercial 29 21 30 4 37 Recoveries - Consumer 76 66 61 79 45 Recoveries - Real estate 17 7 3 - - ------ ------ ------ ------ ------ Recoveries - Total 122 94 94 83 82 ------ ------ ------ ------ ------ Net charge-offs (148) (170) (74) (175) (112) ------ ------ ------ ------ ------ Provision for loan losses 605 745 545 435 480 ------ ------ ------ ------ ------ Balance at the end of the year $3,826 $3,369 $2,794 $2,323 $2,063 ====== ====== ====== ====== ====== Ratio of net charge-offs to average loans .06% .07% .04% .11% .08% ====== ====== ====== ====== =====
TABLE 6 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES BY LOAN TYPE The allowance for loan losses is allocated by loan category based on management's assessment of risk within the various categories of loans. The Company's allocation of the allowance for loan losses according to the amount deemed to be reasonably necessary to absorb potential losses within each loan category is presented in the following tables:
The allowance for loan losses is based on estimates and is maintained at a level considered adequate to provide for potential loan losses. The adequacy of the allowance is based on management's continuing evaluation of the loan portfolio under current economic conditions, underlying collateral value securing loans and such other factors, which deserve recognition in estimating loan losses. Actual future losses may be different from estimates due to unforeseen events. Loans, or portions thereof, which are deemed to be uncollectible will be charged against the allowance.
Loan loss reserves are determined based on management's internal review of nonperforming loans, delinquency trends, the level of rated assets and charge-off trends. Additionally, management assesses general and specific economic trends both nationally and locally and regulatory information to determine the impact of those external factors on loan loss reserve levels. Based on the internal and external reviews, The Subsidiary Banks segregates their loan portfolios by type of loans and by loan classification within each loan type. The allowance for loan losses is allocated by different loan classifications based on management's assessment of risk inherent in the various types of loans. Reserve percentages are applied (based on historical and anticipated loss rates) to each loan group to determine the required amount of allocated general loan loss reserves.
Although historically, there have been minimal losses in loans secured by real estate, management has allocated additional reserves to these categories based upon the large concentration of real estate loans, larger individual loan amounts, a very competitive market for loan growth and rapidly rising property valuations in recent years in certain locations in our market area which may not be sustainable.
DEPOSITS
TABLE 7 - DEPOSIT AVERAGE BALANCES AND RATES PAID The following table summarizes average balances of deposits of the Company and the Subsidiary Banks on a consolidated basis and the average rates paid on such deposits during 2001, 2000 and 1999.
2001 2000 1999 --------------- -------------- -------------- ($ in thousands) Amount Rate Amount Rate Amount Rate -------- ----- -------- ---- -------- ---- Non-interest-bearing demand $ 43,356 0.00% $ 39,905 0.00% $ 36,724 0.00% Interest-bearing demand 52,542 1.47% 47,252 2.18% 45,649 2.15% Savings deposits 11,741 2.03% 12,225 2.79% 12,252 2.78% Money market deposits 40,478 3.15% 36,263 4.31% 35,128 3.83% Time deposits 152,091 5.95% 124,911 6.09% 98,789 5.18% -------- ----- -------- ---- -------- ---- Total $300,208 $260,556 $228,542 ======== ======== ========
ITEM 2.
ITEM 2. PROPERTIES
See Note 6 and Note 13 of Notes to Consolidated Financial Statements on page, and page, of the Registrant's 2001 Annual Report to Shareholders, which are specifically incorporated herein by reference.
The Savannah Bank's main office is located at 25 Bull Street, Savannah, Georgia 31401, on the ground floor and lower level of a seven story office building located on Johnson Square in downtown Savannah. The location is sometimes called the Financial Square because six financial institutions surround the square (downtown park). The location is convenient to commercial customers and consumers who already use the services of the five other financial institution offices on Johnson Square.
The Savannah Bank has leased approximately 4,710 square feet on the main floor, and 2000 square feet in the lower level of the building under a five-year lease with one optional five-year extension in June 2004. In November 1998, an additional 1,475 square feet of space was rented on the sixth floor. This lease is through June 2004 with one five-year renewal option. The rental costs increase by 3 percent of the gross rental amount each year during the initial five-year term and thereafter in accordance with the Consumer Price Index. The Company is also responsible for its pro rata share of increases in the cost of ad valorem taxes, insurance, utilities and janitorial services.
In 1989, Bryan Bank constructed its 8,500 square foot two-story main office in Richmond Hill, Georgia, on land owned by Bryan Bank. The building has a walk-up ATM a drive-up ATM and 4 drive-in lanes. All bank personnel are housed in this one location.
Savannah Bank also leases approximately 6,500 square feet on the first floor of a two-story building located at 400 Mall Boulevard, Savannah, Georgia. This space is being used for the Savannah Bank's first branch location, the Mortgage Loan Department and Deposit Operations space. The building is located near the corner of Mall Boulevard and Hodgson Memorial Drive, a location that is convenient to a significant concentration of commercial, service, and retail entities. The lease rate increases with the Consumer Price Index. The initial lease term was for five years and ended March 31, 1997. The Savannah Bank committed to exercise the next five-year lease option in February 2002. There are three additional five-year renewal options included in the terms. The Company is also responsible for its prorata share of increases in the cost of ad valorem taxes, insurance and maintenance of common areas. The bank renovated the existing space, constructed a vault, drive-in teller area and five drive-in teller lanes adjacent to the building.
During 1995, Savannah Bank entered into a five-year ground lease with nine five-year renewal options at 100 Chatham Parkway. The Savannah Bank also has a right of first refusal to buy the property at appraised value should the owner ever decide to sell the property. The location is at the intersection of Chatham Parkway and U.S. Highway 80, a major commercial and industrial intersection in west Chatham County. The Savannah Bank made land improvements and constructed a 2200 square-foot banking facility including four drive-in lanes and an ATM drive-through lane. The West Chatham Office opened for business on November 20, 1995.
In 1997, Savannah Bank constructed a 2,300 square foot office on an outlot owned in the Island Towne Centre Shopping Plaza, six miles east of downtown Savannah.
In November 1997, the Savannah Bank entered into a ten-year lease beginning June 1, 1998 with four five-year renewal options in the Medical Arts Shopping Center at 4809 Waters Road. The property consists of 3,055 square feet of banking office space and a separate drive-through behind the shopping center.
In early March, 2002, Savannah Bank entered into a lease agreement, effective May 1, 2002, for approximately 5,000 square feet of office space at 450 Mall Boulevard, next to our existing branch office at 400 Mall Boulevard. This lease is an addition to an existing lease for space at 400 Mall Boulevard that contains renewal options through 2017. The image item processing, statement rendering, operations research, information technology and deposit operations and branch operations support functions will be relocated into this space.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of, any material pending legal proceedings incidental to the business of the Company or the Subsidiary Banks.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference to sections entitled "Market for Registrant's Common Equity and Related Stockholder Matters" on page of the Financial Statement Section of the 2001 Annual Report to Shareholders.
ITEM 6.
ITEM 6. - SELECTED FINANCIAL DATA
Incorporated herein by reference to sections "Table 1- Selected Financial Condition Highlights - Five-Year Comparison," "Table 2 - Selected Operating Highlights" and "Table 3 - Selected Quarterly Data" in the Registrant's Management and Analysis of Financial Condition and Results of Operations on pages through of the Financial Statement Section of the 2001 Annual Report to Shareholders.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference to the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages and of the Financial Statement Section of the 2001 Annual Report to Shareholders.
ITEM 7A.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference to the sections entitled "Liquidity and Interest Rate Sensitivity Management" and "Table 4 - Long-term Maturity Gap and Repricing Data" in the Registrant's Management's Discussion and Analysis of Financial Condition and Results of Operations on pages and of the Financial Statement Section of the 2001 Annual Report to Shareholders.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) 1. Financial Statements Incorporated herein by reference to the financial statements, together with the applicable report of independent accountants, are included on pages and of the Financial Statement Section of the 2001 Annual Report to Shareholders. The index for Item 8 is as follows: Page Number ------ (i) Consolidated Financial Highlights for 2001 and 2000
(ii) Management's Responsibility for Financial Reporting
(iii) Report of Independent Certified Public Accountants
(ii) Consolidated Balance Sheets December 31, 2001 and 2000
(iii) Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999
(iv) Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999
(v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Computation of Earnings Per Share Exhibit 11
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the sections entitled "Election of Directors" and "Executive Officers" in the Registrant's Proxy Statement dated March 20, 2002 and filed on March 6, 2002. All transactions required pursuant to the insider trading regulations were filed on either Form 4 or Form 5 of the U.S. Securities and Exchange Commission.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the sections entitled "Executive Compensation and Benefits" in the Registrant's Proxy Statement dated March 20, 2002 and filed on March 6, 2002.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the sections entitled "Election of Directors" and "Ownership of Equity Securities" in the Registrant's Proxy Statement dated March 20, 2002 and filed on March 6, 2002.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Note 5 to the Consolidated Financial Statements incorporated by reference and under the caption "Certain Transactions" in the Registrant's Proxy Statement dated March 20, 2002 and filed on March 6, 2002.
PART IV
ITEM 14.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description --------- -------------- 3.1 * Articles of Incorporation 3.2 * By-laws as amended 10.1 * Lease for Bank Site at 25 Bull Street and Assumption of Lease 10.5 * Form of Organizers' Stock Option Agreement 10.6 * Lease for Mall Boulevard Office dated February 14, 1992 10.7 * The Savannah Bancorp, Inc. Incentive Stock Option Plan approved by shareholders on April 18, 1995. 10.8 * Amendment to The Savannah Bancorp, Inc. Incentive Stock Option Plan approved by shareholders on April 16, 1996. 11 Computation of Earnings Per Share 21 Subsidiaries of Registrant 22 Proxy for Annual Meeting 23.1 Consent of BDO Seidman, LLP
*Items 3.1, 3.2, 10.1, 10.5, 10.7, 10.8 and 21 were previously filed by the Company as Exhibits (with the same respective Exhibit Numbers as indicated herein) to the Company's Registration Statement (Registration No. 33-33405) filed in February 1990 and such documents are incorporated herein by reference. Item 10.6 was filed as an exhibit with the 1992 Annual Report on Form 10-K in March, 1993.
(b) REPORTS ON FORM 8-K - None.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on March 18-20, 2002 by the undersigned, thereunto duly authorized.
THE SAVANNAH BANCORP, INC.
By: /s/ ARCHIE H. DAVIS Archie H. Davis, President and Chief Executive Officer (Principal Executive Officer)
/s/ ROBERT B. BRISCOE Robert B. Briscoe Chief Financial Officer (Principal Financial and Accounting Officer)
Directors:
/s/ J. WILEY ELLIS /s/ JACK M. JONES J. Wiley Ellis Jack M. Jones Chairman of the Board
/s/ E. JAMES BURNSED /s/ AARON M. LEVY E. James Burnsed Aaron M. Levy Vice Chairman
/s/ RUSSELL W. CARPENTER /s/ J. CURTIS LEWIS, III Russell W. Carpenter J. Curtis Lewis, III
/s/ ARCHIE H. DAVIS /s/ M. LANE MORRISON Archie H. Davis M. Lane Morrison
/s/ ROBERT H. DEMERE, JR. /s/ J. TOBY ROBERTS Robert H. Demere, Jr. J. Toby Roberts, Sr.
/s/ L. CARLTON GILL /s/ JAMES W. ROYAL L. Carlton Gill James W. Royal
/s/ ROBERT W. GROVES III /s/ Robert W. Groves III Robert T. Thompson, Jr.