UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K


CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):  April 27, 2020


Severn Bancorp, Inc.
(Exact name of the registrant as specified in its charter)


Maryland
000-49731
52-1726127
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(IRS Employer Identification No.)

200 Westgate Circle, Suite 200
    
     Annapolis, Maryland
  
21401
(Address of principal executive offices)
  
 (Zip Code)

410-260-2000
(Registrant’s telephone number)

N/A
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c)

Title of each class
  
Trading
Symbol(s)
  
Name of each exchange on which registered
Common Stock, $0.01 par value
  
SVBI
  
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

ITEM 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On April 27, 2020 Severn Bancorp, Inc. issued a press release announcing financial results for the first quarter ended March 31, 2020.  A copy of this press release is being furnished as Exhibit 99.1 to this report.
 
ITEM 9.01.
FINANCIAL STATEMENTS AND EXHIBITS.
 
(d) Exhibits:
 
99.1 Press Release of Severn Bancorp, Inc., dated April 27, 2020 announcing financial results for first quarter ended March 31, 2020.

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 hereunto duly authorized.

 
Severn Bancorp, Inc.
     
Dated: April 28, 2020
 By:
/s/ Alan J. Hyatt
   
Alan J. Hyatt, President




Exhibit 99.1


For Immediate Release
Contact:
 
Vance Adkins
 
Chief Financial Officer
 
Email: vadkins@severnbank.com
 
Phone: 410.260.2000

Severn Bancorp, Inc. Announces First Quarter Earnings - Strong Noninterest Income Growth

Annapolis, MD, April 27, 2020 (PRNewswire) – Severn Bancorp, Inc. (the Company) (NASDAQ: SVBI), the parent company of Severn Bank (the Bank), reported net income available to common shareholders for the first quarter ended March 31, 2020 of $565 thousand versus $2.6 million for the first quarter of 2019. Earnings per share on a fully diluted basis were $0.04 versus $0.20 for the quarters ended March 31, 2020 and 2019, respectively.
 
Response to COVID-19
 
The COVID-19 pandemic has already impacted the local economy in the Annapolis and greater Anne Arundel County area. Federal, state, and local stay-at-home orders were enacted in our markets in March 2020 causing many businesses to close and workers to be furloughed or lose jobs. Essential purpose entities such as medical professionals, food and agricultural businesses, and transportation and logistical businesses were exempted from the closures; however, unemployment rates are increasing in our markets.
 
The Company is closely monitoring the effects of the pandemic on our loan and deposit customers. Our management team is focused on assessing the risks in our loan portfolio and working with customers to minimize losses. We have implemented loan programs to allow customers who were required to close or reduce their business operations to temporarily defer loan principal and interest payments. The Company is also participating in the SBA Paycheck Protection Program (PPP) to help disburse loans to our business customers to provide them with additional working capital. To date, the Company has processed 185 applications, almost 100% of the applications submitted, totaling approximately $36 million, and is working diligently with the SBA to qualify customers to receive PPP loans. Many employees worked 20 hours straight up until the very last viable applicant was submitted as the SBA portal closed.
 
“We have provided Payroll Protection Program loans to our local business community as aggressively as possible,” said Alan J. Hyatt, President and Chief Executive Officer, “knowing these loans provide lifelines to businesses and their employees. This Company remains committed to the local economy during these challenging times. We respect and admire the commitment others are making in the fight against COVID-19, including first responders, health care workers, and those providing other essential services. We are also grateful to Governor Hogan for the outstanding leadership he is providing in the State of Maryland.” The Company has also taken measures to protect the health and safety of its customers and employees by encouraging remote work arrangements to the extent possible, adjusting banking center hours, and implementing operational measures to promote social distancing. Management is closely monitoring credit metrics and performing stress testing on the Bank’s loan portfolio. Additional resources have been shifted to credit administration to closely analyze higher risk segments within the loan portfolio, monitor and track loan payment deferrals and customer liquidity, and provide timely reporting to management and the board of directors. Based on the Company’s capital and liquidity levels, conservative underwriting policies, loan concentration diversification, and geographical marketplace, management expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized.
 
“These are difficult times, and our Company is holding up well,” said Hyatt.
 
Income Statement
 
Net interest income in the first quarter 2020 decreased $1.3 million or 16% to $6.8 million compared to the first quarter of 2019. Less first quarter interest income was generated from lower volumes of earning assets, particularly from significantly lower medical-use cannabis related deposits that earned overnight interest income during the first quarter of 2019. Also, loan interest income decreased from lower loan volumes, which was slightly offset by a reduction in interest expense from less reliance on borrowings.
 
Provision expense in the first quarter 2020 was $750 thousand compared to zero for the first quarter of 2019. In anticipation of the potential negative effects of the COVID-19 pandemic on our loan portfolio, adjustments were made to the allowance for loan losses increasing factors related to economic conditions, lending policies and procedures, and industry conditions.
 
Noninterest income in the first quarter 2020 increased $765 thousand or 34% to $3.0 million from the first quarter of 2019. Growth in mortgage banking production contributed significantly to the increases in noninterest income.
 
Noninterest expense in the first quarter 2020 increased $1.5 million or 22% to $8.3 million from the first quarter of 2019. Nonrecurring noninterest expenses increased due to several factors, including: legal and professional fees of $280 thousand, loss on sale of OREO property of $74 thousand, and write-off of leasehold improvements related to a lease termination during the quarter of $76 thousand. In addition, there were higher commissions paid to mortgage loan officers from increased production and higher occupancy and staffing costs as a result of opening a new branch in Crofton during the third quarter of 2019.
 
Balance Sheet
 
Total assets increased more than $30 million to $857 million at March 31, 2020 from $827 million at December 31, 2019. The increase in assets was primarily in federal funds and interest bearing deposits in other banks as well as loans held for sale from high production during the quarter. Deposits also increased by $29 million from December 31, 2019. The increase in deposits was primarily the result of short term, medical-use cannabis related funds that account holders maintain at the Bank prior to pursuing other longer term investment opportunities. Management is aware of the short term nature of certain medical-use cannabis related deposits and offset those funds by maintaining short term liquidly to meet any deposit outflows.
 
About Severn Bank
 
Founded in 1946, Severn Bank is a full-service community bank offering a wide array of personal and commercial banking products as well as residential and commercial mortgage lending. It offers seven branches located in Annapolis, Edgewater, Severna Park, Lothian/Wayson’s Corner, Crofton, and Glen Burnie, Maryland. The Bank specializes in exceptional customer service and holds itself and its employees to a high standard of community contribution. Severn Bank is on the Web at www.severnbank.com.
 
# # #

Forward Looking Statements
 
In addition to the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties that may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. The forward-looking statements contained herein include, but are not limited to, those with respect to management’s determination of the amount of loan loss reserve and statements about the economy. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “could,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements. The Company’s operations and actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences include, but are not limited to, changes in the economy and interest rates both in the nation and in the Company’s general market area, federal and state regulation, competition, the rapidly changing uncertainties related to the Covid-19 pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance, and other factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including “Item 1A. Risk Factors” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
 
Severn Bancorp, Inc.
Consolidated Income Statements
(dollars in thousands)
(Unaudited)

Year-to-Date income statement results:
  
Three Months Ended March 31,
              
   
2020
    
2019
    
$ Change
    
% Change
  
                         
Interest Income
                        
                         
Interest on loans
  
$
8,338
    
$
9,167
    
$
(829
)
    
-9
%
Interest on securities
    
219
      
259
      
(40
)
    
-15
%
Other interest income
    
359
      
1,117
      
(758
)
    
-68
%
                                 
Total interest income
    
8,916
      
10,543
      
(1,627
)
    
-15
%
                                 
Interest Expense
                                
                                 
Interest on deposits
    
1,797
      
1,869
      
(72
)
    
-4
%
Interest on long term borrowings
    
364
      
589
      
(225
)
    
-38
%
                                 
Total interest expense
    
2,161
      
2,458
      
(297
)
    
-12
%
                                 
Net interest income
    
6,755
      
8,085
      
(1,330
)
    
-16
%
                                 
Provision for loan losses
    
750
      
-
      
750
      
100
%
                                 
Net interest income after provision for loan losses
    
6,005
      
8,085
      
(2,080
)
    
-26
%
                                 
Noninterest Income
                                
                                 
Mortgage-banking revenue
    
1,634
      
720
      
914
      
127
%
Real Estate Commissions
    
310
      
482
      
(172
)
    
-36
%
Real Estate Management Income
    
165
      
164
      
1
      
1
%
Other noninterest income
    
916
      
894
      
22
      
3
%
                                 
Total noninterest income
    
3,025
      
2,260
      
765
      
34
%
                                 
Net interest income plus noninterest income after provision for loan losses
    
9,030
      
10,345
      
(1,315
)
    
-13
%
                                 
Noninterest Expense
                                
                                 
Compensation and related expenses
    
5,461
      
4,525
      
936
      
21
%
Net Occupancy & Depreciation
    
518
      
415
      
103
      
25
%
Net Costs of Foreclosed Real Estate
    
74
      
125
      
(51
)
    
-41
%
Other
    
2,199
      
1,685
      
514
      
31
%
                                 
Total noninterest expense
    
8,252
      
6,750
      
1,502
      
22
%
                                 
Income before income tax provision
    
778
      
3,595
      
(2,817
)
    
-78
%
                                 
Income tax provision
    
213
      
986
      
(773
)
    
-78
%
                                 
Net income
  
$
565
    
$
2,609
    
$
(2,044
)
    
-78
%
Net income available to common shareholders
  
$
565
    
$
2,609
    
$
(2,044
)
    
-78
%

Severn Bancorp, Inc.
Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)

   
March 31, 2020
    
December 31, 2019
    
$ Change
    
% Change
  
Balance Sheet Data:
                        
                         
ASSETS
                        
Cash
  
$
1,989
    
$
2,892
    
$
(903
)
    
-31
%
Federal funds and interest bearing deposits in other banks
    
113,647
      
85,301
      
28,346
      
33
%
Certificates of deposit held as investment
    
7,540
      
7,540
      
-
      
0
%
Investment securities available for sale, at fair value
    
18,842
      
12,906
      
5,936
      
46
%
Investment securities held to maturity
    
22,737
      
25,960
      
(3,223
)
    
-12
%
Loans held for sale, at fair value
    
21,996
      
10,910
      
11,086
      
102
%
Loans receivable
    
635,950
      
645,685
      
(9,735
)
    
-2
%
Allowance for loan losses
    
(7,918
)
    
(7,138
)
    
(780
)
    
11
%
Accrued interest receivable
    
2,275
      
2,458
      
(183
)
    
-7
%
Foreclosed real estate, net
    
1,684
      
2,387
      
(703
)
    
-29
%
Premises and equipment, net
    
21,731
      
22,144
      
(413
)
    
-2
%
Restricted stock investments
    
2,299
      
2,431
      
(132
)
    
-5
%
Bank owned life insurance
    
5,414
      
5,377
      
37
      
1
%
Deferred income taxes, net
    
1,691
      
1,748
      
(57
)
    
-3
%
Prepaid expenses and other assets
    
7,478
      
6,318
      
1,160
      
18
%

                               
Total assets
  
$
857,355
    
$
826,919
    
$
30,436
      
4
%
                                 
LIABILITIES AND STOCKHOLDERS EQUITY
                                
Deposits
  
$
690,212
    
$
661,049
    
$
29,164
      
4
%
Borrowings
    
35,000
      
35,000
      
-
      
0
%
Subordinated debentures
    
20,619
      
20,619
      
-
      
0
%
Accounts payable and accrued expenses
    
5,803
      
4,779
      
1,024
      
21
%
                                 
Total liabilities
    
751,634
      
721,447
      
30,187
      
4
%
                                 
Common stock
    
128
      
128
      
-
      
0
%
Additional paid-in capital
    
65,992
      
65,944
      
48
      
0
%
Retained earnings
    
39,497
      
39,445
      
52
      
0
%
Accumulated comprehensive income (loss)
    
104
      
(45
)
    
149
      
-330
%

                               
Total stockholders' Equity
    
105,721
      
105,472
      
249
      
0
%

                               
Total liabilities and stockholders' equity
  
$
857,355
    
$
826,919
    
$
30,436
      
4
%

Severn Bancorp, Inc.
Selected Financial Data
(dollars in thousands, except per share data)
(Unaudited)

   
Three Months Ended March 31,
  
   
2020
    
2019
  
Per Share Data:
            
Basic earnings per share
  
$
0.04
    
$
0.20
  
Diluted earnings per share
  
$
0.04
    
$
0.20
  
Average basic shares outstanding
    
12,812,642
      
12,773,259
  
Average diluted shares outstanding
    
12,850,141
      
12,857,643
  
                 
Performance Ratios:
                
Return on average assets
    
0.27
%
    
1.13
%
Return on average equity
    
2.11
%
    
10.47
%
Net interest margin
    
3.38
%
    
3.65
%
Efficiency ratio*
    
83.62
%
    
64.04
%

   
March 31, 2020
    
December 31, 2019
  
Asset Quality Data:
            
Non-accrual loans
  
$
7,246
    
$
4,242
  
Foreclosed real estate
    
1,684
      
2,387
  
Total non-performing assets
  
$
8,930
    
$
6,629
  
Total non-accrual loans to total loans
    
1.14
%
    
0.66
%
Total non-accrual loans to total assets
    
0.85
%
    
0.51
%
Allowance for loan losses
  
$
7,918
    
$
7,138
  
Allowance for loan losses to total loans
    
1.25
%
    
1.11
%
Allowance for loan losses to total non-accrual loans
    
109.3
%
    
168.3
%
Total non-performing assets to total assets
    
1.04
%
    
0.80
%
Non-accrual troubled debt restructurings (included above)
  
$
85
    
$
85
  
Performing troubled debt restructurings
  
$
8,786
    
$
8,858
  
Loan to deposit ratio
    
92.1
%
    
97.7
%

*
This non-GAAP financial measure is calculated as noninterest expenses less OREO expenses divided by net interest income plus noninterest income