Savannah Bancorp Reports Second Quarter Results

SAVANNAH, Ga., July 31, 2012 (GLOBE NEWSWIRE) -- The Savannah Bancorp, Inc. (Nasdaq:SAVB) (the "Company") reported net income for the second quarter 2012 of $416,000 compared to a net loss of $1,492,000 for the second quarter 2011. Net income per diluted share was 6 cents in the second quarter 2012 compared to a net loss per diluted share of 21 cents in 2011. The quarter over quarter increase in earnings resulted primarily from decreases in losses on sales of foreclosed assets and in the provision for loans losses, which were partially offset by lower net interest income. Pretax core earnings decreased $668,000, or 15 percent, to $3,843,000 in the second quarter of 2012 compared to $4,511,000 in the second quarter of 2011. The quarter over quarter decrease in pretax core earnings resulted primarily from a decrease in net interest income. Net loss for the first six months of 2012 was $615,000 compared to a net loss of $1,366,000 for the same period in 2011. Other growth and performance ratios are included in the attached financial highlights.

Total assets decreased 5.0 percent to $952 million at June 30, 2012, down approximately $50 million from $1.0 billion a year earlier. Loans totaled $725 million compared to $808 million one year earlier, a decrease of approximately $83 million, or 10 percent. Deposits totaled $818 million and $857 million at June 30, 2012 and 2011, respectively, a decrease of 4.6 percent. Shareholders' equity was $83.7 million at June 30, 2012 compared to $85.1 million at June 30, 2011. The Company's total capital to risk-weighted assets ratio was 13.14 percent at June 30, 2012, which exceeds the 10 percent required by the regulatory agencies to maintain well-capitalized status.

John C. Helmken II, President and CEO, said, "We are very pleased to report positive earnings this quarter. We continue to focus on improving our asset quality and working problem assets through the system. We are finally seeing this effort positively impact our asset quality metrics. Our level of nonperforming assets decreased 17 percent in 2012 to their lowest point since the first quarter of 2010. Loans past due 30-89 days have also been substantially lower at each quarter-end in 2012 versus prior periods and are less than one third of the balance reported one year ago."

The Company's allowance for loan losses was $22,776,000, or 3.14 percent of total loans at June 30, 2012 compared to $23,523,000 or 2.91 percent of total loans a year earlier. Nonperforming assets were $45,913,000 or 4.82 percent of total assets at June 30, 2012 compared to $51,435,000 or 5.13 percent of total assets at June 30, 2011. Other real estate owned ("OREO") increased $4,210,000, or 35 percent, to $16,335,000 at June 30, 2012, as compared to June 30, 2011, due to an increase in foreclosures on real property as a result of borrower defaults. For the second quarter of 2012, net charge-offs were $2,160,000 compared to net charge-offs of $5,140,000 for the second quarter of 2011. The provision for loan losses for the second quarter of 2012 was $2,540,000 compared to $6,300,000 for the same period in 2011. The decline in the provision for loan losses for the second quarter of 2012 when compared to the same period in 2011 was primarily due to lower real estate related charge-offs. While the local real estate market has not fully stabilized and continues to show weakness, the Company experienced slower in-flows on nonperforming assets in the second quarter 2012 compared to the same period in 2011.

Helmken continued, "To maintain a steady net interest margin in this low rate environment is a testimony to the hard work and efforts of our team.  In addition, our trust and asset management fees were higher this quarter on both a linked quarter and quarter over quarter basis. We continue to work to contain non-credit expenses, however, credit costs, charge-offs and loan loss provisions remain too high. Management and the Board of Directors continue to evaluate all alternatives to resolve and reduce nonperforming and classified assets."

Net interest income decreased $600,000, or 6.6 percent, in the second quarter of 2012 versus the second quarter of 2011. Net interest income decreased quarter over quarter due primarily to a lower level of interest-earning assets, particularly accruing loans. Average accruing loans declined approximately $73 million to $704 million for the second quarter in 2012 compared to $777 million for the same period in 2011. This decline was due to normal pay downs, charge-offs and weakened demand for new loans.   Although net interest income declined, the net interest margin remained stable at 3.91 percent in the second quarter of 2012 compared to the same period in 2011. The yield on earning assets declined 30 basis points to 4.67 percent during the second quarter of 2012 compared to the second quarter of 2011. This decline in yield on interest-earning assets was mainly due to the Company holding, on average, $47 million more in lower yielding interest-bearing deposits and $74 million less in higher yielding accruing loans. However, the decline in the yield on interest-earning assets was offset by a 30 basis point decline in the cost of interest-bearing liabilities. This decline was primarily due to the re-pricing of time deposits and money market accounts in the current low interest rate environment. On a linked quarter basis, the net interest margin decreased one basis point when compared to the first quarter of 2012.

Noninterest income decreased $163,000, or 9.5 percent, in the second quarter of 2012 versus the same period in 2011. This decrease was primarily related to a decline in gain on sale of securities of $214,000 in the second quarter of 2012 compared to the same period in 2011. This decline was partially offset by an increase in other operating income of $73,000 or 20 percent. The increase in other operating income during the second quarter of 2012 compared to 2011 was due primarily to increases in rent income from premises and OREO and from fees related to ATMs and debit cards.

Noninterest expense decreased $211,000, or 3.0 percent, to $6,898,000 during the second quarter of 2012 as compared to the same period in 2011. This decrease was mainly due to a $330,000, or 30 percent, decrease in losses on sales of foreclosed assets in the second quarter of 2012 as compared to the same quarter in 2011.

The Savannah Bancorp, Inc., a bank holding company for The Savannah Bank, N.A. ("Savannah"), Bryan Bank & Trust (Richmond Hill, Georgia) ("Bryan"), and Minis & Co., Inc., is headquartered in Savannah, Georgia and began operations in 1990. The two bank subsidiaries, Savannah and Bryan, are collectively referred to as the "Subsidiary Banks." The Company has eleven branches in Coastal Georgia and South Carolina. Its primary businesses include loan, deposit, trust, asset management, and mortgage origination services provided to local customers.

This press release contains certain performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management of the Company uses these non-GAAP measures in its analysis of the Company's performance. These measures are useful when evaluating the underlying performance and efficiency of the Company's operations and balance sheet. The Company's management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company's management believes that investors may use these non-GAAP financial measures to evaluate the Company's financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

This press release contains statements that constitute "forward-looking statements" within the meaning of federal securities laws. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements include, among others, statements identified by words or phrases such as "potential," "opportunity," "believe," "expect," "anticipate," "current," "intention," "estimate," "assume," "outlook," "continue," "seek," "plans," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" or similar expressions of the future or otherwise regarding the outlook for the Company's future business and financial performance and/or the performance of the banking industry and economy in general. These forward-looking statements include, among others, our assessment of local real estate markets and the decline in values on loan collateral and OREO; expectations regarding loan demand, new business and relationships; expectations regarding our ability to improve asset quality; expectations on our ability to contain operating and other non-credit expenses in 2012; our evaluation of alternatives to reduce nonperforming and classified assets; and the assumptions underlying our expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements.

These statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. There can be no assurance that these results will occur or that the expected benefits associated therewith will be achieved. A number of important factors could cause actual results to differ materially from those contemplated by our forward-looking statements in this press release. Many of these factors are beyond our ability to control or predict. These factors include, but are not limited to, those found in our filings with the Securities and Exchange Commission, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2011, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, including those which are based on current expectations and speak only as of the date that they are made. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise, except as required by law.

A printable format of this entire Earnings Release may be obtained from the Company's Corporate Website at www.savb.com under the "SEC Filings and More" link and then "Latest Earnings Release".

Capital Resources

The Subsidiary Banks' primary regulators have adopted capital requirements that specify the minimum capital level for which no prompt corrective action is required. In addition, the FDIC has adopted FDIC insurance assessment rates based on certain "well-capitalized" risk-based and equity capital ratios. Failure to meet minimum capital requirements can result in the initiation of certain actions by the regulators that, if undertaken, could have a material effect on the Company's and the Subsidiary Banks' financial statements and condition. As of June 30, 2012, the Company and Savannah were categorized as "well-capitalized" under the regulatory framework for prompt corrective action in the most recent notification from the FDIC. In the first quarter of 2012, Bryan entered into a Consent Order ("Order") with its regulators which includes a capital provision requiring Bryan to maintain a Tier 1 Leverage Ratio of not less than 8.00 percent and a Total Risk-based Capital Ratio of not less than 10.00 percent.  As a result of this capital provision, Bryan is automatically classified as "adequately capitalized" for regulatory purposes.  As of June 30, 2012, Bryan had a Tier 1 Leverage Ratio of 7.88 percent which was below the requirement set by the Order.  However, Bryan's Leverage Ratio did increase 31 basis points in the second quarter 2012 on a linked quarter basis. The Company is evaluating its options to bring Bryan into compliance with this stipulation. Savannah has agreed with its primary regulator to maintain a Tier 1 Leverage Ratio of not less than 8.00 percent and a Total Risk-based Capital Ratio of not less than 12.00 percent and is currently in compliance with this agreement.

Total tangible equity capital for the Company was $80.3 million, or 8.46 percent of total tangible assets at June 30, 2012. The table below shows the regulatory capital amounts and 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.

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.