12812976128109260000P10YP5Y00000P10Y00P12M00000000SEVERN BANCORP INC0000868271--12-312020Q2false000P5Y6M0000868271us-gaap:CommonStockMember2020-01-012020-06-300000868271us-gaap:CommonStockMember2019-04-012019-06-300000868271us-gaap:CommonStockMember2019-01-012019-06-300000868271us-gaap:RetainedEarningsMember2020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000868271us-gaap:RetainedEarningsMember2020-03-310000868271us-gaap:AdditionalPaidInCapitalMember2020-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000868271us-gaap:RetainedEarningsMember2019-12-310000868271us-gaap:AdditionalPaidInCapitalMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000868271us-gaap:RetainedEarningsMember2019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000868271us-gaap:RetainedEarningsMember2019-03-310000868271us-gaap:AdditionalPaidInCapitalMember2019-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000868271us-gaap:RetainedEarningsMember2018-12-310000868271us-gaap:AdditionalPaidInCapitalMember2018-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000868271us-gaap:CommonStockMember2020-06-300000868271us-gaap:CommonStockMember2020-03-310000868271us-gaap:CommonStockMember2019-12-310000868271us-gaap:CommonStockMember2019-06-300000868271us-gaap:CommonStockMember2019-03-310000868271us-gaap:CommonStockMember2018-12-310000868271srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271us-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:CollateralPledgedMember2020-06-300000868271us-gaap:CollateralPledgedMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-04-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-01-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-04-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-01-012019-06-300000868271srt:WeightedAverageMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:SubstandardMember2020-06-300000868271us-gaap:SpecialMentionMember2020-06-300000868271us-gaap:PassMember2020-06-300000868271svbi:MortgageServicingRightsMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:SubstandardMember2019-12-310000868271us-gaap:SpecialMentionMember2019-12-310000868271us-gaap:PassMember2019-12-310000868271svbi:MortgageServicingRightsMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-03-310000868271us-gaap:HomeEquityLoanMember2020-03-310000868271us-gaap:ConstructionLoansMember2020-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-03-310000868271us-gaap:CommercialPortfolioSegmentMember2020-03-3100008682712020-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2019-03-310000868271us-gaap:HomeEquityLoanMember2019-03-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-03-310000868271us-gaap:ConstructionLoansMember2019-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-03-310000868271us-gaap:CommercialPortfolioSegmentMember2019-03-3100008682712019-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2018-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2018-12-310000868271us-gaap:HomeEquityLoanMember2018-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2018-12-310000868271us-gaap:ConstructionLoansMember2018-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2018-12-310000868271us-gaap:CommercialPortfolioSegmentMember2018-12-310000868271svbi:PaycheckProtectionProgramPppLoansMember2020-01-012020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-01-012020-06-300000868271us-gaap:ConstructionLoansMember2019-04-012019-06-300000868271us-gaap:ConstructionLoansMember2019-01-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:USTreasurySecuritiesMember2020-06-300000868271us-gaap:USTreasurySecuritiesMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-06-300000868271us-gaap:HomeEquityLoanMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-12-310000868271us-gaap:HomeEquityLoanMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-06-300000868271us-gaap:HomeEquityLoanMember2019-06-300000868271us-gaap:ConstructionLoansMember2019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-06-300000868271us-gaap:HomeEquityMember2020-06-300000868271us-gaap:DomesticLineOfCreditMember2020-06-300000868271svbi:UnadvancedConstructionCommitmentsMember2020-06-300000868271us-gaap:StandbyLettersOfCreditMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-12-310000868271us-gaap:HomeEquityMember2019-12-310000868271us-gaap:DomesticLineOfCreditMember2019-12-310000868271svbi:UnadvancedConstructionCommitmentsMember2019-12-310000868271svbi:MortgageLoanCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271us-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-01-012019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271us-gaap:RetainedEarningsMember2020-04-012020-06-300000868271us-gaap:RetainedEarningsMember2020-01-012020-06-300000868271us-gaap:RetainedEarningsMember2019-04-012019-06-300000868271us-gaap:RetainedEarningsMember2019-01-012019-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2019-12-3100008682712019-06-3000008682712018-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-04-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityLoanMember2019-04-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:HomeEquityLoanMember2019-01-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-01-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-01-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-04-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-04-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-01-012019-06-300000868271svbi:CaresActMember2020-06-300000868271us-gaap:FairValueInputsLevel3Member2020-06-300000868271us-gaap:FairValueInputsLevel3Member2019-12-310000868271srt:MinimumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2019-01-012019-12-310000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2020-06-300000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2020-06-300000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2019-12-310000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityMember2020-01-012020-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-01-012020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-3100008682712019-01-012019-06-300000868271srt:MinimumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MinimumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:FairValueInputsLevel1Member2020-06-300000868271us-gaap:FairValueInputsLevel1Member2019-12-3100008682712020-04-012020-06-3000008682712019-04-012019-06-3000008682712019-01-012019-12-310000868271us-gaap:FairValueInputsLevel2Member2020-06-300000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-06-300000868271us-gaap:FairValueInputsLevel2Member2019-12-310000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-06-300000868271us-gaap:ConstructionLoansMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-3000008682712020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-12-310000868271us-gaap:ConstructionLoansMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-12-3100008682712019-12-3100008682712020-08-0700008682712020-01-012020-06-30xbrli:sharesiso4217:USDxbrli:puresvbi:itemsvbi:contractsvbi:securityiso4217:USDxbrli:sharessvbi:loan

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

or

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

For the transition period from                           to                          .

Commission File Number 0-49731

SEVERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland

52-1726127

(State or other jurisdiction of incorporation or organization)

(I.R.S. 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, including area code)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common Stock, par value 0000868271us-gaap:CommonStockMember2020-01-012020-06-300000868271us-gaap:CommonStockMember2019-04-012019-06-300000868271us-gaap:CommonStockMember2019-01-012019-06-300000868271us-gaap:RetainedEarningsMember2020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000868271us-gaap:RetainedEarningsMember2020-03-310000868271us-gaap:AdditionalPaidInCapitalMember2020-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000868271us-gaap:RetainedEarningsMember2019-12-310000868271us-gaap:AdditionalPaidInCapitalMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000868271us-gaap:RetainedEarningsMember2019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000868271us-gaap:RetainedEarningsMember2019-03-310000868271us-gaap:AdditionalPaidInCapitalMember2019-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000868271us-gaap:RetainedEarningsMember2018-12-310000868271us-gaap:AdditionalPaidInCapitalMember2018-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000868271us-gaap:CommonStockMember2020-06-300000868271us-gaap:CommonStockMember2020-03-310000868271us-gaap:CommonStockMember2019-12-310000868271us-gaap:CommonStockMember2019-06-300000868271us-gaap:CommonStockMember2019-03-310000868271us-gaap:CommonStockMember2018-12-310000868271srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271us-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:CollateralPledgedMember2020-06-300000868271us-gaap:CollateralPledgedMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-04-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-01-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-04-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-01-012019-06-300000868271srt:WeightedAverageMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:SubstandardMember2020-06-300000868271us-gaap:SpecialMentionMember2020-06-300000868271us-gaap:PassMember2020-06-300000868271svbi:MortgageServicingRightsMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:SubstandardMember2019-12-310000868271us-gaap:SpecialMentionMember2019-12-310000868271us-gaap:PassMember2019-12-310000868271svbi:MortgageServicingRightsMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-03-310000868271us-gaap:HomeEquityLoanMember2020-03-310000868271us-gaap:ConstructionLoansMember2020-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-03-310000868271us-gaap:CommercialPortfolioSegmentMember2020-03-3100008682712020-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2019-03-310000868271us-gaap:HomeEquityLoanMember2019-03-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-03-310000868271us-gaap:ConstructionLoansMember2019-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-03-310000868271us-gaap:CommercialPortfolioSegmentMember2019-03-3100008682712019-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2018-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2018-12-310000868271us-gaap:HomeEquityLoanMember2018-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2018-12-310000868271us-gaap:ConstructionLoansMember2018-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2018-12-310000868271us-gaap:CommercialPortfolioSegmentMember2018-12-310000868271svbi:PaycheckProtectionProgramPppLoansMember2020-01-012020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-01-012020-06-300000868271us-gaap:ConstructionLoansMember2019-04-012019-06-300000868271us-gaap:ConstructionLoansMember2019-01-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:USTreasurySecuritiesMember2020-06-300000868271us-gaap:USTreasurySecuritiesMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-06-300000868271us-gaap:HomeEquityLoanMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-12-310000868271us-gaap:HomeEquityLoanMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-06-300000868271us-gaap:HomeEquityLoanMember2019-06-300000868271us-gaap:ConstructionLoansMember2019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-06-300000868271us-gaap:HomeEquityMember2020-06-300000868271us-gaap:DomesticLineOfCreditMember2020-06-300000868271svbi:UnadvancedConstructionCommitmentsMember2020-06-300000868271us-gaap:StandbyLettersOfCreditMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-12-310000868271us-gaap:HomeEquityMember2019-12-310000868271us-gaap:DomesticLineOfCreditMember2019-12-310000868271svbi:UnadvancedConstructionCommitmentsMember2019-12-310000868271svbi:MortgageLoanCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271us-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-01-012019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271us-gaap:RetainedEarningsMember2020-04-012020-06-300000868271us-gaap:RetainedEarningsMember2020-01-012020-06-300000868271us-gaap:RetainedEarningsMember2019-04-012019-06-300000868271us-gaap:RetainedEarningsMember2019-01-012019-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2019-12-3100008682712019-06-3000008682712018-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-04-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityLoanMember2019-04-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:HomeEquityLoanMember2019-01-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-01-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-01-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-04-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-04-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-01-012019-06-300000868271svbi:CaresActMember2020-06-300000868271us-gaap:FairValueInputsLevel3Member2020-06-300000868271us-gaap:FairValueInputsLevel3Member2019-12-310000868271srt:MinimumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2019-01-012019-12-310000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2020-06-300000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2020-06-300000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2019-12-310000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityMember2020-01-012020-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-01-012020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-3100008682712019-01-012019-06-300000868271srt:MinimumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MinimumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:FairValueInputsLevel1Member2020-06-300000868271us-gaap:FairValueInputsLevel1Member2019-12-3100008682712020-04-012020-06-3000008682712019-04-012019-06-3000008682712019-01-012019-12-310000868271us-gaap:FairValueInputsLevel2Member2020-06-300000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-06-300000868271us-gaap:FairValueInputsLevel2Member2019-12-310000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-06-300000868271us-gaap:ConstructionLoansMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-3000008682712020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-12-310000868271us-gaap:ConstructionLoansMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-12-3100008682712019-12-3100008682712020-08-0700008682712020-01-012020-06-30xbrli:sharesiso4217:USDxbrli:puresvbi:itemsvbi:contractsvbi:securityiso4217:USDxbrli:sharessvbi:loan

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

or

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

For the transition period from                           to                          .

Commission File Number 0-49731

SEVERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland

52-1726127

(State or other jurisdiction of incorporation or organization)

(I.R.S. 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, including area code)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common Stock, par value $0.01 per share

SVBI

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer 

 

 

Non- accelerated filer ☐

Smaller reporting company

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.01 par value - 12,812,976 shares outstanding as of August 7, 2020

SVBI

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer 

 

 

Non- accelerated filer ☐

Smaller reporting company

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, 0000868271us-gaap:CommonStockMember2020-01-012020-06-300000868271us-gaap:CommonStockMember2019-04-012019-06-300000868271us-gaap:CommonStockMember2019-01-012019-06-300000868271us-gaap:RetainedEarningsMember2020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000868271us-gaap:RetainedEarningsMember2020-03-310000868271us-gaap:AdditionalPaidInCapitalMember2020-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000868271us-gaap:RetainedEarningsMember2019-12-310000868271us-gaap:AdditionalPaidInCapitalMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000868271us-gaap:RetainedEarningsMember2019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000868271us-gaap:RetainedEarningsMember2019-03-310000868271us-gaap:AdditionalPaidInCapitalMember2019-03-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000868271us-gaap:RetainedEarningsMember2018-12-310000868271us-gaap:AdditionalPaidInCapitalMember2018-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000868271us-gaap:CommonStockMember2020-06-300000868271us-gaap:CommonStockMember2020-03-310000868271us-gaap:CommonStockMember2019-12-310000868271us-gaap:CommonStockMember2019-06-300000868271us-gaap:CommonStockMember2019-03-310000868271us-gaap:CommonStockMember2018-12-310000868271srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271us-gaap:EmployeeStockOptionMember2020-01-012020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MeasurementInputConstantPrepaymentRateMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:CollateralPledgedMember2020-06-300000868271us-gaap:CollateralPledgedMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-04-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-01-012020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-04-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-01-012019-06-300000868271srt:WeightedAverageMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ForeclosedRealEstateMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300000868271us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2020-06-300000868271us-gaap:SubstandardMember2020-06-300000868271us-gaap:SpecialMentionMember2020-06-300000868271us-gaap:PassMember2020-06-300000868271svbi:MortgageServicingRightsMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SubstandardMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:SpecialMentionMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMemberus-gaap:PassMember2019-12-310000868271us-gaap:SubstandardMember2019-12-310000868271us-gaap:SpecialMentionMember2019-12-310000868271us-gaap:PassMember2019-12-310000868271svbi:MortgageServicingRightsMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2020-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-03-310000868271us-gaap:HomeEquityLoanMember2020-03-310000868271us-gaap:ConstructionLoansMember2020-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-03-310000868271us-gaap:CommercialPortfolioSegmentMember2020-03-3100008682712020-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-03-310000868271us-gaap:ResidentialPortfolioSegmentMember2019-03-310000868271us-gaap:HomeEquityLoanMember2019-03-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-03-310000868271us-gaap:ConstructionLoansMember2019-03-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-03-310000868271us-gaap:CommercialPortfolioSegmentMember2019-03-3100008682712019-03-310000868271us-gaap:UnallocatedFinancingReceivablesMember2018-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2018-12-310000868271us-gaap:HomeEquityLoanMember2018-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2018-12-310000868271us-gaap:ConstructionLoansMember2018-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2018-12-310000868271us-gaap:CommercialPortfolioSegmentMember2018-12-310000868271svbi:PaycheckProtectionProgramPppLoansMember2020-01-012020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-04-012020-06-300000868271us-gaap:ConstructionLoansMember2020-01-012020-06-300000868271us-gaap:ConstructionLoansMember2019-04-012019-06-300000868271us-gaap:ConstructionLoansMember2019-01-012019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:USTreasurySecuritiesMember2020-06-300000868271us-gaap:USTreasurySecuritiesMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2020-06-300000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2020-06-300000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:HomeEquityLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310000868271us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2020-06-300000868271us-gaap:HomeEquityLoanMember2020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-06-300000868271us-gaap:UnallocatedFinancingReceivablesMember2019-12-310000868271us-gaap:HomeEquityLoanMember2019-12-310000868271us-gaap:CommercialPortfolioSegmentMember2019-12-310000868271us-gaap:UnallocatedFinancingReceivablesMember2019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-06-300000868271us-gaap:HomeEquityLoanMember2019-06-300000868271us-gaap:ConstructionLoansMember2019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-06-300000868271us-gaap:CommercialPortfolioSegmentMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-03-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-04-012019-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-06-300000868271us-gaap:HomeEquityMember2020-06-300000868271us-gaap:DomesticLineOfCreditMember2020-06-300000868271svbi:UnadvancedConstructionCommitmentsMember2020-06-300000868271us-gaap:StandbyLettersOfCreditMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-12-310000868271us-gaap:HomeEquityMember2019-12-310000868271us-gaap:DomesticLineOfCreditMember2019-12-310000868271svbi:UnadvancedConstructionCommitmentsMember2019-12-310000868271svbi:MortgageLoanCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271svbi:BestEffortForwardContractsMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-01-012020-06-300000868271us-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2020-01-012020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-01-012019-12-310000868271us-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-01-012019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271svbi:LoansHeldForSaleMemberus-gaap:FairValueMeasurementsRecurringMember2019-01-012019-12-310000868271us-gaap:RetainedEarningsMember2020-04-012020-06-300000868271us-gaap:RetainedEarningsMember2020-01-012020-06-300000868271us-gaap:RetainedEarningsMember2019-04-012019-06-300000868271us-gaap:RetainedEarningsMember2019-01-012019-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMember2020-01-012020-06-300000868271us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2020-06-300000868271us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:MandatoryForwardContractMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMembersvbi:BestEffortsForwardContractMember2019-12-310000868271us-gaap:InterestRateLockCommitmentsMember2020-06-300000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMember2019-12-310000868271us-gaap:DerivativeFinancialInstrumentsAssetsMember2019-12-3100008682712019-06-3000008682712018-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-310000868271us-gaap:CorporateDebtSecuritiesMember2020-06-300000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-06-300000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271us-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:MortgageServicingRightsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ImpairedLoansMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271svbi:ForeclosedRealEstateMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-04-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-04-012020-06-300000868271us-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:CommercialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityLoanMember2019-04-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:HomeEquityLoanMember2019-01-012019-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-04-012019-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2019-01-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2020-01-012020-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000868271us-gaap:AdditionalPaidInCapitalMember2019-01-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-04-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-04-012019-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-01-012019-06-300000868271svbi:CaresActMember2020-06-300000868271us-gaap:FairValueInputsLevel3Member2020-06-300000868271us-gaap:FairValueInputsLevel3Member2019-12-310000868271srt:MinimumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2020-06-300000868271svbi:CannabisCustomersMembersvbi:BusinessActivitiesWithMedicalUseCannabisCustomersMember2019-12-310000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2020-01-012020-06-300000868271us-gaap:ObligationToRepurchaseReceivablesSoldMember2019-01-012019-06-300000868271svbi:MortgageLoanCommitmentsMember2019-01-012019-12-310000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2020-06-300000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2020-06-300000868271us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMember2019-12-310000868271us-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271us-gaap:HomeEquityMember2020-01-012020-06-300000868271us-gaap:StandbyLettersOfCreditMember2020-01-012020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2020-06-300000868271srt:WeightedAverageMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MinimumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:MaximumMemberus-gaap:InterestRateLockCommitmentsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembersvbi:MeasurementInputPullThroughRateMemberus-gaap:MarketApproachValuationTechniqueMember2019-12-310000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2020-06-300000868271srt:WeightedAverageMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MinimumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271srt:MaximumMembersvbi:ImpairedLoansMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountRateMember2019-12-310000868271us-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-310000868271us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2019-12-3100008682712019-01-012019-06-300000868271srt:MinimumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MinimumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:ResidentialPortfolioSegmentMember2020-01-012020-06-300000868271srt:MaximumMemberus-gaap:HomeEquityLoanMember2020-01-012020-06-300000868271us-gaap:FairValueInputsLevel1Member2020-06-300000868271us-gaap:FairValueInputsLevel1Member2019-12-3100008682712020-04-012020-06-3000008682712019-04-012019-06-3000008682712019-01-012019-12-310000868271us-gaap:FairValueInputsLevel2Member2020-06-300000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-06-300000868271us-gaap:FairValueInputsLevel2Member2019-12-310000868271us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310000868271us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310000868271us-gaap:ResidentialPortfolioSegmentMember2020-06-300000868271us-gaap:ConsumerPortfolioSegmentMember2020-06-300000868271us-gaap:ConstructionLoansMember2020-06-300000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-3000008682712020-06-300000868271us-gaap:ResidentialPortfolioSegmentMember2019-12-310000868271us-gaap:ConsumerPortfolioSegmentMember2019-12-310000868271us-gaap:ConstructionLoansMember2019-12-310000868271us-gaap:CommercialRealEstatePortfolioSegmentMember2019-12-3100008682712019-12-3100008682712020-08-0700008682712020-01-012020-06-30xbrli:sharesiso4217:USDxbrli:puresvbi:itemsvbi:contractsvbi:securityiso4217:USDxbrli:sharessvbi:loan

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

or

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

For the transition period from                           to                          .

Commission File Number 0-49731

SEVERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland

52-1726127

(State or other jurisdiction of incorporation or organization)

(I.R.S. 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, including area code)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common Stock, par value $0.01 per share

SVBI

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer 

 

 

Non- accelerated filer ☐

Smaller reporting company

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.01 par value - 12,812,976 shares outstanding as of August 7, 2020

12,812,976 shares outstanding as of August 7, 2020

Table of Contents

SEVERN BANCORP, INC. AND SUBSIDIARIES

Table of Contents

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Financial Condition as of June 30, 2020 and December 31, 2019 (unaudited)

4

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

5

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

6

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

7

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

EXHIBIT INDEX

52

SIGNATURES

53

1

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as other periodic reports filed with the Securities and Exchange Commission (“SEC”), and written or oral communications made from time to time by or on behalf of Severn Bancorp and its subsidiaries (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend,” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth, and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.

Forward-looking statements reflect our expectation or prediction of future conditions, events, or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These risks and uncertainties include, but are not limited to, the risks identified in Item 1A of the Company’s 2019 Annual Report on Form 10-K, Item 1A of Part II of the Company’s March 31, 2020 Quarterly Report on Form 10-Q, Item 1A of Part II of this Quarterly Report on Form 10-Q, and the following:

general business and economic conditions nationally or in the markets that the Company serves could adversely affect, among other things, real estate prices, unemployment levels, and consumer and business confidence, which could lead to decreases in the demand for loans, deposits, and other financial services that we provide and increases in loan delinquencies and defaults;
changes or volatility in the capital markets and interest rates may adversely impact the value of securities, loans, deposits, and other financial instruments and the interest rate sensitivity of our balance sheet as well as our liquidity;
our liquidity requirements could be adversely affected by changes in our assets and liabilities;
our investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates we use to value certain of the securities in our portfolio;
the effect of legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance, and other aspects of the financial services industry;
competitive factors among financial services companies, including product and pricing pressures, and our ability to attract, develop, and retain qualified banking professionals;
the effect of fiscal and governmental policies of the United States (“U.S.”) federal government;
the effect of any mergers, acquisitions, or other transactions to which we or our subsidiaries may from time to time be a party;
costs and potential disruption or interruption of operations due to cyber-security incidents;
the effect of any change in federal government enforcement of federal laws affecting the medical-use cannabis industry;
costs and potential disruption or interruption of operations due to global pandemics such as COVID-19;
the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the SEC, the Public Company Accounting Oversight Board, and other regulatory agencies; and;
geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad.

2

Table of Contents

Forward-looking statements speak only as of the date of this report. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

3

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Severn Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share data)

(unaudited)

June 30, 

December 31, 

    

2020

    

2019

ASSETS

  

Cash and due from banks

$

2,023

$

2,892

Federal funds sold and interest-bearing deposits in other banks

 

166,447

 

85,301

Cash and cash equivalents

 

168,470

 

88,193

Certificates of deposit held for investment

6,074

7,540

Securities available for sale, at fair value

 

15,806

 

12,906

Securities held to maturity (fair value of $22,109 and $26,158 at June 30, 2020 and December 31, 2019, respectively)

 

21,310

 

25,960

Mortgage loans held for sale, at fair value

 

11,429

 

10,910

Loans receivable

 

661,372

 

645,685

Allowance for loan losses

 

(8,169)

 

(7,138)

Loans, net

 

653,203

 

638,547

Real estate acquired through foreclosure

 

1,010

 

2,387

Restricted stock investments

 

2,299

 

2,431

Premises and equipment, net

 

21,542

 

22,144

Accrued interest receivable

 

2,478

 

2,458

Deferred income taxes

1,716

1,748

Bank owned life insurance

 

5,450

 

5,377

Goodwill

 

1,104

 

1,104

Securities purchased not settled

6,200

Other assets

 

5,572

 

5,214

Total assets

$

923,663

$

826,919

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Noninterest bearing

$

201,854

$

122,901

Interest-bearing

 

547,062

 

538,148

Total deposits

 

748,916

 

661,049

Long-term borrowings

 

35,000

 

35,000

Subordinated debentures

 

20,619

 

20,619

Liability for securities purchased not settled

6,200

Accrued expenses and other liabilities

 

5,946

 

4,779

Total liabilities

 

816,681

 

721,447

Stockholders' Equity:

 

  

 

  

Common stock, $0.01 par value, 20,000,000 shares authorized; 12,812,976 and 12,810,926 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

128

 

128

Additional paid-in capital

 

66,026

 

65,944

Retained earnings

 

40,723

 

39,445

Accumulated other comprehensive income (loss)

 

105

 

(45)

Total stockholders' equity

 

106,982

 

105,472

Total liabilities and stockholders' equity

$

923,663

$

826,919

See accompanying notes to consolidated financial statements

4

Table of Contents

Severn Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

    

Interest income:

Loans

$

8,078

$

9,226

$

16,416

$

18,393

Securities

 

216

 

241

 

435

 

500

Other earning assets

 

67

 

757

 

426

 

1,874

Total interest income

 

8,361

 

10,224

 

17,277

 

20,767

Interest expense:

 

  

 

  

 

  

 

  

Deposits

 

1,383

 

1,898

 

3,180

 

3,767

Borrowings and subordinated debentures

 

333

 

481

 

697

 

1,070

Total interest expense

 

1,716

 

2,379

 

3,877

 

4,837

Net interest income

 

6,645

 

7,845

 

13,400

 

15,930

Provision for loan losses

 

 

 

750

 

Net interest income after provision for loan losses

 

6,645

 

7,845

 

12,650

 

15,930

Noninterest income:

 

  

 

  

 

  

 

  

Mortgage-banking revenue

 

1,990

 

1,087

 

3,624

 

1,807

Real estate commissions

 

130

 

378

 

440

 

860

Real estate management fees

 

155

 

162

 

320

 

326

Deposit service charges

 

570

 

547

 

1,131

 

1,056

Title company revenue

 

226

 

262

 

464

 

479

Other noninterest income

166

179

283

 

347

Total noninterest income

 

3,237

 

2,615

 

6,262

 

4,875

Noninterest expense:

 

  

 

  

 

  

 

  

Compensation and related expenses

 

5,171

 

4,909

 

10,632

 

9,434

Occupancy

 

445

 

389

 

963

 

804

Legal fees

 

17

 

26

 

183

 

75

Write-downs, losses, and costs of real estate acquired through foreclosure, net of gains

 

16

 

24

 

90

 

149

Federal Deposit Insurance Corporation insurance premiums

 

37

 

63

 

37

 

119

Professional fees

 

171

 

443

 

474

 

583

Advertising

 

231

 

213

 

451

 

400

Data processing

 

396

 

354

 

856

 

696

Credit report and appraisal fees

 

36

 

24

 

103

 

64

Licensing and software

 

238

 

293

 

456

 

475

Loss on disposal of premises and equipment

76

Other noninterest expense

 

729

 

775

 

1,418

 

1,464

Total noninterest expense

 

7,487

 

7,513

 

15,739

 

14,263

Net income before income tax provision

 

2,395

 

2,947

 

3,173

 

6,542

Income tax provision

 

658

 

771

 

871

 

1,757

Net income

$

1,737

$

2,176

$

2,302

$

4,785

Net income per common share - basic

$

0.14

$

0.17

$

0.18

$

0.37

Net income per common share - diluted

$

0.14

$

0.17

$

0.18

$

0.37

See accompanying notes to consolidated financial statements

5

Table of Contents

Severn Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

    

2020

    

2019

    

2020

    

2019

    

Net income

$

1,737

$

2,176

$

2,302

$

4,785

Other comprehensive income item:

 

  

 

  

 

  

 

  

Unrealized holding gains on available-for-sale securities arising during the period (net of tax expense of $1, $14, $57, and $21)

1

 

38

 

150

 

62

Total other comprehensive income

 

1

 

38

 

150

 

62

Total comprehensive income

$

1,738

$

2,214

$

2,452

$

4,847

See accompanying notes to consolidated financial statements

6

Table of Contents

Severn Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share data)

(unaudited)

Three Months Ended June 30, 2020

    

Number of

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Total

Common

Common

Paid-In

Retained

Comprehensive

Stockholders'

Stock

Stock

Capital

 Earnings 

Income

Equity

Balance at April 1, 2020

 

12,812,976

$

128

$

65,992

$

39,497

$

104

$

105,721

Net income

 

 

 

 

1,737

 

 

1,737

Stock-based compensation

 

 

 

34

 

 

 

34

Dividends paid on common stock at $0.04 per share

 

 

 

 

(511)

 

 

(511)

Other comprehensive income

 

 

 

 

 

1

 

1

Balance at June 30, 2020

 

12,812,976

$

128

$

66,026

$

40,723

$

105

$

106,982

Three Months Ended June 30, 2019

    

Number of

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Total

Common

Common

Paid-In

Retained

Comprehensive

Stockholders'

Stock

Stock

Capital

 Earnings 

Loss

Equity

Balance at April 1, 2019

 

12,775,087

$

128

$

65,662

$

35,087

$

(49)

$

100,828

Net income

 

 

 

 

2,176

 

 

2,176

Stock-based compensation

 

 

 

34

 

 

 

34

Dividends paid on common stock at $0.03 per share

 

 

 

 

(385)

 

 

(385)

Exercise of stock options

50

 

 

Other comprehensive income

 

 

 

 

 

38

 

38

Balance at June 30, 2019

 

12,775,137

$

128

$

65,696

$

36,878

$

(11)

$

102,691

Six Months Ended June 30, 2020

    

Number of

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Total

Common

Common

Paid-In

Retained

Comprehensive

Stockholders'

Stock

Stock

Capital

 Earnings 

Income (Loss)

Equity

Balance at January 1, 2020

 

12,810,926

$

128

$

65,944

$

39,445

$

(45)

$

105,472

Net income

 

 

 

 

2,302

 

 

2,302

Stock-based compensation

 

 

 

68

 

 

 

68

Dividends paid on common stock at $0.08 per share

 

 

 

 

(1,024)

 

 

(1,024)

Exercise of stock options

2,050

14

14

Other comprehensive income

 

 

 

 

 

150

 

150

Balance at June 30, 2020

 

12,812,976

$

128

$

66,026

$

40,723

$

105

$

106,982

Six Months Ended June 30, 2019

    

Number of

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Total

Common

Common

Paid-In

Retained

Comprehensive

Stockholders'

Stock

Stock

Capital

 Earnings 

Loss

Equity

Balance at January 1, 2019

 

12,759,576

$

128

$

65,538

$

32,860

$

(73)

$

98,453

Net income

 

 

 

 

4,785

 

 

4,785

Stock-based compensation

 

 

 

77

 

 

 

77

Dividends paid on common stock at $0.06 per share

 

 

 

 

(767)

 

 

(767)

Exercise of stock options

15,561

81

81

Other comprehensive income

 

 

 

 

 

62

 

62

Balance at June 30, 2019

 

12,775,137

$

128

$

65,696

$

36,878

$

(11)

$

102,691

See accompanying notes to consolidated financial statements

7

Table of Contents

Severn Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

Six Months Ended June 30, 

    

2020

    

2019

Cash flows from operating activities:

Net income

$

2,302

$

4,785

Adjustments to reconcile net income to net cash from operating activities:

 

 

Depreciation and amortization

 

788

 

703

Amortization of deferred loan fees

 

(1,024)

 

(949)

Net (accretion) amortization of premiums and discounts on securities

 

(36)

 

80

Provision for loan losses

 

750

 

Write-downs and losses on real estate acquired through foreclosure, net of gains

 

551

 

171

Gain on sale of mortgage loans

 

(3,624)

 

(1,807)

Loss on disposal of property

 

76

 

Proceeds from sale of mortgage loans held for sale

 

126,925

 

81,725

Originations of loans held for sale

 

(123,820)

 

(88,867)

Stock-based compensation

 

68

 

77

Increase in cash surrender value of bank-owned life insurance

 

(73)

 

(78)

Deferred income taxes

 

(25)

 

173

(Increase) decrease in accrued interest receivable

 

(20)

 

243

Increase in other assets

 

(358)

 

(2,610)

Increase in accrued expenses and other liabilities

 

1,167

 

2,729

Net cash provided by (used in) operating activities

 

3,647

 

(3,625)

Cash flows from investing activities:

 

  

 

  

Redemption of certificates of deposit held for investment

1,466

1,240

Loan principal (disbursements), net of repayments

 

(14,382)

 

4,252

Redemption of restricted stock investments

 

132

 

909

Purchases of premises and equipment, net

 

(262)

 

(410)

Activity in securities held to maturity:

 

 

Maturities/calls/repayments

 

4,603

 

5,300

Activity in available-for-sale securities:

 

Purchases

 

(7,857)

 

Maturities/calls/repayments

5,247

1,000

Proceeds from sales of real estate acquired through foreclosure

 

826

 

107

Net cash (used in) provided by investing activities

 

(10,227)

 

12,398

Cash flows from financing activities:

 

  

 

  

Net increase (decrease) in deposits

 

87,867

 

(94,090)

Repayments of long-term borrowings

 

 

(25,000)

Common stock dividends

 

(1,024)

 

(767)

Exercise of stock options

 

14

 

81

Net cash provided by (used in) financing activities

 

86,857

 

(119,776)

Increase (decrease) in cash and cash equivalents

 

80,277

 

(111,003)

Cash and cash equivalents at beginning of period

 

88,193

 

188,340

Cash and cash equivalents at end of period

$

168,470

$

77,337

Supplemental Noncash Disclosures:

 

 

  

Interest paid on deposits and borrowed funds

$

3,918

$

4,925

Income taxes paid

 

493

 

1,909

Real estate acquired in satisfaction of loans

 

 

171

Initial recognition of operating lease right-of-use asset

2,684

Initial recognition of operating lease liability

2,684

Transfers of mortgage loans held for sale to loan portfolio

 

 

648

See accompanying notes to consolidated financial statements

8

Table of Contents

Severn Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 -  Summary of Significant Accounting Policies

Basis of Presentation

The accounting and reporting policies of Severn Bancorp, Inc. and subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) and prevailing practices within the financial services industry for interim financial information and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements and prevailing practices within the banking industry. In the opinion of management, all adjustments (comprising only of those of a normal recurring nature) necessary for a fair presentation of the results of operations for the interim periods presented have been made. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other interim or future period. Events occurring after the date of the financial statements up to the date the financial statements were available to be issued were considered in the preparation of the consolidated financial statements.

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

COVID-19 Risks and Uncertainties

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the U.S. and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 has adversely impacted and could continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to a target range of 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income, noninterest income, credit quality, the allowance for loan losses (“Allowance”), and the provision for loan losses. Additionally, there could be a potential for goodwill impairment. Other financial impact could occur though such potential impact is unknown at this time.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Severn Bancorp, Inc., and its wholly-owned subsidiaries, Mid-Maryland Title Company, Inc., SBI Mortgage Company, and Severn Savings Bank, FSB (the “Bank”), along with the Bank’s subsidiaries, Louis Hyatt, Inc., Homeowners Title and Escrow Corporation, Severn Financial Services Corporation, SSB Realty Holdings, LLC, SSB Realty Holdings II, LLC, and HS West, LLC. Also included are the accounts of SBI Mortgage Company’s subsidiary, Crownsville Development Corporation, and its subsidiary, Crownsville Holdings I, LLC. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

Use of Estimates

The preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have, or could have, a material impact on the carrying value of certain assets or on income. These estimates and assumptions affect the reported amounts of assets

9

Table of Contents

and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The accounting policies we view as critical are those relating to the Allowance, the valuation of real estate acquired through foreclosure, and the valuation of deferred tax assets and liabilities.

Cash Flows

For reporting purposes, assets grouped in the Consolidated Statements of Financial Condition under the captions “Cash and due from banks” and “Federal funds sold and interest-bearing deposits in other banks” are considered cash or cash equivalents. For financial statement purposes, these assets are carried at cost. Federal funds sold and interest-bearing deposits in other banks generally have overnight maturities and are in excess of amounts that would be recoverable under Federal Deposit Insurance Corporation (“FDIC”) insurance.

Reclassifications

Certain reclassifications have been made to amounts previously reported to conform to current period presentation.

Recent Accounting Pronouncements

Pronouncements Issued

In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 13, Financial Instruments – Credit Losses, which sets forth a current expected credit loss (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In July 2019, the FASB issued a proposal to delay the implementation for smaller reporting companies such as us until January 2023. In October, 2019, that proposal was finalized with the issuance of ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-05 was issued to address concerns with the adoption of ASU 2016-13. ASU 2019-05 gives entities the ability to irrevocably elect the fair value option in Subtopic 825-10 for certain existing financial assets upon transition to ASU 2016-03. Financial assets that are eligible for this fair value election are those that qualify under Subtopic 825-10 and are within the scope of Subtopic 326-10, Financial Instruments - Credit Losses - Measured at Amortized Costs. An exception to this is held-to-maturity (“HTM”) debt securities, which do not qualify for this transition election. The effective date for the amendment is the same as the effective date in ASU 2016-03. In November 2019, FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 was issued to defer the effective dates for certain guidance for certain entities. The amendments in this update amend the mandatory effective dates for ASC 326, Financial Instruments - Credit Losses, for entities eligible to be smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim reporting periods within that reporting period.

We have contracted with a third party vendor to assist in the transition to CECL. The Bank has purchased the third party vendor’s CECL software and has separately contracted with their advisory services group to help with the installation and transition. As the Bank has been using other software of this specific vendor, they have access to the Bank’s historical data. The Bank has been updating the data and the process by which data will be transferred to the third party vendor, so that they have all of the information necessary for CECL calculations. This process is complete. The next stage in the process is to convert to the vendor’s incurred loss model, which must be completed prior to the final conversion to CECL. This process is almost complete. Management, in conjunction with the third party vendor, has also begun determining which economic factors are most directly responsible for the Bank’s historical losses. The third party vendor has also started to recommend pools to be used for CECL calculations, and appropriate methods (as prescribed by CECL) to calculate the reserve for the various pools. As the third party vendor has many financial institution clients, they will be able to provide peer group data to the extent the Bank’s data is not sufficient to make the many determinations required under CECL.

10

Table of Contents

Although the implementation of CECL has been delayed, the Bank is continuing with the implementation at a pace to ensure that we will be in position to completely transition to CECL by the required date.  

While we are currently in the process of evaluating the impact of the amended guidance on our Consolidated Financial Statements, it is quite possible that the Allowance will increase upon adoption given that the Allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of our loan portfolio at the time of adoption.

In November 2019, FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2019-11 was issued to address issues raised by stakeholders during the implementation of ASU 2016-13. ASU 2019-11 provides transition relief when adjusting the effective interest rate for troubled debt restructure loans (“TDR” or “TDRs”) that exist as of the adoption date, extends the disclosure relief in ASU 2019-04 to disclose accrued interest receivable balances separately from the amortized cost basis to additional disclosures involving amortized cost basis, and provides clarification regarding application of the guidance in paragraph 326-20-35-6 for financial assets secured by collateral maintenance provisions that provide a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of a financial asset and the fair value of collateral securing the financial asset as of the reporting date. The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13.

In December 2019, FASB issued ASU No. 2019-12, Simplifying the Accounting for Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions in the current codification. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2019 12 is not expected to have a material impact on our financial position, results of operations, or cash flows.

In January 2020, FASB issued ASU No. 2020-01, Investments – Equity securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and  Derivatives and Hedging (Topic 815), which clarifies the interaction between the three Topics. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2020 01 is not expected to have a material impact on our financial position, results of operations, or cash flows.

Note 2 - Securities

The amortized cost and fair values of our available-for-sale (“AFS”) securities portfolio were as follows:

    

June 30, 2020

Amortized

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

3,017

$

50

$

$

3,067

Corporate obligations

2,000

16

1,984

Mortgage-backed securities

10,644

156

45

10,755

$

15,661

$

206

$

61

$

15,806

    

December 31, 2019

Amortized

    

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

5,017

$

2

$

$

5,019

Mortgage-backed securities

7,951

64

7,887

$

12,968

$

2

$

64

$

12,906

11

Table of Contents

The amortized cost and fair values of our HTM securities portfolio were as follows:

June 30, 2020

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

998

$

12

$

$

1,010

U.S. government agency notes

 

2,985

 

171

 

 

3,156

Mortgage-backed securities

 

17,327

 

616

 

 

17,943

$

21,310

$

799

$

$

22,109

December 31, 2019

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

994

$

14

$

$

1,008

U.S. government agency notes

 

4,986

 

100

 

5

 

5,081

Mortgage-backed securities

 

19,980

 

114

 

25

 

20,069

$

25,960

$

228

$

30

$

26,158

Gross unrealized losses and fair value by length of time that the individual AFS securities have been in an unrealized loss position at the dates indicated are presented in the following tables:

June 30, 2020

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Corporate obligations

1

$

1,984

$

16

$

$

1

$

1,984

$

16

Mortgage-backed securities

3

 

3,618

 

45

 

 

3

 

3,618

 

45

4

$

5,602

$

61

$

$

4

$

5,602

$

61

December 31, 2019

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Mortgage-backed securities

7

$

7,887

$

64

$

$

7

$

7,887

$

64

7

$

7,887

$

64

$

$

7

$

7,887

$

64

Gross unrealized losses and fair value by length of time that the individual HTM securities have been in an unrealized loss position at the dates indicated are presented in the following table as of December 31, 2019. There were no HTM securities in an unrealized loss position as of June 30, 2020.

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

U.S. government agency notes

$

$

3

$

3,003

$

5

3

3,003

5

Mortgage-backed securities

2

 

2,544

 

17

2

 

1,238

 

8

4

 

3,782

 

25

2

$

2,544

$

17

5

$

4,241

$

13

7

$

6,785

$

30

All of the securities that are currently in a gross unrealized loss position are so due to declines in fair values resulting from changes in interest rates or increased liquidity spreads since the time they were purchased. We have the intent and ability to hold these debt securities to maturity (including the AFS securities) and do not intend to sell, nor do we believe it will be more likely than not that we will be required to sell, any impaired securities prior to a recovery of amortized cost. We

12

Table of Contents

expect these securities will be repaid in full, with no losses realized. As such, management considers any impairment to be temporary.

Contractual maturities of debt securities at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

AFS Securities

HTM Securities

    

Amortized

    

Fair

    

Amortized

    

Fair

Cost

Value

Cost

Value

(dollars in thousands)

Due in one year or less

$

1,002

$

1,006

$

2,001

$

2,017

Due after one through five years

 

 

 

1,982

 

2,149

Due after five years through ten years

 

4,015

 

4,045

 

 

Mortgage-backed securities

 

10,644

 

10,755

 

17,327

 

17,943

$

15,661

$

15,806

$

21,310

$

22,109

We did not sell any securities during the three or six months ended June 30, 2020 or 2019.

There were no securities pledged as collateral as of June 30, 2020 or December 31, 2019.

Note 3 - Loans Receivable and Allowance for Loan Losses

Loans receivable are summarized as follows:

    

June 30, 2020

    

December 31, 2019

(dollars in thousands)

Residential mortgage

$

237,266

$

269,654

Commercial

 

87,931

 

43,127

Commercial real estate

 

225,588

 

229,257

Construction, land acquisition, and development

 

100,812

 

92,822

Home equity/2nds

 

12,027

 

12,031

Consumer

 

1,384

 

1,541

Total loans receivable, before net unearned fees

 

665,008

 

648,432

Unearned loan fees

 

(3,636)

 

(2,747)

Loans receivable

$

661,372

$

645,685

Certain loans in the amount of $143.2 million have been pledged under a blanket floating lien to the Federal Home Loan Bank of Atlanta (“FHLB”) as collateral against advances at June 30, 2020.

At June 30, 2020, the Bank was servicing $63.0 million in loans for the Federal National Mortgage Association (“FNMA”) and $20.1 million in loans for the Federal Home Loan Mortgage Corporation (“FHLMC”). At December 31, 2019, the Bank was servicing $25.9 million in loans for FNMA and $13.0 million in loans for FHLMC. These loans are not included in the table above. Also not included in the table above were mortgage-servicing rights (“MSRs”) of $615,000 and $323,000 as of June 30, 2020 and December 31, 2019, respectively.

Credit Quality

An Allowance is provided through charges to income in an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible based on evaluations of the collectability of loans and prior loan loss experience. Management has an established methodology to determine the adequacy of the Allowance that assesses the risks and losses inherent in the loan portfolio. The methodology takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers’ ability to pay. Determining the amount of the Allowance requires the use of estimates and assumptions. Actual results could differ significantly from those estimates. While management uses all

13

Table of Contents

available information to estimate losses on loans, future additions to the Allowance may be necessary based on changes in economic conditions and our actual loss experience. In addition, various regulatory agencies periodically review the Allowance as an integral part of their examination process. Such agencies may require us to recognize additions to the Allowance based on their judgments about information available to them at the time of their examination. Management believes the Allowance is adequate as of June 30, 2020 and December 31, 2019.

For purposes of determining the Allowance, we have segmented our loan portfolio by product type. Our portfolio loan segments are residential mortgage, commercial, commercial real estate, construction, land acquisition, and development (“ADC”), Home equity/2nds, and consumer. We have looked at all segments and have determined that no additional subcategorization is warranted based upon our consideration of risk. Our portfolio classes are the same as our portfolio segments.

Inherent Credit Risks

The inherent credit risks within the loan portfolio vary depending upon the loan class as follows:

Residential mortgage - secured by one to four family dwelling units. The loans generally have limited risk as they are secured by first mortgages on the unit, which are generally the primary residence of the borrower, and are generally at a loan-to-value ratio (“LTV”) of 80% or less.

Commercial - underwritten in accordance with our policies and include evaluating historical and projected profitability and cash flow to determine the borrower’s ability to repay the obligation as agreed. Commercial loans are made primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral supporting the loan. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. These loans are viewed primarily as cash flow dependent and, secondarily, as loans secured by real-estate and/or other assets. Repayment of these loans is generally dependent upon the principal business conducted on the property securing the loan. Line of credit loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates line of credit loans based on collateral and risk-rating criteria.

U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) - We are participating in the PPP and began origination of such loans that are expected to be 100% guaranteed by the SBA early in the second quarter of 2020. This loan program was designed to assist our commercial customers in remaining operational during this time of uncertainty surrounding the COVID-19 pandemic. As of June 30, 2020, we held $46.5 million in PPP loans in our loan portfolio, all of which have an interest forbearance piece.

Commercial real estate - subject to the underwriting standards and processes similar to commercial, in addition to those underwriting standards for real estate loans. These loans are viewed primarily as loans secured by real estate and secondarily as cash flow dependent. As repayment of these loans is generally dependent upon the successful operation of the property securing the loan, we look closely at the cash flows generated by the property securing the loan, although the primary underwriting criteria for these loan types is the sufficient value of the underlying collateral. Commercial real estate loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates commercial real estate loans based on collateral and risk-rating criteria. The Bank also utilizes third-party experts to provide environmental and market valuations. The nature of commercial real estate loans makes them more difficult to monitor and evaluate.

ADC - underwritten in accordance with our underwriting policies which include a financial analysis of the developers, property owners, construction cost estimates, and independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project rather than the ability of the borrower or guarantor to repay principal and interest. Additionally, land is underwritten according to our policies which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development. These cost and valuation estimates may be inaccurate.

14

Table of Contents

The sources of repayment of these loans is typically permanent financing expected to be obtained upon completion or sales of developed property. These loans are closely monitored by onsite inspections and are considered to be of a higher risk than other real estate loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term financing, interest rate sensitivity, and governmental regulation of real property.

If the Bank is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that the Bank will be able to recover all of the unpaid balance of the loan as well as related foreclosure and holding costs. In addition, the Bank may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time.

Home equity/2nds - subject to the underwriting standards and processes similar to residential mortgages and secured by one to four family dwelling units. Home equity/2nds loans have greater risk than residential mortgages as a result of the Bank generally being in a second lien position.

Consumer - consist of loans to individuals through the Bank’s retail network and typically unsecured or secured by personal property. Consumer loans have a greater credit risk than residential loans because of the lower value of the underlying collateral, if any.

COVID-19 - The COVID-19 pandemic has created additional risk for all loan segments due to the economic downturn, both nationally and locally. Many business were temporarily shut down and many people were unemployed during the national and local “stay at home” orders that were in place in many areas during the beginning of the second quarter of 2020. Although most “stay at home” orders have since been lifted, many businesses are operating at significantly reduced capacities and many people remain unemployed. During this time of economic uncertainty, borrowers have faced and could continue to face extended periods of unemployment and may not be able to meet their loan obligations. Additionally, real estate collateral values could significantly decline and full repayment of loans could be in doubt. We have adjusted some of our economic qualitative factors that affect our Allowance calculation to reflect our best estimate of these risks. Management will continue to evaluate the adequacy of the Allowance as more economic data becomes available and as changes within our portfolio are known. The effects of the pandemic may require us to fund additional increases in the Allowance in future periods.

Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to U.S. GAAP in certain circumstances. In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification is not subject to classification as a TDR.

CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to both qualified commercial and consumer loan borrowers. Due to the widespread impact of COVID-19, we have had loan borrowers seek loan forbearance or loan modification agreements under the CARES Act. We modified $96.6 million in loans under the CARES Act during the six months ended June 30, 2020. We have recorded $166,000 in interest that has not yet been collected on these loans due to the forbearance agreements.

The following tables present, by portfolio segment, the changes in the Allowance and the recorded investment in loans:

Three Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,484

$

1,565

$

1,040

$

2,615

$

151

$

$

63

$

7,918

Charge-offs

 

 

 

 

 

 

 

 

Recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

Net recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

(Reversal of) provision for loan losses

 

(239)

109

(32)

174

13

 

 

(25)

 

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

15

Table of Contents

Six Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Charge-offs

 

 

 

 

 

 

(15)

 

 

(15)

Recoveries

 

180

 

8

 

102

 

 

3

 

3

 

 

296

Net recoveries (charge-offs)

 

180

 

8

 

102

 

 

3

 

(12)

 

 

281

(Reversal of) provision for loan losses

 

(22)

248

(8)

503

28

 

12

 

(11)

 

750

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending balance - individually evaluated for impairment

$

675

$

$

60

$

29

$

$

$

$

764

Ending balance - collectively evaluated for impairment

 

1,747

1,677

1,018

2,760

165

38

 

7,405

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending loan balance -individually evaluated for impairment

$

12,713

$

$

1,278

$

385

$

526

$

65

$

14,967

Ending loan balance -collectively evaluated for impairment

 

224,553

 

87,931

 

224,310

 

100,427

 

11,501

 

1,319

 

650,041

$

237,266

$

87,931

$

225,588

$

100,812

$

12,027

$

1,384

$

665,008

December 31, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Ending balance - individually evaluated for impairment

$

752

$

$

64

$

32

$

2

$

$

$

850

Ending balance - collectively evaluated for impairment

 

1,512

 

1,421

 

920

 

2,254

 

132

 

 

49

 

6,288

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Ending loan balance - individually evaluated for impairment

$

11,517

$

$

1,221

$

880

$

563

$

69

$

14,250

Ending loan balance - collectively evaluated for impairment

 

258,137

 

43,127

 

228,036

 

91,942

 

11,468

 

1,472

 

634,182

$

269,654

$

43,127

$

229,257

$

92,822

$

12,031

$

1,541

$

648,432

16

Table of Contents

Three Months Ended June 30, 2019

  

Residential

  

  

Commercial

  

  

Home Equity/

  

  

  

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,572

$

1,740

$

712

$

2,579

$

242

$

1

$

239

$

8,085

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

3

 

 

33

 

 

4

 

 

 

40

Net (charge-offs) recoveries

 

(17)

 

 

33

 

 

4

 

(12)

 

 

8

Provision for (reversal of) loan losses

 

11

 

(174)

 

47

 

104

 

(23)

 

11

 

24

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Six Months Ended June 30, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,224

$

2,736

$

457

$

2,239

$

222

$

1

$

165

$

8,044

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

8

 

 

67

 

 

6

 

 

 

81

Net (charge-offs) recoveries

 

(12)

 

 

67

 

 

6

 

(12)

 

 

49

Provision for (reversal of) loan losses

 

354

 

(1,170)

 

268

 

444

 

(5)

 

11

 

98

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending balance - individually evaluated for impairment

$

889

$

$

67

$

32

$

24

$

$

$

1,012

Ending balance - collectively evaluated for impairment

 

1,677

 

1,566

 

725

 

2,651

 

199

 

 

263

 

7,081

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending loan balance - individually evaluated for impairment

$

13,205

$

$

1,889

$

1,119

$

859

$

72

$

17,144

Ending loan balance - collectively evaluated for impairment

 

262,808

 

45,347

 

236,810

 

107,063

 

11,722

 

1,549

 

665,299

$

276,013

$

45,347

$

238,699

$

108,182

$

12,581

$

1,621

$

682,443

The following tables present the credit quality breakdown of our loan portfolio by class:

June 30, 2020

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

 

(dollars in thousands)

Residential mortgage

$

231,224

$

$

6,042

 

$

237,266

Commercial

 

86,731

 

1,200

 

 

 

87,931

Commercial real estate

 

222,429

 

2,047

 

1,112

 

 

225,588

ADC

 

100,325

 

 

487

 

 

100,812

Home equity/2nds

 

11,906

 

 

121

 

 

12,027

Consumer

 

1,384

 

 

 

 

1,384

$

653,999

$

3,247

$

7,762

 

$

665,008

17

Table of Contents

December 31, 2019

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

(dollars in thousands)

Residential mortgage

$

265,510

$

$

4,144

$

269,654

Commercial

 

41,927

 

1,200

 

 

43,127

Commercial real estate

 

225,363

 

2,835

 

1,059

 

229,257

ADC

 

92,304

 

 

518

 

92,822

Home equity/2nds

 

11,490

 

402

 

139

 

12,031

Consumer

 

1,541

 

 

 

1,541

$

638,135

$

4,437

$

5,860

$

648,432

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans:

June 30, 2020

Past Due

 

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

(dollars in thousands)

Residential mortgage

$

437

$

$

4,879

$

5,316

$

231,950

$

237,266

$

5,676

Commercial

 

 

 

 

 

87,931

 

87,931

 

Commercial real estate

 

7

 

112

 

307

 

426

 

225,162

 

225,588

 

307

ADC

 

 

125

 

 

125

 

100,687

 

100,812

 

131

Home equity/2nds

 

 

 

121

 

121

 

11,906

 

12,027

 

131

Consumer

 

 

 

 

 

1,384

 

1,384

 

$

444

$

237

$

5,307

$

5,988

$

659,020

$

665,008

$

6,245

December 31, 2019

Past Due

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

 

(dollars in thousands)

Residential mortgage

$

3,183

$

81

$

2,200

$

5,464

$

264,190

$

269,654

$

3,766

Commercial

 

 

 

 

 

43,127

 

43,127

 

Commercial real estate

 

 

 

126

 

126

 

229,131

 

229,257

 

237

ADC

 

 

89

 

 

89

 

92,733

 

92,822

 

89

Home equity/2nds

 

 

 

139

 

139

 

11,892

 

12,031

 

150

Consumer

 

 

15

 

 

15

 

1,526

 

1,541

 

$

3,183

$

185

$

2,465

$

5,833

$

642,599

$

648,432

$

4,242

We did not have any loans greater than 90 days past due and still accruing as of June 30, 2020 or December 31, 2019.

The interest which would have been recorded on the above nonaccrual loans if those loans had been performing in accordance with their contractual terms was approximately $547,000 and $382,000 for the six months ended June 30, 2020 and 2019, respectively. The actual interest earned on those loans amounted to $74,000 and $82,000 for the six months ended June 30, 2020 and 2019, respectively.

18

Table of Contents

The following tables summarize impaired loans:

June 30, 2020

December 31, 2019

    

Unpaid

    

    

    

Unpaid

    

    

 

Principal

Recorded

Related

Principal

Recorded

Related

Balance

Investment

Allowance

Balance

Investment

Allowance

With no related Allowance:

(dollars in thousands)

Residential mortgage

$

9,025

$

8,780

$

$

7,258

$

7,035

$

Commercial

 

 

 

 

 

 

Commercial real estate

 

734

 

734

 

 

908

 

668

 

ADC

 

286

 

281

 

 

752

 

752

 

Home equity/2nds

 

939

 

526

 

 

996

 

553

 

Consumer

 

65

 

65

 

 

69

 

69

 

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

4,056

 

3,933

 

675

 

4,604

 

4,482

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

544

 

544

 

60

 

553

 

553

 

64

ADC

 

104

 

104

 

29

 

128

 

128

 

32

Home equity/2nds

 

 

 

 

12

 

10

 

2

Consumer

 

 

 

 

 

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

13,081

 

12,713

 

675

 

11,862

 

11,517

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

1,278

 

1,278

 

60

 

1,461

 

1,221

 

64

ADC

 

390

 

385

 

29

 

880

 

880

 

32

Home equity/2nds

 

939

 

526

 

 

1,008

 

563

 

2

Consumer

 

65

 

65

 

 

69

 

69

 

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

Recorded

Income

Recorded

Income

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

Investment

Recognized

Investment

Recognized

With no related Allowance:

 

(dollars in thousands)

Residential mortgage

$

8,835

$

53

$

7,197

$

81

$

8,860

$

133

$

6,950

$

160

Commercial

 

 

 

 

 

 

 

 

Commercial real estate

 

733

 

5

 

1,327

 

17

 

735

 

20

 

1,245

 

37

ADC

 

225

 

2

 

977

 

7

 

230

 

6

 

1,034

 

15

Home equity/2nds

 

337

 

8

 

834

 

17

 

345

 

15

 

844

 

30

Consumer

 

65

 

1

 

224

 

1

 

82

 

2

 

46

 

2

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

3,939

 

30

 

5,706

 

80

 

3,951

 

78

 

5,731

 

160

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

544

 

11

 

567

 

11

 

547

 

19

 

694

 

20

ADC

 

104

 

 

132

 

2

 

104

 

1

 

134

 

4

Home equity/2nds

 

 

 

34

 

 

 

 

19

 

1

Consumer

 

 

 

4

 

 

 

 

28

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

12,774

 

83

 

12,903

 

161

 

12,811

 

211

 

12,681

 

320

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

1,277

 

16

 

1,894

 

28

 

1,282

 

39

 

1,939

 

57

ADC

 

329

 

2

 

1,109

 

9

 

334

 

7

 

1,168

 

19

Home equity/2nds

 

337

 

8

 

868

 

17

 

345

 

15

 

863

 

31

Consumer

 

65

 

1

 

228

 

1

 

82

 

2

 

74

 

2

19

Table of Contents

There were $1.4 million in consumer mortgage properties included in real estate acquired through foreclosure at December 31, 2019. There were no such properties at June 30, 2020. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction totaled $5.0 million as of June 30, 2020 and $2.3 million as of December 31, 2019.

TDRs

See discussion above in this Note regarding the CARES Act relating to loan modifications during the COVID-19 pandemic.

Our portfolio of TDRs was accounted for under the following methods:

June 30, 2020

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

28

$

6,966

 

1

$

82

 

29

$

7,048

Commercial real estate

 

2

 

971

 

 

 

2

 

971

ADC

 

1

 

129

 

 

 

1

 

129

Consumer

 

1

 

65

 

 

 

1

 

65

 

32

$

8,131

 

1

$

82

 

33

$

8,213

December 31, 2019

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

31

$

7,675

 

1

$

85

 

32

$

7,760

Commercial real estate

 

2

 

984

 

 

 

2

 

984

ADC

 

1

 

130

 

 

 

1

 

130

Consumer

 

2

 

69

 

 

 

2

 

69

 

36

$

8,858

 

1

$

85

 

37

$

8,943

There were no TDRs that defaulted during the three or six months ended June 30, 2020 or 2019 which were modified during the previous 12 month period.

We did not modify any loans that would qualify as TDRs during the three and six months ended June 30, 2020 or 2019.

Note 4 -  Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, federal bank regulatory agencies issued final rules to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and included transition provisions which implement certain portions of the rules through January 1, 2019. Under the final rules, the effects of certain accumulated other comprehensive income items are not

20

Table of Contents

excluded, however, banking organizations like us that are not considered “advanced approaches” banking organizations may make a one-time permanent election to continue to exclude these items, which we have done.

The Basel III rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition, which we did on January 1, 2020. The CARES Act temporarily lowered this ratio to 8% beginning in the second quarter of 2020.  The ratio would then rise to 8.5% for 2021 until it re-establishes at 9% on January 1, 2022.

As of the date of our last regulatory exam, the Bank was considered “well capitalized” and as of June 30, 2020, the Bank continued to meet the requirements to be considered “well capitalized” based on applicable U.S. regulatory capital ratio requirements.

The Bank’s regulatory capital amounts and ratios were as follows:

Minimum

Minimum

To be Well

 

Requirements

Requirements

Capitalized Under

 

for Capital Adequacy

with Capital

Prompt Corrective

 

Actual

Purposes

Conservation Buffer

Action Provision

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

June 30, 2020

(dollars in thousands)

 

Community bank leverage ratio

$

118,713

 

13.8

%  

60,341

7.0

%

N/A

N/A

$

68,962

8.0

%

December 31, 2019

 

  

Common Equity Tier 1 Capital (to risk-weighted assets)

$

117,492

 

18.5

%  

$

28,617

 

4.5

%  

$

44,515

 

7.0

%  

$

41,336

 

6.5

%

Total capital (to risk-weighted assets)

 

124,619

 

19.6

%

 

50,875

 

8.0

%

 

66,773

 

10.5

%

 

63,593

 

10.0

%

Tier 1 capital (to risk-weighted assets)

 

117,492

 

18.5

%  

 

38,156

 

6.0

%  

 

54,054

 

8.5

%  

 

50,875

 

8.0

%

Tier 1 capital (to average quarterly assets)

 

117,492

 

13.4

%  

 

34,995

 

4.0

%  

 

56,867

 

6.5

%  

 

43,744

 

5.0

%

Note 5 -  Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for each period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. There were 173,250 shares that were anti-dilutive for the three and six months ended June 30, 2020. There were no shares that were anti-dilutive for the three or six months ended June 30, 2019.

21

Table of Contents

Information relating to the calculations of our income per common share is summarized as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

(dollars in thousands, except for per share data)

Weighted-average shares outstanding - basic

 

12,812,976

 

12,775,123

 

12,812,808

 

12,774,191

Dilution

 

5,580

 

87,168

 

21,540

 

85,789

Weighted-average share outstanding - diluted

 

12,818,556

 

12,862,291

 

12,834,348

 

12,859,980

Net income

$

1,737

$

2,176

$

2,302

$

4,785

Net income per share - basic

$

0.14

$

0.17

$

0.18

$

0.37

Net income per share - diluted

$

0.14

$

0.17

$

0.18

$

0.37

Note 6 - Stock-Based Compensation

We maintain a stock-based compensation plan for directors, officers, and other key employees of the Company. The aggregate number of shares of common stock that could be issued with respect to the awards granted under the 2019 plan is 500,000. Under the terms of the 2019 stock-based compensation plan, the Company has the ability to grant various stock compensation incentives, including stock options, stock appreciation rights, and restricted stock. The 2019 stock-based compensation plan was granted under terms and conditions determined by the Compensation Committee of the Board of Directors. Under the 2019 stock-based compensation plan, stock options generally have a maximum term of ten years and are granted with an exercise price at least equal to the fair market value of the common stock on the date the options are granted. Generally, options granted to directors, officers, and employees of the Company vest over a five-year period, although the Compensation Committee has the authority to provide for different vesting schedules.

We account for stock-based compensation in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the Statement of Income at fair value. Additionally, we are required to recognize the expense of employee services received in share-based payment transactions and measure the expense based on the grant date fair value of the award. The expense is recognized over the period during which an employee is required to provide service in exchange for the award. Stock-based compensation expense included in the consolidated Statements of Income for both the three months ended June 30, 2020 and 2019 totaled $34,000. Stock-based compensation expense included in the consolidated Statements of Income for the six months ended June 30, 2020 and 2019 totaled $68,000 and $77,000, respectively. 

Information regarding our stock-based compensation plan is as follows as of and for the six months ended June 30:

2020

2019

    

    

    

Weighted-

    

    

    

    

Weighted-

    

 

Weighted-

Average

Aggregate

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Average

Remaining

Intrinsic

Number

Exercise

Contractual

Value

Number

Exercise

Contractual

Value

of Shares

Price

Term (in years)

(in thousands)

of Shares

Price

Term (in years)

(in thousands)

Outstanding at beginning of period

 

234,173

$

6.60

 

  

 

  

 

349,023

$

6.32

 

  

 

  

Granted

 

10,500

 

8.26

 

  

 

  

 

 

 

  

 

  

Exercised

 

(2,050)

 

6.78

 

  

 

$

 

(15,561)

 

5.25

 

  

 

$

54

Forfeited

 

(1,000)

 

7.10

 

  

 

  

 

(38,500)

 

6.41

 

  

 

  

Outstanding at end of period

 

241,623

$

6.67

 

2.4

$

75

 

294,962

$

6.37

 

3.0

$

684

Exercisable at end of period

 

171,356

$

6.39

 

2.0

$

75

 

179,200

$

5.95

 

2.3

$

492

22

Table of Contents

The stock-based compensation expense amounts and fair values of options at the time of the grants were derived using the Black-Scholes option-pricing model. The following weighted average assumptions were used to value options granted for the six months ended June 30, 2020. There were no options granted in 2019.

Expected life

    

5.5 years

 

Risk-free interest rate

0.95

%  

Expected volatility

27.83

%  

Expected dividend yield

$

1.95

 

Weighted average per share fair value of options granted

$

1.75

As of June 30, 2020, there was $209,000 of total unrecognized stock-based compensation expense related to nonvested stock options, which is expected to be recognized over the next 29 months.

Note 7 - Commitments and Contingencies

Off-Balance Sheet Instruments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The contract amounts of these instruments express the extent of involvement we have in each class of financial instruments.

Our exposure to credit loss from nonperformance by the other party to the above mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless otherwise noted, we require collateral or other security to support financial instruments with off-balance sheet credit risk.

June 30, 

December 31, 

    

2020

    

2019

(dollars in thousands)

Standby letters of credit

$

2,806

$

3,325

Home equity lines of credit

 

15,417

 

16,917

Unadvanced construction commitments

 

67,170

 

79,378

Mortgage loan commitments

 

 

701

Lines of credit

 

25,553

 

16,501

Loans sold and serviced with limited repurchase provisions

 

65,234

 

76,536

Standby letters of credit are conditional commitments issued by the Bank guaranteeing performance by a customer to various municipalities. These guarantees are issued primarily to support performance arrangements and are limited to real estate transactions. The majority of these standby letters of credit expire within twelve months, with automatic one year renewals. The Bank has the option to stop any automatic renewal. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management believes, except for certain standby letters of credit, that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of June 30, 2020 and December 31, 2019 for guarantees under standby letters of credit issued was $10,000 and $14,000, respectively.

Home equity lines of credit are loan commitments to individuals as long as there is no violation of any condition established in the contract. Commitments under home equity lines expire ten years after the date the loan closes and are secured by real estate. We evaluate each customer’s credit worthiness on a case-by-case basis.

Unadvanced construction commitments are loan commitments made to borrowers for both residential and commercial projects that are either in process or are expected to begin construction shortly.

23

Table of Contents

Residential mortgage loan commitments at December 31, 2019 not reflected in the accompanying statements of financial condition included three loans totaling $701,000. No such commitments existed at June 30, 2020.

Lines of credit are loan commitments to individuals and companies as long as there is no violation of any condition established in the contract. Lines of credit have a fixed expiration date. The Bank evaluates each customer’s credit worthiness on a case-by-case basis.

The Bank has entered into several agreements to sell mortgage loans to third parties. These agreements contain limited provisions that require the Bank to repurchase a loan if the loan becomes delinquent within a period ranging generally from 120 to 180 days after the sale date depending on the investor agreement. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers. We did not repurchase any loans during the six months ended June 30, 2020 or 2019.

Other Contingencies

The Company provides banking services to customers who do business in the medical-use cannabis industry. While the growing, processing, and sales of medical-use cannabis is legal in the state of Maryland, the business currently violates Federal law. The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers. The strict enforcement of Federal laws regarding medical-use cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the Federal government, including imprisonment and fines. There is an uncertainty of the potential impact to the Company’s consolidated financial statements if the Federal government takes actions against the Company. As of June 30, 2020, the Company has not accrued an amount for the potential impact of any such actions.

Following is a summary of the level of business activities with our medical-use cannabis customers:

•  Deposit and loan balances at June 30, 2020 were approximately $41.0 million, or 5.5% of total deposits, and $17.1 million, or 2.6% of total loans, respectively. Deposit and loan balances at December 31, 2019 were approximately $22.8 million, or 3.4% of total deposits, and $14.0 million, or 2.2% of total loans, respectively.

Interest and noninterest income for the three months ended June 30, 2020 were approximately $358,000 and $1.1 million, respectively. Interest and noninterest income for the three months ended June 30, 2019 were approximately $233,000 and $491,000, respectively.

Interest and noninterest income for the six months ended June 30, 2020 were approximately $513,000 and $1.6 million, respectively. Interest and noninterest income for the six months ended June 30, 2019 were approximately $428,000 and $941,000, respectively.

The volume of deposits in the accounts of medical-use cannabis customers for the three and six months ended June 30, 2020 was approximately $132.0 million and $232.8 million, respectively. The volume of deposits in the accounts of medical-use cannabis customers for the three and six months ended June 30, 2019 was approximately $56.6 million and $106.1 million, respectively.

Note 8 - Derivatives

We maintain and account for derivatives, in the form of interest-rate lock commitments (“IRLCs”) and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities. We recognize gains and losses on IRLCs, mandatory forward contracts, and best effort forward contracts on the loan pipeline through mortgage-banking revenue in the Consolidated Statements of Income.

IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives. We are exposed to price risk from the time a mortgage loan closes until the time the loan is sold. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 60 days. For these IRLCs, we attempt to protect the Bank from changes in interest rates through the use of best efforts and mandatory forward contracts.

24

Table of Contents

Mandatory forward contracts are also considered derivatives and are reported in the table below. Best efforts forward contracts are not derivatives, however, we have elected to measure and report these commitments at fair value. These assets and liabilities are included in the Consolidated Statements of Financial Condition in other assets and accrued expenses and other liabilities, respectively.

Information pertaining to the carrying amounts of our derivative financial instruments follows:

June 30, 2020

December 31, 2019

    

Notional

    

Estimated

    

Notional

    

Estimated

Amount

Fair Value

Amount

Fair Value

(dollars in thousands)

Asset - IRLCs

$

30,087

$

546

$

7,645

$

179

Asset - mandatory forward contracts

 

5,235

 

49

 

10,591

 

23

Liability - mandatory forward contracts

5,826

70

Note 9 - Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

A fair value hierarchy that prioritizes the inputs to valuation methods is used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair market hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

We record transfers between levels at the end of the reporting period in which the change in significant inputs occurs.

25

Table of Contents

Assets Measured on a Recurring Basis

The following table presents fair value measurements for assets that are measured at fair value on a recurring basis as of and for the six months ended June 30, 2020:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

3,067

$

$

3,067

$

$

AFS Securities - corporate obligations

1,984

1,984

AFS Securities - mortgage-backed securities

10,755

10,755

Mortgage loans held for sale ("LHFS")

 

11,429

 

 

11,429

 

 

49

MSRs

 

615

 

 

 

615

 

(496)

IRLCs

 

546

 

 

 

546

 

367

Best efforts forward contracts

 

96

 

 

96

 

 

64

Mandatory forward contracts

 

49

 

 

49

 

 

11

Liabilities:

Mandatory forward contracts

 

70

 

 

70

 

 

(55)

Best efforts forward contracts

 

141

 

 

141

 

 

(132)

The following table presents fair value measurements for assets and liabilities that are measured at fair value on a recurring basis as of and for the year ended December 31, 2019:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

5,019

$

$

5,019

$

$

AFS Securities - mortgage-backed securities

7,887

7,887

LHFS

 

10,910

 

 

10,910

 

 

(5)

MSRs

 

323

 

 

 

323

 

(114)

IRLCs

 

179

 

 

 

179

 

79

Mandatory forward contracts

23

 

23

 

39

Best efforts forward contracts

23

 

23

 

23

26

Table of Contents

The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

    

Fair Value

    

Valuation

    

Unobservable

    

Range

 

Estimate

Technique

Input

(Weighted-Average)

 

June 30, 2020:

 

(dollars in thousands)

 

  

 

  

MSRs (1)

$

615

 

Market Approach

 

Weighted average prepayment speed (PSA) (2)

 

302

IRLCs - net asset

546

Market Approach

Range of pull through rate

70% - 100

%

Average pull through rate

88

%

  

 

  

 

  

 

  

 

  

December 31, 2019:

 

  

 

  

 

  

 

  

MSRs (1)

$

323

 

Market Approach

 

Weighted average prepayment speed (CPR) (2)

 

11.10

%

IRLCs - net asset

179

 

Market Approach

 

Range of pull through rate

70% - 95

%

Average pull through rate

83

%

(1)The weighted average was calculated with reference to the principal balance of the underlying mortgages.
(2)PSA = Public Securities Association Standard Prepayment Model; CPR = Conditional Prepayment Rate

The following table shows the activity in the MSRs:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

240

$

400

$

323

$

437

Additions

788

788

Valuation adjustment

(413)

(57)

(496)

(94)

Ending balance

$

615

$

343

$

615

$

343

The following table shows the activity in the IRLCs:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

(61)

$

335

$

179

$

100

Valuation adjustment

607

10

367

245

Ending balance

$

546

$

345

$

546

$

345

AFS Securities

The estimated fair values of AFS debt securities are obtained from a nationally-recognized pricing service. This pricing service develops estimated fair values by analyzing like securities and applying available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to prepare valuations. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things, and are based on market data obtained from sources independent from the Bank. U.S Treasury Securities are considered Level 1 and all of our other securities are considered Level 2. The Level 2 investments in the Bank’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing service, reflect the assumptions that market participants would use to price the assets. The Bank has determined that the Level 2 designation is appropriate for these securities because, as with most fixed-income securities, those in the Bank’s portfolio are not exchange-traded, and such nonexchange-traded fixed income securities are typically priced by correlation to observed market data.

27

Table of Contents

LHFS

LHFS are carried at fair value, which is determined based on outstanding investor commitments or, in the absence of such commitments, on current investor yield requirements or third party pricing models. 

MSRs

The fair value of MSRs is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income, and other ancillary income such as late fees. Management reviews all significant assumptions on a monthly basis. Mortgage loan prepayment speed, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change. In the second quarter of 2020, we changed third party vendors. The new vendor expresses the average prepayment speed in PSAs instead of CPRs as the former vendor expressed it.

IRLCs

We utilize a third party specialist model to estimate the fair value of our IRLCs, which are valued based upon mandatory pricing quotes from correspondent lenders less estimated costs to process and settle the loan. Fair value is adjusted for the estimated probability of the loan closing with the borrower.

Forward Contracts

To avoid interest rate risk, we enter into best efforts forward sales commitments with investors at the time we make an IRLC to a borrower. Once a loan has been closed and funded, the best efforts commitments convert to mandatory forward sales commitments. The mandatory commitments are derivatives, and the bank measures and reports them at fair value. Fair value is based on the gain or loss that would occur if we were to pair-off the transaction with the investor at the measurement date. This is a level 2 input. We have elected to measure and report best efforts commitments at fair value using a valuation methodology similar to that used for our mandatory commitments.

Assets Measured on a Nonrecurring Basis

June 30, 2020

 

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

 

(dollars in thousands)

Impaired loans

$

3,817

$

$

$

3,817

 

0% - 14%

7

%

December 31, 2019

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

  

(dollars in thousands)

Impaired loans

$

4,437

$

$

$

4,437

 

0% - 160%

8

%

Real estate acquired through foreclosure

 

1,174

 

 

 

1,174

 

0% - 16%

10

%

(1)Discount based on current market conditions and estimated selling costs
(2)Inputs are weighted based on the relative fair values of the instruments

28

Table of Contents

Impaired Loans

Impaired loans are those for which we have measured impairment based on the present value of expected future cash flows or on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. If it is determined that the repayment of the loan will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment, the loan is considered collateral dependent. Impaired loans that are considered collateral dependent are carried at lower-of-cost-or-market (“LCM”). Collateral may be in the form of real estate or business assets including equipment, inventory, and/or accounts receivable. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

For such loans that are classified as impaired, an Allowance is established when the present value of the expected future cash flows of the impaired loan is lower than the carrying value of that loan. For such impaired loans that are classified as collateral dependent, an Allowance is established when the current market value of the underlying collateral less its estimated disposal costs has not been finalized, but management determines that it is likely that the value is lower than the carrying value of that loan. Once the net collateral value has been determined, a charge-off is taken for the difference between the net collateral value and the carrying value of the loan.

Real Estate Acquired Through Foreclosure

We record foreclosed real estate assets at the fair value less estimated selling costs on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. We generally obtain certified external appraisals of real estate acquired through foreclosure and estimate fair value using those appraisals. Other valuation sources may be used, including broker price opinions, letters of intent, and executed sale agreements.

Fair Value of All Financial Instruments

The carrying value and fair value of all financial instruments are summarized in the following tables:

June 30, 2020

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands)

Cash and cash equivalents

$

168,470

$

168,470

$

$

$

168,470

Certificates of deposit held for investment

6,074

 

6,074

 

 

 

6,074

AFS securities

 

15,806

 

 

15,806

 

 

15,806

HTM securities

 

21,310

 

1,010

 

21,099

 

 

22,109

LHFS

 

11,429

 

 

11,429

 

 

11,429

Loans receivable, net

 

653,203

 

 

 

654,599

 

654,599

Restricted stock investments

 

2,299

 

 

2,299

 

 

2,299

Accrued interest receivable

 

2,478

 

 

2,478

 

 

2,478

MSRs

 

615

 

 

 

615

 

615

IRLCs

 

546

 

 

 

546

 

546

Mandatory forward contracts

 

49

 

 

49

 

 

49

Best effort forward contracts

 

96

 

 

96

 

 

96

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

748,916

 

 

753,085

 

 

753,085

Accrued interest payable

 

276

 

 

276

 

 

276

Borrowings

 

35,000

 

 

35,437

 

 

35,437

Subordinated debentures

 

20,619

 

 

 

16,298

 

16,298

Mandatory forward contracts

70

 

70

 

 

70

Best effort forward contracts

 

141

 

 

141

 

 

141

29

Table of Contents

December 31, 2019

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands) 

Cash and cash equivalents

$

88,193

$

88,193

$

$

$

88,193

Certificates of deposit held for investment

7,540

 

7,540

 

 

 

7,540

AFS securities

 

12,906

 

 

12,906

 

 

12,906

HTM securities

 

25,960

 

1,008

 

25,150

 

 

26,158

LHFS

 

10,910

 

 

10,910

 

 

10,910

Loans receivable, net

 

638,547

 

 

 

647,238

 

647,238

Restricted stock investments

 

2,431

 

 

2,431

 

 

2,431

Accrued interest receivable

 

2,458

 

 

2,458

 

 

2,458

MSRs

 

323

 

 

 

323

 

323

IRLCs

 

179

 

 

 

179

 

179

Mandatory forward contracts

 

23

 

 

23

 

23

Best effort forward contracts

 

23

 

 

23

 

23

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

661,049

 

 

662,418

 

 

662,418

Accrued interest payable

 

317

 

 

317

 

317

Borrowings

 

35,000

 

 

35,063

 

 

35,063

Subordinated debentures

 

20,619

 

 

 

16,754

16,754

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates do not reflect any premium or discount that could result from a one-time sale of our total holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect estimates. The above information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of our assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between our disclosures and those of other companies may not be meaningful.

There were no transfers between any of Levels 1, 2 and 3 for the six months ended June 30, 2020 or 2019 or for the year ended December 31, 2019.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

When used in this report, the terms “the Company,” “we,” “us,” and “our” refer to Severn Bancorp and, unless the context requires otherwise, its consolidated subsidiaries. The following discussion should be read and reviewed in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Severn Bancorp’s Annual Report on Form 10-K as of and for the year ended December 31, 2019.

The Company

The Company is a savings and loan holding company chartered as a corporation in the state of Maryland in 1990. It conducts business primarily through three subsidiaries, Severn Savings Bank, FSB (the “Bank”), Mid-Maryland Title Company, Inc. (the “Title Company”), and SBI Mortgage Company (“SBI”). The Title Company is a real estate settlement company that handles commercial and residential real estate settlements in Maryland. SBI holds mortgages that do not meet the underwriting criteria of the Bank, and is the parent company of Crownsville Development Corporation (“Crownsville”), which is doing business as Annapolis Equity Group and acquires real estate for syndication and investment purposes. The Bank’s principal subsidiary, Louis Hyatt, Inc. (“Hyatt Commercial”), conducts business as Hyatt

30

Table of Contents

Commercial, a commercial real estate brokerage and property management company. We maintained seven branches in Anne Arundel County, Maryland at June 30, 2020. The branches offer a full range of deposit products and we originate mortgages in the Bank’s primary market of Anne Arundel County, Maryland and, to a lesser extent, in other parts of Maryland, Delaware, and Virginia. As of June 30, 2020, we had 173 full-time equivalent employees.

Significant Developments - COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States of America (“U.S.”) and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The COVID-19 pandemic in the U.S. has had and is expected to continue to have a complex and significant adverse impact on the economy, the banking industry, and the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas

Our commercial and consumer banking products and services are offered primarily in Maryland, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020. In Maryland, the Governor issued a series of orders, including ordering schools to close for an indefinite period of time and an order that, subject to limited exceptions, all individuals stay at home and non‑essential businesses cease all activities for an indeterminate amount of time. In June 2020, many of these restrictions were removed and some non-essential businesses were allowed to re-open in a limited capacity, adhering to social distancing and disinfection guidelines. The Bank has remained open during these orders because banks have been identified as essential services. The Bank has been serving its customers through its drive-ups, ATMs, and in all of its branch offices by appointment only.

Locally, as well as nationally, we have experienced an increase in unemployment levels in our market area as a result of the curtailment of business activities, the levels of which are expected to remain elevated for the foreseeable future.

Policy and Regulatory Developments

Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

The Federal Reserve Board (“FRB”) decreased the range for the federal funds target rate by 0.5% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching the current range of 0.0% - 0.25%.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $659.0 billion loan program (revised by subsequent legislation) administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. PPP loans have an interest rate of 1.0%, a two-year or five-year loan term to maturity, and principal and interest payments deferred until the lender receives the applicable forgiven amount or ten months after the period the business has used such funds. The Bank is participating as a lender in the PPP. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under accounting principles generally accepted in the U.S. (“GAAP”) related to troubled debt restructure loans (“TDR” or “TDRs”) for a limited period of time to account for the effects of COVID-19.
On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-

31

Table of Contents

related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.
On April 9, 2020, the FRB announced additional measures aimed at supporting small and mid-sized businesses, as well as state and local governments impacted by COVID-19. The FRB announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility (“MSNLF”) and (2) the Main Street Expanded Loan Facility (“MSELF”). MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program will be up to $600.0 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. To obtain a loan, borrowers must confirm that they are seeking financial support because of COVID-19 and that they will not use proceeds from the loan to pay off debt. The FRB also stated that it would provide additional funding to banks offering PPP loans to help struggling small businesses. The PPP Loan Facility (“PPPLF”) was created by the FRB on April 9, 2020 to facilitate lending by participating financial institutions to small businesses under the PPP of the CARES Act. Under the facility, the FRB lends to participating financial institutions on a non-recourse basis, taking PPP loans as collateral. Lenders participating in the PPP will be able to exclude loans financed by the facility from their leverage ratio. To date, due to our high liquidity levels, we have not participated in the PPPLF.

The FRB also created a Municipal Liquidity Facility to support state and local governments with up to $500.0 billion in lending, with the Treasury Department backing $35.0 billion for the facility using funds appropriated by the CARES Act. The facility will make short-term financing available to cities with a population of more than one million or counties with a population of greater than two million. The FRB expanded both the size and scope of its Primary and Secondary Market Corporate Credit Facilities to support up to $750.0 billion in credit to corporate debt issuers. This will allow companies that were investment grade before the onset of COVID-19 but then subsequently downgraded after March 22, 2020 to gain access to the facility. Finally, the FRB announced that its Term Asset-Backed Securities Loan Facility will be scaled up in scope to include the triple A-rated tranche of commercial mortgage-backed securities and newly issued collateralized loan obligations. The size of the facility is $100.0 billion.

Effects on Our Business

The COVID-19 pandemic and the specific developments referred to above could have and are expected to continue to have a significant impact on our business. The outbreak of COVID-19 could continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. In particular, we anticipate that a significant portion of the Bank’s borrowers in the hotel, restaurant, and retail industries will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, and the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels, and results of operations could be adversely affected. As of June 30, 2020, we held $4.1 million, $14.0 million, and $39.4 million in hotel, restaurant, and retail industry loans, respectively.

Our Response

We have taken numerous steps in response to the COVID-19 pandemic, including the following:

actively working with loan customers to evaluate prudent loan modification terms;
continuing to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely;

32

Table of Contents

acting as a participating lender in the PPP. We believe it is our responsibility as a community bank to assist the SBA in the distribution of funds authorized under the CARES Act to our customers and communities, which we are carrying out in a prudent and responsible manner. As of June 30, 2020, we held $46.5 million in PPP loans in our loan portfolio, and are working diligently with the SBA to qualify customers to receive such loans (see Note 3 to the Consolidated Financial Statements for more information regarding PPP loans and loan modifications under the CARES Act); and
closing all branches to customer activity indefinitely, except for drive-up and appointment only services. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are observing social distancing and cleaning protocols.

Overview

The Company provides a wide range of personal and commercial banking services. Personal services include mortgage lending and various other lending services as well as deposit products such as personal Internet banking and online bill pay, checking accounts, individual retirement accounts, money market accounts, and savings and time deposit accounts. Commercial services include commercial secured and unsecured lending services as well as business Internet banking, corporate cash management services, and deposit services to commercial customers, including those in the medical-use cannabis industry. The Company also provides ATMs, credit cards, debit cards, safe deposit boxes, and telephone banking, among other products and services.

We have experienced a decline in profitability for the three and six months ended June 30, 2020, primarily due to a decrease in net interest income, an increased provision for loan losses, and increased noninterest expenses (for the six month period), slightly offset by increased noninterest income. Net interest income decreased primarily due to a declining interest rate environment, resulting from rate reductions by the FRB in response to the COVID-19 pandemic (see additional information on COVID-19 above and in Item 1A – Risk Factors of Part II of this Quarterly Report on Form 10-Q). We recognized increased revenue from mortgage-banking activities. We recorded a $750,000 provision for loan losses for the six months ended June 30, 2020. Noninterest expenses increased for the six months ended June 30, 2020 due to increased investments in staff, property, and systems to enhance production and efficiency, as well as to increased commissions corresponding to the increased mortgage production.

The Company expects to experience similar market conditions during the remainder of 2020, provided interest rates do not increase or decrease rapidly. If interest rates change rapidly, demand for loans may fluctuate and our interest rate spread could change significantly. We continue to manage loan and deposit pricing against the potential risks of rising costs of our deposits and borrowings. Interest rates are outside of our control, so we must attempt to balance the pricing and duration of the loan portfolio against the risks of rising or declining costs of our deposits and borrowings. The continued success and attraction of Anne Arundel County, Maryland, and vicinity, will also be important to our ability to originate and grow loans and deposits, as will our continued focus on maintaining a low overhead. If volatility in the market and the economy continues to occur, our business, financial condition, results of operations, access to funds, and the price of our stock could be materially and adversely impacted. Despite our declining profitability in the first half of 2020, we believe the Company is well prepared for the economic and social consequences of the COVID-19 global pandemic in future periods.

Critical Accounting Policies

Our accounting and financial reporting policies conform to GAAP and prevailing practices within the banking industry. Accordingly, preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have, or could have, a material impact on the carrying value of certain assets or on income. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The accounting policies we view as critical are those relating to the allowance for loan losses (“Allowance”), the valuation of real estate acquired through foreclosure, and the valuation of deferred tax assets and

33

Table of Contents

liabilities. Significant accounting policies are discussed in detail in “Notes to Consolidated Financial Statements - Note 1 - Summary of Significant Account Policies” in our Annual Report on Form 10-K as of and for the year ended December 31, 2019. There have been no material changes to the significant accounting policies as described in the Annual Report other than those that may be mentioned in Note 1 to the financial statements in this Quarterly Report on Form 10-Q. Disclosures regarding the effects of new accounting pronouncements are included in Note 1 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Results of Operations

Net Income

Three Months Ended June 30

Net income decreased by $439,000, or 20.2%, to $1.7 million for the three months ended June 30, 2020 compared to $2.2 million for the three months ended June 30, 2019. Basic and diluted income per share were $0.14 for the three months ended June 30, 2020, compared to $0.17 for the three months ended June 30, 2019. The decrease in net income reflected decreased net interest income, partially offset by increased noninterest income.

Six Months Ended June 30

Net income decreased by $2.5 million, or 51.9%, to $2.3 million for the six months ended June 30, 2020 compared to $4.8 million for the six months ended June 30, 2019. Basic and diluted income per share were $0.18 for the six months ended June 30, 2020, compared to $0.37 for the six months ended June 30, 2019. The decrease in net income reflected decreased net interest income, an increased provision for loan losses, and increased noninterest expense, partially offset by increased noninterest income.

Net Interest Income

Net interest income was significantly impacted by a declining interest rate environment directly related to the COVID-19 pandemic. The abrupt decline in interest rates during the first half of 2020 not only reduced interest income on floating-rate commercial loans and other liquid assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. Because of the need to maintain higher levels of liquidity and delays in business investment activity due to COVID-19 disruptions, some further compression of our net interest margin is likely in future periods, but a reasonably robust recovery in business conditions could enable us to deploy our additional asset generation resources and thus reallocate some of our excess liquidity. Additionally, at June 30, 2020, we held $46.5 million in low-yielding PPP loans, which reduced our net interest margin.

Three Months Ended June 30

Net interest income decreased by $1.2 million or 15.3%, to $6.6 million for the three months ended June 30, 2020, compared to $7.8 million for the same period of 2019. Our net interest margin decreased from 3.55% for the three months ended June 30, 2019 to 3.22% for the three months ended June 30, 2020. Our net interest spread decreased from 3.20% for the three months ended June 30, 2019 to 2.81% for the three months ended June 30, 2020.

Six Months Ended June 30

Net interest income decreased by $2.5 million or 15.9%, to $13.4 million for the six months ended June 30, 2020, compared to $15.9 million for the same period of 2019. Our net interest margin decreased from 3.60% for the six months ended June 30, 2019 to 3.30% for the six months ended June 30, 2020. Our net interest spread decreased from 3.27% for the six months ended June 30, 2019 to 2.87% for the six months ended June 30, 2020.

Interest Income

Three Months Ended June 30

34

Table of Contents

Interest income decreased by $1.9 million, or 18.2%, to $8.4 million for the three months ended June 30, 2020, compared to $10.2 million for the three months ended June 30, 2019, due to both a low interest rate environment created by the COVID-19 pandemic and a decreased level of average interest-earning assets in the second quarter of 2020. Average interest-earning assets decreased from $885.5 million for the three months ended June 30, 2019 to $830.4 million for the three months ended June 30, 2020, due primarily to a decline in average other interest-earning assets of $30.0 million and a decline in average loans of $24.0 million. The decrease in average other interest-earning assets resulted primarily from decreased average interest-earning deposits in banks, which was the result of decreased deposits from our medical-use cannabis customers. The decrease in average loans was the result of significant loan payoffs in the second quarter of 2020. The average yield on interest-earning assets decreased 58 basis points to 4.05% for the three months ended June 30, 2020 from 4.63% for the three months ended June 30, 2019. The average yield on other interest-earning assets decreased to 0.12% for the three months ended June 30, 2020 from 1.95% for the three months ended June 30, 2019, primarily due to a change in the mix of other interest-earning asset types and the decreased rate environment. We held less certificates of deposit held for investment during the three months ended June 30, 2020 than during the three months ended June 30, 2019. The average yield on loans held for investment decreased from 5.42% for the three months ended June 30, 2019 to 4.89% for the three months ended June 30, 2020 as a result of the decreased interest rate environment in the second quarter of 2020 compared to the second quarter of 2019.

Six Months Ended June 30

Interest income decreased by $3.5 million, or 16.8%, to $17.3 million for the six months ended June 30, 2020, compared to $20.8 million for the six months ended June 30, 2019, due to both a low interest rate environment created by the COVID-19 pandemic and a decreased level of average interest-earning assets in the first half of 2020. Average interest-earning assets decreased from $892.0 million for the six months ended June 30, 2019 to $816.8 million for the six months ended June 30, 2020, due primarily to a decline in average other interest-earning assets of $43.0 million and a decline in average loans of $29.1 million. The decrease in average other interest-earning assets resulted primarily from decreased average interest-earning deposits in banks, which was the result of decreased deposits from our medical-use cannabis customers. The decrease in average loans outstanding was a result of significant loan payoffs in the first half of 2020. The average yield on interest-earning assets decreased 44 basis points to 4.25% for the six months ended June 30, 2020 from 4.69% for the six months ended June 30, 2019. The average yield on other interest-earning assets decreased to 0.66% for the six months ended June 30, 2020 from 2.32% for the six months ended June 30, 2019, primarily due to a change in the mix of other interest-earning asset types and the decreased rate environment. We held less certificates of deposit held for investment during the six months ended June 30, 2020 than during the six months ended June 30, 2019. The average yield on loans held for investment decreased from 5.44% for the six months ended June 30, 2019 to 5.02% for the six months ended June 30, 2020 as a result of the decreased interest rate environment in the first half of 2020 compared to the first half of 2019.

Interest Expense

Three Months Ended June 30

Total interest expense was $1.7 million for the three months ended June 30, 2020 and $2.4 million for the three months ended June 30, 2019. We experienced a decrease in deposit interest expense, due to both a decrease in the average balance of interest-bearing deposits from $591.1 million for the three months ended June 30, 2019 to $501.2 million for the three months ended June 30, 2020 and a decrease in the average rate paid on interest-bearing liabilities from 1.43% for the three months ended June 30, 2019 to 1.24% for the same period of 2020. The average balance of interest-bearing checking and savings accounts decreased from $385.1 million for the three months ended June 30, 2019 to $307.4 million for the three months ended June 30, 2020, primarily due to decreases in our medical-use cannabis related accounts. The average balance of certificates of deposit decreased from $206.0 million for the three months ended June 30, 2019 to $193.8 million for the same period of 2020 due to runoff from maturing certificates of deposit. Average borrowings decreased $20.3 million during the three months ended June 30, 2020 compared to the same period of 2019, due to payoffs of Federal Home Loan Bank of Atlanta (“FHLB”) advances.

Six Months Ended June 30

35

Table of Contents

Total interest expense was $3.9 million for the six months ended June 30, 2020 and $4.8 million for the six months ended June 30, 2019. We experienced a decrease in deposit interest expense, primarily due to a decrease in the average balance of interest-bearing deposits from $606.8 million for the six months ended June 30, 2019 to $510.3 million for the six months ended June 30, 2020. The average balance of interest-bearing checking and savings accounts decreased significantly from $398.2 million for the six months ended June 30, 2019 to $315.5 million for the six months ended June 30, 2020, primarily due to decreases in our medical-use cannabis related accounts. The average balance of certificates of deposit decreased from $208.6 million for the six months ended June 30, 2019 to $194.8 million for the same period of 2020 due to runoff from maturing certificates of deposit. Average borrowings decreased $23.7 million during the six months ended June 30, 2020 compared to the same period of 2019, due to payoffs of FHLB advances.

The following tables set forth, for the periods indicated, information regarding the average balances of interest-earning assets and interest-bearing liabilities and the resulting yields on average interest-earning assets and average rates paid on

average interest-bearing liabilities. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.

Three Months Ended June 30, 

 

2020

2019

 

Average

Yield/

Average

Yield/

 

    

Balance

    

Interest (2)

    

Rate (4)

    

Balance 

    

Interest (2)

    

Rate (4)

 

ASSETS

(dollars in thousands)

Loans (1)

$

655,366

$

7,972

 

4.89

%  

$

679,334

$

9,176

 

5.42

%

Mortgage loans held for sale ("LHFS")

 

18,463

 

106

 

2.31

%  

 

10,184

 

50

 

1.97

%

Available-for-sale ("AFS") securities

 

16,021

 

94

 

2.36

%  

 

11,553

 

50

 

1.74

%

Held-to-maturity ("HTM") securities

 

23,222

 

122

 

2.11

%  

 

36,410

 

191

 

2.10

%

Other interest-earning assets (3)

 

114,973

 

35

 

0.12

%  

 

144,974

 

705

 

1.95

%

Restricted stock investments, at cost

 

2,364

 

32

 

5.44

%  

 

3,077

 

52

 

6.80

%

Total interest-earning assets

 

830,409

 

8,361

 

4.05

%  

 

885,532

 

10,224

 

4.63

%

Allowance

 

(7,593)

 

  

 

  

 

(8,082)

 

  

 

  

Cash and other noninterest-earning assets

 

44,868

 

  

 

  

 

42,753

 

  

 

  

Total assets

$

867,684

8,361

 

  

$

920,203

10,224

 

  

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Checking and savings

$

307,363

 

372

 

0.49

%  

$

385,084

 

807

 

0.84

%

Certificates of deposit

 

193,846

 

1,011

 

2.10

%  

 

206,022

 

1,091

 

2.12

%

Total interest-bearing deposits

 

501,209

 

1,383

 

1.11

%  

 

591,106

 

1,898

 

1.29

%

Borrowings

 

55,619

 

333

 

2.41

%  

 

75,887

 

481

 

2.54

%

Total interest-bearing liabilities

 

556,828

 

1,716

 

1.24

%  

 

666,993

 

2,379

 

1.43

%

Noninterest-bearing deposit accounts

 

195,283

 

  

 

  

 

146,832

 

  

 

  

Other noninterest-bearing liabilities

 

8,243

 

  

 

  

 

4,382

 

  

 

  

Stockholders' equity

 

107,330

 

  

 

  

 

101,996

 

  

 

  

Total liabilities and stockholders' equity

$

867,684

 

1,716

 

  

$

920,203

 

2,379

 

  

Net interest income/net interest spread

 

  

$

6,645

 

2.81

%  

 

  

$

7,845

 

3.20

%

Net interest margin

 

  

 

  

 

3.22

%  

 

  

 

  

 

3.55

%

(1)

Nonaccrual loans are included in average loans.

(2)

There are no tax equivalency adjustments.

(3)

Other interest-earning assets include interest-earning deposits, federal funds sold, and certificates of deposit held for investment.

(4)

Annualized.

36

Table of Contents

Six Months Ended June 30, 

 

2020

2019

 

Average

Yield/

Average

Yield/

 

    

Balance

    

Interest (2)

    

Rate (4)

    

Balance 

    

Interest (2)

    

Rate (4)

  

ASSETS

(dollars in thousands)

Loans (1)

$

649,726

$

16,212

 

5.02

%  

$

678,846

$

18,327

 

5.44

%

LHFS

 

15,996

 

204

 

2.56

%  

 

8,378

 

66

 

1.59

%

AFS securities

 

15,134

 

175

 

2.33

%  

 

11,805

 

102

 

1.74

%

HTM securities

 

23,744

 

260

 

2.20

%  

 

37,016

 

398

 

2.17

%

Other interest-earning assets (3)

 

109,794

 

360

 

0.66

%  

 

152,756

 

1,758

 

2.32

%

Restricted stock investments, at cost

 

2,398

 

66

 

5.53

%  

 

3,189

 

116

 

7.34

%

Total interest-earning assets

 

816,792

 

17,277

 

4.25

%  

 

891,990

 

20,767

 

4.69

%

Allowance

 

(7,374)

 

  

 

  

 

(8,075)

 

  

 

  

Cash and other noninterest-earning assets

 

45,182

 

  

 

  

 

42,305

 

  

 

  

Total assets

$

854,600

17,277

 

  

$

926,220

20,767

 

  

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Checking and savings

$

315,536

 

1,033

 

0.66

%  

$

398,214

 

1,624

 

0.82

%

Certificates of deposit

 

194,784

 

2,147

 

2.22

%  

 

208,561

 

2,143

 

2.07

%

Total interest-bearing deposits

 

510,320

 

3,180

 

1.25

%  

 

606,775

 

3,767

 

1.25

%

Borrowings

 

55,619

 

697

 

2.52

%  

 

79,309

 

1,070

 

2.72

%

Total interest-bearing liabilities

 

565,939

 

3,877

 

1.38

%  

 

686,084

 

4,837

 

1.42

%

Noninterest-bearing deposits

 

172,955

 

  

 

  

 

134,845

 

  

 

  

Other noninterest-bearing liabilities

 

8,165

 

  

 

  

 

3,750

 

  

 

  

Stockholders' equity

 

107,541

 

  

 

  

 

101,541

 

  

 

  

Total liabilities and stockholders' equity

$

854,600

 

3,877

 

  

$

926,220

 

4,837

 

  

Net interest income/net interest spread

 

  

$

13,400

 

2.87

%  

 

  

$

15,930

 

3.27

%

Net interest margin

 

  

 

  

 

3.30

%  

 

  

 

  

 

3.60

%

(1)

Nonaccrual loans are included in average loans.

(2)

There are no tax equivalency adjustments.

(3)

Other interest-earning assets include interest-earning deposits, federal funds sold, and certificates of deposit held for investment.

(4)

Annualized.

The “Rate/Volume Analysis” below indicates the changes in our net interest income as a result of changes in volume and rates. We maintain an asset and liability management policy designed to provide a proper balance between rate-sensitive assets and rate-sensitive liabilities to attempt to optimize interest margins while providing adequate liquidity for our anticipated needs. Changes in interest income and interest expense that result from variances in both volume and rates have been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.

37

Table of Contents

Three Months Ended June 30, 2020 vs. 2019

Six Months Ended June 30, 2020 vs. 2019

Due to Variances in

Due to Variances in

    

Rate

    

Volume

    

Total

    

Rate

    

Volume

    

Total

Interest earned on:

(dollars in thousands)

Loans

$

(882)

$

(322)

$

(1,204)

$

(1,367)

$

(748)

$

(2,115)

LHFS

 

10

 

46

 

56

 

56

 

82

 

138

AFS securities

 

23

 

21

 

44

 

41

 

32

 

73

HTM Securities

 

(1)

 

(68)

 

(69)

 

15

 

(153)

 

(138)

Other interest-earning assets

 

(549)

 

(121)

 

(670)

 

(1,004)

 

(394)

 

(1,398)

Restricted stock investments, at cost

 

(9)

 

(11)

 

(20)

 

(24)

 

(26)

 

(50)

Total interest income

 

(1,408)

 

(455)

 

(1,863)

 

(2,283)

 

(1,207)

 

(3,490)

Interest paid on:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Checking and savings

 

(295)

 

(140)

 

(435)

 

(290)

 

(301)

 

(591)

Certificates of deposit

 

(13)

 

(67)

 

(80)

 

295

 

(291)

 

4

Total interest-bearing deposits

 

(308)

 

(207)

 

(515)

 

5

 

(592)

 

(587)

Borrowings

 

(25)

 

(123)

 

(148)

 

(75)

 

(298)

 

(373)

Total interest expense

 

(333)

 

(330)

 

(663)

 

(70)

 

(890)

 

(960)

Net interest income

$

(1,075)

$

(125)

$

(1,200)

$

(2,213)

$

(317)

$

(2,530)

Provision for Loan Losses

Our loan portfolio is subject to varying degrees of credit risk and an Allowance is maintained to absorb losses inherent in our loan portfolio. Credit risk includes, but is not limited to, the potential for borrower default and the failure of collateral to be worth what we determined it was worth at the time of the granting of the loan. We monitor loan delinquencies at least monthly. All loans that are delinquent and all loans within the various categories of our portfolio as a group are evaluated. Management, with the advice and recommendation of the Company’s Board of Directors, estimates an Allowance to be set aside for loan losses. Included in determining the calculation are such factors as historical losses for each loan portfolio, current market value of the loan’s underlying collateral, inherent risk contained within the portfolio after considering the state of the general economy, economic trends, consideration of particular risks inherent in different kinds of lending and consideration of known information that may affect loan collectability.

We recorded $750,000 in provision for loan losses for the six months ended June 30, 2020 primarily due to economic factors related to the COVID-19 pandemic. We did not record any provision for loan losses during the three months ended June 30, 2020 or the three or six months ended June 30, 2019.

See additional information about the provision for loan losses under “Credit Risk Management and the Allowance” later in this Item.

Noninterest Income

Three Months Ended June 30

Total noninterest income increased by $622,000 or 23.8%, to $3.2 million for the three months ended June 30, 2020, compared to $2.6 million for the three months ended June 30, 2019, with the majority of the increase from mortgage-banking revenue. Mortgage-banking revenue increased $903,000, or 83.1%, due to the increased volume of loans originated from $69.4 million during the three months ended June 30, 2019 to $80.6 million during the three months ended June 30, 2020. A significant portion of the originations were refinances due to the drop in interest rates. The Title Company generated $226,000 in revenue during the three months ended June 30, 2020 compared to $262,000 for the three months ended June 30, 2019 due to a decline in loan closings and related title work. Real estate commissions decreased $248,000 primarily due to the lack of activity in real estate sales as a result of the COVID-19 pandemic.

38

Table of Contents

Six Months Ended June 30

Total noninterest income increased by $1.4 million or 28.5%, to $6.3 million for the six months ended June 30, 2020, compared to $4.9 million for the six months ended June 30, 2019, with the majority of the increase from mortgage-banking revenue. Mortgage-banking revenue increased $1.8 million, or 100.5%, due to the increased volume of loans originated from $88.9 million during the six months ended June 30, 2019 to $123.8 million during the six months ended June 30, 2020. A significant portion of the originations were refinances due to the drop in interest rates. Deposit service charges increased $75,000 for the six months ended June 30, 2020 compared to the same period of 2019 primarily due to increased onboarding and monthly fees associated with medical-use cannabis customer accounts. The Title Company generated $464,000 in revenue during the six months ended June 30, 2020 compared to $479,000 for the six months ended June 30, 2019 due to a decline in loan closings and related title work. Real estate commissions decreased $420,000 primarily due to the lack of activity in real estate sales as a result of the COVID-19 pandemic.

Noninterest Expense

Three Months Ended June 30

Total noninterest expense remained relatively stable at $7.5 million for both the three months ended June 30, 2020 and 2019. Professional fees decreased $272,000 primarily due to less consulting fees for SOX related matters. Compensation and related expenses increased by $262,000, or 5.3%, to $5.2 million for the three months ended June 30, 2020, compared to $4.9 million for the three months ended June 30, 2019. This increase was primarily due to annual salary increases, additional hirings for the Crofton branch, and increased commission expense that corresponds with our increased mortgage-banking volumes. Occupancy expenses increased $56,000, or 14.4%, primarily due to the addition of the Crofton branch. We also incurred additional expenses related to COVID-19 protocols.

Six Months Ended June 30

Total noninterest expense increased $1.5 million, or 10.3%, to $15.7 million for the six months ended June 30, 2020, compared to $14.3 million for the six months ended June 30, 2019, primarily due to increases in compensation and related expenses, occupancy expenses, legal fees, and data processing fees. Compensation and related expenses increased by $1.2 million, or 12.7%, to $10.6 million for the six months ended June 30, 2020, compared to $9.4 million for the six months ended June 30, 2019. This increase was primarily due to annual salary increases, additional hirings for our new branch, and increased commission expense that corresponds with our increased mortgage-banking volumes. Occupancy expenses increased $159,000, or 19.8%, primarily due to the addition of the Crofton branch. We also incurred additional expenses related to COVID-19 protocols. Data processing fees increased $160,000 due to additional efficiency and security enhancements to our core and related systems, as well as the implementation in late 2019 of a new customer relationship management (“CRM”) system. Legal fees increased $108,000. We recognized a $76,000 loss on disposal of premises and equipment when we terminated a lease agreement. We experienced a $109,000 decrease in professional fees as we were no longer utilizing consultants in 2020 for SOX related matters.

Income Tax Provision

Three Months Ended June 30

We recorded a $658,000 tax provision on net income before income taxes of $2.4 million for the three months ended June 30, 2020 for an effective tax rate of 27.5%, compared to an income tax provision of $771,000 on net income before income taxes of $2.9 million for the three months ended June 30, 2019, for an effective tax rate of 26.2%.

Six Months Ended June 30

We recorded a $871,000 tax provision on net income before income taxes of $3.2 million for the six months ended June 30, 2020 for an effective tax rate of 27.4%, compared to an income tax provision of $1.8 million on net income before income taxes of $6.5 million for the six months ended June 30, 2019, for an effective tax rate of 26.9%.

39

Table of Contents

Financial Condition

Total assets increased $96.7 million to $923.7 million at June 30, 2020, compared to $826.9 million at December 31, 2019. This increase was primarily due to a $80.3 million, or 91.0%, increase in cash and cash equivalents, to $168.5 million at June 30, 2020 from $88.2 million at December 31, 2019 due primarily to increased deposits. We experienced an increase in loans of $15.7 million, or 2.4%, to $661.4 million at June 30, 2020 from $645.7 million at December 31, 2019. Additionally, we had approximately $6.2 million of securities that had not yet settled at June 30, 2020, which grossed up total assets. Total deposits increased $87.9 million, or 13.3%, to $748.9 million at June 30, 2020 compared to $661.0 million at December 31, 2019. Stockholders’ equity increased $1.5 million to $107.0 million at June 30, 2020 compared to $105.5 million at December 31, 2019, due to net income for the first half of the year and increased accumulated comprehensive income, partially offset by dividends paid to stockholders.

Securities

We utilize the securities portfolio as part of our overall asset/liability management practices to enhance interest revenue while providing necessary liquidity for the funding of loan growth or deposit withdrawals. We continually monitor the credit risk associated with investments and diversify the risk in the securities portfolios. We held $15.8 million and $12.9 million in securities classified as AFS as of June 30, 2020 and December 31, 2019, respectively. We held  $21.3 million and $26.0 million, respectively, in securities classified as HTM as of June 30, 2020 and December 31, 2019, respectively.

Changes in current market conditions, such as interest rates and the economic uncertainties in the mortgage, housing, and banking industries impact the securities market. Quarterly, we review each security in our portfolio to determine the nature of any decline in value and evaluate if any impairment should be classified as other-than-temporary impairment (“OTTI”). For the three and six months ended June 30, 2020, we determined that no OTTI charges were required.

All of the AFS and HTM securities that are temporarily impaired as of June 30, 2020 were so due to declines in fair values resulting from changes in interest rates or decreased credit/liquidity spreads compared to the time they were purchased. We have the intent to hold these securities to maturity (including those designated as AFS) and it is more likely than not that we will not be required to sell the securities before recovery of value. As such, management considers the impairments to be temporary.

Our securities portfolio composition is as follows:

AFS

HTM

    

June 30, 2020

    

December 31, 2019

    

June 30, 2020

    

December 31, 2019

(dollars in thousands)

U.S. Treasury securities

$

$

$

998

$

994

U.S. government agency notes

 

3,067

 

5,019

 

2,985

 

4,986

Corporate obligations

1,984

Mortgage-backed securities

 

10,755

 

7,887

 

17,327

 

19,980

$

15,806

$

12,906

$

21,310

$

25,960

LHFS

We originate residential mortgage loans for sale on the secondary market. Such LHFS, which are carried at fair value, amounted to $11.4 million at June 30, 2020 and $10.9 million at December 31, 2019, the majority of which are subject to purchase commitments from investors. The increase in LHFS was primarily due to increased originations and to the timing of loans pending sale on the secondary market.

Loans

Our loan portfolio is expected to produce higher yields than investment securities and other interest-earning assets; the absolute volume and mix of loans and the volume and mix of loans as a percentage of total interest-earning assets is an important determinant of our net interest margin.

40

Table of Contents

The following table sets forth the composition of our loan portfolio:

June 30, 2020

December 31, 2019

 

Percent

Percent

 

    

Amount

    

of Total

    

Amount

    

of Total

 

(dollars in thousands)

 

Residential Mortgage

$

237,266

35.7

%  

$

269,654

41.6

%

Commercial

 

87,931

 

13.2

%  

 

43,127

 

6.7

%

Commercial real estate

 

225,588

 

33.9

%  

 

229,257

 

35.3

%

Land acquisition, development, and construction ("ADC")

 

100,812

 

15.2

%  

 

92,822

 

14.3

%

Home equity/2nds

 

12,027

 

1.8

%  

 

12,031

 

1.9

%

Consumer

 

1,384

 

0.2

%  

 

1,541

 

0.2

%

Loans receivable, before net unearned fees

$

665,008

 

100.0

%  

$

648,432

 

100.0

%

Total loans increased by $15.7 million, or 2.4%, to $661.4 million at June 30, 2020, compared to $645.7 million at December 31, 2019. This increase was due primarily to the origination of PPP loans, partially offset by increased payoffs of residential real estate and commercial real estate loans.

Credit Risk Management and the Allowance

Credit risk is the risk of loss arising from the inability of a borrower to meet his or her obligations and entails both general risks, which are inherent in the process of lending, and risks specific to individual borrowers. Our credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry, or collateral type.

We manage credit risk by evaluating the risk profile of the borrower, repayment sources, the nature of the underlying collateral, and other support given current events, conditions, and expectations. We attempt to manage the risk characteristics of our loan portfolio through various control processes, such as credit evaluation of borrowers, establishment of lending limits, and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances. However, we seek to rely primarily on the cash flow of our borrowers as the principal source of repayment. Although credit policies and evaluation processes are designed to minimize our risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of our loan portfolio, as well as general and regional economic conditions.

Management has an established methodology to determine the adequacy of the Allowance that assesses the risks and losses inherent in the loan portfolio. Our Allowance methodology employs management’s assessment as to the level of future losses on existing loans based on our internal review of the loan portfolio, including an analysis of the borrowers’ current financial position, and the consideration of current and anticipated economic conditions and their potential effects on specific borrowers and/or lines of business. In determining our ability to collect certain loans, we also consider the fair value of any underlying collateral. In addition, we evaluate credit risk concentrations, including trends in large dollar exposures to related borrowers, industry and geographic concentrations, and economic and environmental factors. Our risk management practices are designed to ensure timely identification of changes in loan risk profiles; however, undetected losses may inherently exist within the loan portfolio. The assessment aspects involved in analyzing the quality of individual loans and assessing collateral values can also contribute to undetected, but probable, losses. In the first half of 2020, we adjusted our economic risk factors to incorporate the current economic implications and rising unemployment rate from

41

Table of Contents

the COVID-19 pandemic. For more detailed information about our Allowance methodology and risk rating system, see Note 3 to the Consolidated Financial Statements.

The following table summarizes the activity in our Allowance by portfolio segment:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

    

2020

    

2019

 

(dollars in thousands)

Allowance, beginning of period

$

7,918

$

8,085

$

7,138

$

8,044

Charge-offs:

 

  

 

  

 

  

 

  

Residential mortgage

 

 

(20)

 

 

(20)

Commercial

 

 

 

 

Commercial real estate

 

 

 

 

ADC

 

 

 

 

Home equity/2nds

 

 

 

 

Consumer

 

 

(12)

 

(15)

 

(12)

Total charge-offs

 

 

(32)

 

(15)

 

(32)

Recoveries:

 

  

 

  

 

  

 

  

Residential mortgage

 

177

 

3

 

180

 

8

Commercial

 

3

 

 

8

 

Commercial real estate

 

70

 

33

 

102

 

67

ADC

 

 

 

 

Home equity/2nds

 

1

 

4

 

3

 

6

Consumer

 

 

 

3

 

Total recoveries

 

251

 

40

 

296

 

81

Net recoveries

 

251

 

8

 

281

 

49

Provision for loan losses

 

 

 

750

 

Allowance, end of period

$

8,169

$

8,093

$

8,169

$

8,093

Loans:

 

  

 

  

 

  

 

  

Period-end balance

$

661,372

$

679,573

$

661,372

$

679,573

Average balance during period

 

655,366

 

679,334

 

649,726

 

678,846

Allowance as a percentage of

period-end loan balance (1)

 

1.24

%  

 

1.19

%  

 

1.24

%  

 

1.19

%

Percent of average loans (annualized):

 

  

 

  

 

 

  

Provision for loan losses

 

%  

 

%  

 

0.23

%  

 

%

Net recoveries

 

0.15

%  

 

%  

 

0.09

%  

 

0.01

%

(1) The Allowance at June 30, 2020, as a percentage of total loans, excluding PPP loans was 1.33%

The following table summarizes our allocation of the Allowance by loan segment:

June 30, 2020

December 31, 2019

 

    

    

    

Percent

    

    

    

Percent

 

of Loans

of Loans

 

Percent

to Total

Percent

to Total

 

Amount

of Total

Loans

Amount

of Total

Loans

 

(dollars in thousands)

Residential mortgage

$

2,422

 

29.7

%  

35.7

%  

$

2,264

 

31.7

%  

41.6

%

Commercial

 

1,677

 

20.5

%  

13.2

%  

 

1,421

 

19.9

%  

6.7

%

Commercial real estate

 

1,078

 

13.2

%  

33.9

%  

 

984

 

13.8

%  

35.3

%

ADC

 

2,789

 

34.1

%  

15.2

%  

 

2,286

 

32.0

%  

14.3

%

Home equity/2nds

 

165

 

2.0

%  

1.8

%  

 

134

 

1.9

%  

1.9

%

Consumer

 

 

%  

0.2

%  

 

 

%  

0.2

%

Unallocated

 

38

 

0.5

%  

%  

 

49

 

0.7

%  

%

Total

$

8,169

 

100.0

%  

100.0

%  

$

7,138

 

100.0

%  

100.0

%

42

Table of Contents

Based upon management’s evaluation, provisions are made to maintain the Allowance as a best estimate of inherent losses within the portfolio. The Allowance totaled $8.2 million at June 30, 2020 and $7.1 million at December 31, 2019. Any changes in the Allowance from period to period reflect management’s ongoing application of its methodologies to establish the Allowance, which, for the six months ended June 30, 2020, resulted in increased allocated Allowances for the majority of the loan segments, primarily due to economic factors related to the COVID-19 pandemic.

As result of our Allowance analysis, we recorded a provision for loan losses of $750,000 during the six months ended June 30, 2020. We did not record any provision for loan losses for the three months ended June 30, 2020 or the three or six months ended June 30, 2019. We recorded net recoveries of $251,000 and $281,000, respectively, during the three and six months ended June 30, 2020 and net recoveries of $8,000 and $49,000, respectively, during the three and six months ended June 30, 2019. During the three and six months ended June 30, 2020, annualized net recoveries as a percentage of average loans outstanding amounted to 0.15% and 0.09%, respectively. During the three and six months ended June 30, 2019, annualized net recoveries as a percentage of average loans outstanding amounted to 0.00% and 0.01%, respectively. The Allowance as a percentage of outstanding loans was 1.24% as of June 30, 2020 compared to 1.11% as of December 31, 2019, the increase in which was primarily the result of the net recoveries recognized in 2020 as well as the decrease in outstanding loans, net of PPP loans. PPP loans are fully guaranteed by the SBA and, therefore, not required to have an allocated Allowance. The Allowance as a percentage of outstanding loans less PPP loans amounted to 1.33% at June 30, 2020.

Although management uses available information to establish the appropriate level of the Allowance, future additions or reductions to the Allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions, and other factors. As a result, our Allowance may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our Allowance and related methodology. Such agencies may require us to recognize adjustments to the Allowance based on their judgments about information available to them at the time of their examination. Management believes the Allowance is adequate as of June 30, 2020 and is sufficient to address the credit losses inherent in the current loan portfolio. Management will continue to evaluate the adequacy of the Allowance as more economic data becomes available and as changes within our portfolio are known. The effects of the COVID-19 pandemic may require us to fund additional increases in the Allowance in future periods.

Nonperforming Assets (“NPAs”)

Given the volatility of the real estate market, it is very important for us to have current valuations on our NPAs. Generally, we obtain appraisals or alternative valuations on NPAs annually. In addition, as part of our asset monitoring activities, we maintain a Loss Mitigation Committee that meets monthly. During these Loss Mitigation Committee meetings, all NPAs and loan delinquencies are reviewed. We also produce an NPA report which is distributed monthly to senior management and is also discussed and reviewed at the Loss Mitigation Committee meetings. This report contains all relevant data on the NPAs, including the latest appraised value (or alternative valuation vehicle) and valuation date. Accordingly, these reports identify which assets will require an updated valuation. As a result, we have not experienced any internal delays in identifying which loans/credits require updated valuations. With respect to the ordering process of appraisals, we have not experienced any delays in turnaround time nor has this been an issue over the past three years. Furthermore, we have not had any delays in turnaround time or variances thereof in our specific loan operating markets.

NPAs, expressed as a percentage of total assets, totaled 0.79% at June 30, 2020 and 0.80% at December 31, 2019. The ratio of the Allowance to nonperforming loans was 130.8% at June 30, 2020 and 168.3% at December 31, 2019.

43

Table of Contents

The distribution of our NPAs is illustrated in the following table. We did not have any loans greater than 90 days past due and still accruing at June 30, 2020 or December 31, 2019.

    

June 30, 2020

    

December 31, 2019

Nonaccrual Loans:

(dollars in thousands)

Residential mortgage

$

5,676

 

$

3,766

Commercial real estate

 

307

 

 

237

ADC

 

131

 

 

89

Home equity/2nds

 

131

 

 

150

 

6,245

 

 

4,242

Real Estate Acquired Through Foreclosure:

 

  

 

 

  

Residential mortgage

 

 

 

1,377

Commercial real estate

 

452

 

 

452

ADC

 

558

 

 

558

 

1,010

 

 

2,387

Total NPAs

$

7,255

 

$

6,629

Nonaccrual loans totaled $6.2 million, or 0.94% of total loans, at June 30, 2020 and $4.2 million, or 0.66% of total loans at December 31, 2019. Significant activity in nonaccrual loans during the six months ended June 30, 2020 included the addition of five loans in the amount of $3.1 million to nonaccrual loans and one loan returned to accrual status in the amount of $808,000.

Real estate acquired through foreclosure decreased $1.4 million to $1.0 million at June 30, 2020 compared to $2.4 million at December 31, 2019, primarily due to the sale of three residential mortgage properties existing at December 31, 2019.

The activity in our real estate acquired through foreclosure was as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

(dollars in thousands)

Balance at beginning of period

$

1,684

$

1,601

$

2,387

$

1,537

Real estate acquired in satisfaction of loans

 

 

 

 

171

Write-downs and losses on real estate acquired through foreclosure

 

(471)

 

(64)

 

(551)

 

(171)

Proceeds from sales of real estate acquired through foreclosure

 

(203)

 

(107)

 

(826)

 

(107)

Balance at end of period

$

1,010

$

1,430

$

1,010

$

1,430

TDRs

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR. See Significant Developments – COVID-19 for information regarding the CARES Act and its effect on modifications.

44

Table of Contents

The composition of our TDRs is illustrated in the following table:

    

June 30, 2020

    

December 31, 2019

 

Residential mortgage:

(dollars in thousands)

Nonaccrual

$

82

$

85

<90 days past due/current

 

6,966

 

7,675

Commercial real estate:

 

  

 

  

Nonaccrual

 

 

<90 days past due/current

 

971

 

984

ADC:

 

  

 

  

Nonaccrual

 

 

<90 days past due/current

 

129

 

130

Consumer:

 

  

 

  

Nonaccrual

 

 

<90 days past due/current

 

65

 

69

Totals:

 

  

 

  

Nonaccrual

 

82

 

85

<90 days past due/current

 

8,131

 

8,858

$

8,213

$

8,943

See additional information on TDRs in Note 3 to the Consolidated Financial Statements herein.

Deposits

Deposits totaled $748.9 million at June 30, 2020 and $661.0 million at December 31, 2019. The $87.9 million increase was primarily the result of short-term medical-use cannabis related funds (funds that have not yet actually been used in the medical-use cannabis industry) that account holders have placed at the Bank temporarily while looking for desired investments in the industry. Management is aware of the short-term nature of such medical-use cannabis related deposits and offset those funds by maintaining short-term liquidity to meet any deposit outflows.

The deposit breakdown is as follows:

June 30, 2020

December 31, 2019

 

    

    

Percent

    

    

Percent

 

Balance

of Total

Balance

of Total

 

(dollars in thousands)

 

NOW

$

92,806

12.4

%  

$

83,612

12.6

%

Money market

61,353

8.2

%  

162,621

24.6

%

Savings

167,031

22.3

%  

61,514

9.3

%

Certificates of deposit

 

225,872

 

30.1

%  

 

230,401

 

34.9

%

Total interest-bearing deposits

 

547,062

 

73.0

%  

 

538,148

 

81.4

%

Noninterest-bearing deposits

 

201,854

 

27.0

%  

 

122,901

 

18.6

%

Total deposits

$

748,916

 

100.0

%  

$

661,049

 

100.0

%

Borrowings

Our borrowings consist of advances from the FHLB.

The FHLB advances are available under a specific collateral pledge and security agreement, which requires that we maintain collateral for all of our borrowings equal to 30% of total assets. Our advances from the FHLB may be in the form of short-term or long-term obligations. Short-term advances have maturities for one year or less and may contain prepayment penalties. Long-term borrowings through the FHLB have original maturities up to 15 years and generally contain prepayment penalties.

45

Table of Contents

At June 30, 2020, our total credit line with the FHLB was $256.1 million. The Bank, from time to time, utilizes the line of credit when interest rates are more favorable than obtaining deposits from the public. Our outstanding FHLB advance balance at both June 30, 2020 and December 31, 2019 was $35.0 million.  

The following table sets forth information concerning the interest rates and maturity dates of the advances from the FHLB as of June 30, 2020:

Principal

    

    

Amount (in thousands)

Rate

Maturity

$

25,000

 

1.75% to 1.92%

 

2020

 

10,000

 

2.19%

 

2022

$

35,000

 

  

 

  

Subordinated Debentures

As of both June 30, 2020 and December 31, 2019, the Company had outstanding $20.6 million in principal amount of Junior Subordinated Debt Securities, due in 2035 (the “2035 Debentures”). The 2035 Debentures were issued pursuant to an Indenture dated as of December 17, 2004 (the “2035 Indenture”) between the Company and Wells Fargo Bank, National Association as Trustee. The 2035 Debentures pay interest quarterly at a floating rate of interest of 3-month LIBOR plus 200 basis points, and mature on January 7, 2035. Payments of principal, interest, premium and other amounts under the 2035 Debentures are subordinated and junior in right of payment to the prior payment in full of all senior indebtedness of the Company, as defined in the 2035 Indenture. The 2035 Debentures became redeemable, in whole or in part, by the Company on January 7, 2010.

The 2035 Debentures were issued and sold to Severn Capital Trust I (the “Trust”), of which 100% of the common equity is owned by the Company. The Trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable Capital Securities (“Capital Securities”) to third-party investors and using the proceeds from the sale of such Capital Securities to purchase the 2035 Debentures. The 2035 Debentures held by the Trust are the sole assets of the Trust. Distributions on the Capital Securities issued by the Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Trust on the 2035 Debentures. The Capital Securities are subject to mandatory redemption, in whole or in part, upon repayment of the 2035 Debentures. We have entered into an agreement which, taken collectively, fully and unconditionally guarantees the Capital Securities subject to the terms of the guarantee.

Under the terms of the 2035 Debentures, we are permitted to defer the payment of interest on the 2035 Debentures for up to 20 consecutive quarterly periods, provided that no event of default has occurred and is continuing. As of June 30, 2020, we were current on all interest due on the 2035 Debentures.

Capital Resources

Total stockholders’ equity increased $1.5 million to $107.0 million at June 30, 2020 compared to $105.5 million as of December 31, 2019. The increase was the result of 2020 net income to date and an increase in accumulated other comprehensive income, partially offset by dividends paid to stockholders during the six months ended June 30, 2020.

Capital Adequacy

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of June 30, 2020 and December 31, 2019, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications

46

Table of Contents

to be considered “well capitalized.” As of January 1, 2020, the Bank elected to follow the Community Bank Leverage Ratio. See details of our capital ratios in Note 4 of the Consolidated Financial Statements.

Liquidity

Liquidity describes our ability to meet financial obligations, including lending commitments and contingencies, which arise during the normal course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers, to fund the operations of our mortgage-banking business, as well as to meet current and planned expenditures. These cash requirements are met on a daily basis through the inflow of deposit funds, the maintenance of short-term overnight investments, maturities and calls in our securities portfolio, and available lines of credit with the FHLB, which requires pledged collateral. Fluctuations in deposit and short-term borrowing balances may be influenced by the interest rates paid, general consumer confidence, and the overall economic environment. There can be no assurances that deposit withdrawals and loan fundings will not exceed all available sources of liquidity on a short-term basis. Such a situation would have an adverse effect on our ability to originate new loans and maintain reasonable loan and deposit interest rates, which would negatively impact earnings.

Our principal sources of liquidity are loan repayments, maturing investments, deposits, borrowed funds, and proceeds from loans sold on the secondary market. The levels of such sources are dependent on the Bank’s operating, financing, and investing activities at any given time. We consider core deposits stable funding sources and include all deposits, except time deposits of $100,000 or more. The Bank’s experience has been that a substantial portion of certificates of deposit renew at time of maturity and remain on deposit with the Bank. Additionally, loan payments, maturities, deposit growth, and earnings contribute to our flow of funds.

In addition to our ability to generate deposits, we have external sources of funds, which may be drawn upon when desired. The primary source of external liquidity is an available line of credit with the FHLB. The Bank’s total credit availability under the FHLB’s credit availability program was $256.1 million at June 30, 2020, of which $35.0 million was outstanding.

The borrowing requirements of customers include commitments to extend credit and the unused portion of lines of credit (collectively “commitments”), which totaled $108.1 million at June 30, 2020. Historically, many of the commitments expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. We expect to fund these commitments from the sources of liquidity described above.

Customer withdrawals are also a principal use of liquidity, but are generally mitigated by growth in customer funding sources, such as deposits and short-term borrowings.

In addition to the foregoing, the payment of dividends is a use of cash, but is not expected to have a material effect on liquidity. As of June 30, 2020, we had no material commitments for capital expenditures.

Our ability to acquire deposits or borrow could be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole. Additionally, the origination volume of PPP loans could be a drain on our liquidity. As of June 30, 2020, we have not yet experienced any negative impact on our liquidity due to COVID-19. At June 30, 2020, management considered the Company’s liquidity level to be sufficient for the purposes of meeting our cash flow requirements. We are not aware of any undisclosed known trends, demands, commitments, or uncertainties that are reasonably likely to result in material changes in our liquidity.

We anticipate that our primary sources of liquidity over the next twelve months will be from loan repayments, maturing investments, deposit growth, and borrowed funds. We believe that these sources of liquidity will be sufficient for us to meet our liquidity needs over the next twelve months.

Off-Balance Sheet Arrangements and Derivatives

We enter into off-balance sheet arrangements in the normal course of business. These arrangements consist primarily of commitments to extend credit, lines of credit, and letters of credit. In addition, we have certain operating lease obligations.

47

Table of Contents

Credit Commitments

Credit commitments are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.

Our exposure to credit loss in the event of nonperformance by the borrower is the contract amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. We are not aware of any accounting loss we would incur by funding our commitments.

See detailed information on credit commitments above under “Liquidity.”

Derivatives

We maintain and account for derivatives, in the form of interest-rate lock commitments (“IRLCs”) and mandatory forward contracts, in accordance with the Financial Accounting Standards Board guidance on accounting for derivative instruments and hedging activities. We recognize gains and losses on IRLCs, mandatory forward contracts, and best effort forward contracts on the loan pipeline through mortgage-banking revenue in the Consolidated Statements of Income.

IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives. We are exposed to price risk from the time a mortgage loan closes until the time the loan is sold. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 60 days. For these IRLCs, we attempt to protect the Bank from changes in interest rates through the use of best efforts and mandatory forward contracts.

See Note 8 to the consolidated financial statements for more detailed information on our derivatives.

Inflation

The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with GAAP and practices within the banking industry which require the measurement of financial condition and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. As a financial institution, virtually all of our assets and liabilities are monetary in nature and interest rates have a more significant impact on our performance than the effects of general levels of inflation. A prolonged period of inflation could cause interest rates, wages, and other costs to increase and could adversely affect our results of operations unless mitigated by a corresponding increase in our revenues. However, we believe that the impact of inflation on our operations was not material for the three and six months ended June 30, 2020 and 2019.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

The principal objective of the Company’s interest rate risk management is to evaluate the interest rate risk included in balance sheet accounts, determine the level of risks appropriate given our business strategy, operating environment, capital and liquidity requirements, and performance objectives, and manage the risk consistent with our interest rate risk management policy. Through this management, we seek to reduce the vulnerability of our operations to changes in interest rates. The Board of Directors of the Company is responsible for reviewing our asset/liability policy and interest rate risk position. The Board of Directors reviews the interest rate risk position on a quarterly basis and, in connection with this review, evaluates the Company’s business activities and strategies, the effect of those strategies on the Company’s net interest margin and the effect that changes in interest rates will have on the loan portfolio. While continuous movement of interest rates is certain, the extent and timing of these movements is not always predictable. Any movement in interest rates has an effect on our profitability. We face the risk that rising interest rates could cause the cost of interest-bearing liabilities, such as deposits and borrowings, to rise faster than the yield on interest-earning assets, such as loans and investments. Our interest rate spread and interest rate margin also may be negatively impacted in a declining interest rate environment even though we generally borrow at short-term interest rates and lend at longer-term interest rates. This is

48

Table of Contents

because loans and other interest-earning assets may be prepaid and replaced with lower yielding assets before the supporting interest-bearing liabilities reprice downward. Our interest rate margin may also be negatively impacted in a flat or inverse-yield curve environment. Mortgage origination activity tends to increase when interest rates trend lower and decrease when interest rates rise.

Our primary strategy to control interest rate risk is to strive to balance our loan origination activities with the interest rate market. We attempt to maintain a substantial portion of our loan portfolio in short-term loans such as construction loans. This has proven to be an effective hedge against rapid increases in interest rates as the construction loan portfolio reprices rapidly.

The matching of maturity or repricing of interest-earning assets and interest-bearing liabilities may be analyzed by examining the extent to which these assets and liabilities are interest rate sensitive and by monitoring the Bank’s interest rate sensitivity gap. An interest-earning asset or interest-bearing liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. The difference between rate sensitive assets and rate sensitive liabilities represents the Bank’s interest sensitivity gap. At June 30, 2020, we had a one-year cumulative negative gap of $54.6 million.

Exposure to interest rate risk is actively monitored by management. The objective is to maintain a consistent level of profitability within acceptable risk tolerances across a broad range of potential interest rate environments. We use the PROFITstar® model to monitor our exposure to interest rate risk, which calculates changes in the economic value of equity (“EVE”).

The following table represents our EVE as of June 30, 2020:

Change in Rates

    

Amount

    

$ Change

    

% Change

 

(dollars in thousands)

 

+400

bp  

$

190,895

$

69,028

 

56.64

%

+300

bp  

 

183,547

 

61,680

 

50.61

%

+200

bp  

 

172,759

 

50,892

 

41.76

%

+100

bp  

 

153,248

 

31,381

 

25.75

%

0

bp  

 

121,867

 

  

 

  

(100)

bp  

 

67,986

 

(53,881)

 

(44.21)

%

(200)

bp  

 

4,284

 

(117,583)

 

(96.48)

%

The preceding income simulation analysis does not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

Item 4.     Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a‑15 under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a‑15 under the Securities Act of 1934) during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

49

Table of Contents

PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

In the normal course of business, we are party to litigation arising from the banking, financial, and other activities we conduct. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results, or liquidity as of June 30, 2020.

Item 1A.  Risk Factors

The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of the Annual Report on Form 10-K of Severn Bancorp as of and for the year ended December 31, 2019. In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to those aforementioned risk factors. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the novel COVID-19 outbreak could adversely affect our financial condition and results of operations.

In December 2019, COVID-19 was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the U.S. declared the COVID-19 outbreak in the U.S. a national emergency. The COVID-19 pandemic has caused significant economic disruption in the U.S. as many state and local governments have ordered nonessential businesses to close and residents to shelter in place at home. While most of these restrictions were lifted in June of 2020, the actions and continued presence of COVID-19 have resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, there have been a record number of claims for unemployment and stock markets have declined in value and, in particular, bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the FRB has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry, and the retail industry. Finally, the spread of COVID-19 has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be permanently reopened.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

demand for our products and services may decline, making it difficult to grow assets and income;
if the economy is unable to permanently reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

50

Table of Contents

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
our Allowance may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
as the result of the decline in the FRB’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;
a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets;
a prolonged weakness in economic conditions could result in a devaluation of our company value and result in an impairment charge on goodwill;
the unavailability of a critical service from a third party vendor due to the COVID-19 outbreak could have an adverse effect on us; and
Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition, and results of operations and prospects.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.     Other Information

None.

51

Table of Contents

Item 6.     Exhibits

Exhibit No.

    

Description

31.1

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

101.SCH

101.CAL

101.LAB

101.PRE

101.DEF

104

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Definitions Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

EXHIBIT INDEX

Exhibit No.

    

Description

31.1

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32

101.INS

101.SCH

101.CAL

101.LAB

101.PRE

101.DEF

104

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Definitions Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

52

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

SEVERN BANCORP, INC.

 

August 10, 2020

/s/ Alan J. Hyatt

 

Alan J. Hyatt,
Chairman of the Board, President and Chief Executive Officer

 

(Principal Executive Officer)

 

August 10, 2020

/s/ Vance W. Adkins

 

Vance W. Adkins,
Chief Financial Officer

 

(Principal Financial and Accounting Officer)

53

Exhibit 31.1

CERTIFICATION

I, Alan J. Hyatt, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Severn Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

August 10, 2020

/s/ Alan J. Hyatt

 

 

Alan J. Hyatt, Chairman of the Board, President

 

 

and Chief Executive Officer

 

 

(Principal Executive Officer)


Exhibit 31.2

CERTIFICATION

I, Vance W. Adkins, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Severn Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

August 10, 2020

/s/ Vance W. Adkins

 

 

Vance W. Adkins

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)


Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) each of the undersigned officers of Severn Bancorp, Inc. (“the Company”) does hereby certify with respect to the Quarterly Report of Severn Bancorp, Inc. on Form 10-Q for the quarterly period ended June 30, 2020 (the “Report”) that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:

August 10, 2020

/s/ Alan J. Hyatt

 

 

Alan J. Hyatt

 

 

Chairman of the Board, President and

 

 

Chief Executive Officer (Principal Executive Officer)

Date:

August 10, 2020

/s/ Vance W. Adkins

 

 

Vance W. Adkins

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.


v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Aug. 07, 2020
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Entity File Number 0-49731  
Entity Registrant Name SEVERN BANCORP INC  
Entity Incorporation, State or Country Code MD  
Entity Tax Identification Number 52-1726127  
Entity Address, Address Line One 200 Westgate Circle  
Entity Address, Address Line Two Suite 200  
Entity Address, City or Town Annapolis  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 21401  
City Area Code 410  
Local Phone Number 260-2000  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol SVBI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   12,812,976
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0000868271  
Amendment Flag false  
v3.20.2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Cash and due from banks $ 2,023 $ 2,892
Federal funds sold and interest-bearing deposits in other banks 166,447 85,301
Cash and cash equivalents 168,470 88,193
Certificates of deposit held for investment 6,074 7,540
Securities available for sale, at fair value 15,806 12,906
Securities held to maturity (fair value of $22,109 and $26,158 at June 30, 2020 and December 31, 2019, respectively) 21,310 25,960
Mortgage loans held for sale, at fair value 11,429 10,910
Loans receivable 661,372 645,685
Allowance for loan losses (8,169) (7,138)
Loans, net 653,203 638,547
Real estate acquired through foreclosure 1,010 2,387
Restricted stock investments 2,299 2,431
Premises and equipment, net 21,542 22,144
Accrued interest receivable 2,478 2,458
Deferred income taxes 1,716 1,748
Bank owned life insurance 5,450 5,377
Goodwill 1,104 1,104
Securities purchased not settled 6,200  
Other assets 5,572 5,214
Total assets 923,663 826,919
Deposits:    
Noninterest bearing 201,854 122,901
Interest-bearing 547,062 538,148
Total deposits 748,916 661,049
Long-term borrowings 35,000 35,000
Subordinated debentures 20,619 20,619
Liability for securities purchased not settled 6,200  
Accrued expenses and other liabilities 5,946 4,779
Total liabilities 816,681 721,447
Stockholders' Equity:    
Common stock, $0.01 par value, 20,000,000 shares authorized; 12,812,976 and 12,810,926 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 128 128
Additional paid-in capital 66,026 65,944
Retained earnings 40,723 39,445
Accumulated other comprehensive income (loss) 105 (45)
Total stockholders' equity 106,982 105,472
Total liabilities and stockholders' equity $ 923,663 $ 826,919
v3.20.2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Securities held to maturity fair value $ 22,109 $ 26,158
Stockholders' Equity:    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 20,000,000 20,000,000
Common stock, shares issued (in shares) 12,812,976 12,810,926
Common stock, shares outstanding (in shares) 12,812,976 12,810,926
v3.20.2
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Interest income:        
Loans $ 8,078 $ 9,226 $ 16,416 $ 18,393
Securities 216 241 435 500
Other earning assets 67 757 426 1,874
Total interest income 8,361 10,224 17,277 20,767
Interest expense:        
Deposits 1,383 1,898 3,180 3,767
Borrowings and subordinated debentures 333 481 697 1,070
Total interest expense 1,716 2,379 3,877 4,837
Net interest income 6,645 7,845 13,400 15,930
Provision for loan losses     750  
Net interest income after provision for loan losses 6,645 7,845 12,650 15,930
Noninterest income:        
Mortgage-banking revenue 1,990 1,087 3,624 1,807
Real estate commissions 130 378 440 860
Real estate management fees 155 162 320 326
Deposit service charges 570 547 1,131 1,056
Title company revenue 226 262 464 479
Other noninterest income 166 179 283 347
Total noninterest income 3,237 2,615 6,262 4,875
Noninterest expense:        
Compensation and related expenses 5,171 4,909 10,632 9,434
Occupancy 445 389 963 804
Legal fees 17 26 183 75
Write-downs, losses, and costs of real estate acquired through foreclosure, net of gains 16 24 90 149
Federal Deposit Insurance Corporation insurance premiums 37 63 37 119
Professional fees 171 443 474 583
Advertising 231 213 451 400
Data processing 396 354 856 696
Credit report and appraisal fees 36 24 103 64
Licensing and software 238 293 456 475
Loss on disposal of premises and equipment     76  
Other noninterest expense 729 775 1,418 1,464
Total noninterest expense 7,487 7,513 15,739 14,263
Net income before income tax provision 2,395 2,947 3,173 6,542
Income tax provision 658 771 871 1,757
Net income $ 1,737 $ 2,176 $ 2,302 $ 4,785
Net income per common share - basic (in dollars per share) $ 0.14 $ 0.17 $ 0.18 $ 0.37
Net income per common share - diluted (in dollars per share) $ 0.14 $ 0.17 $ 0.18 $ 0.37
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]        
Net income $ 1,737 $ 2,176 $ 2,302 $ 4,785
Other comprehensive income item:        
Unrealized holding gains on available-for-sale securities arising during the period (net of tax expense of $1, $14, $57 and $21) 1 38 150 62
Total other comprehensive income (loss) 1 38 150 62
Total comprehensive income $ 1,738 $ 2,214 $ 2,452 $ 4,847
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Other comprehensive income item:        
Unrealized holding losses on available-for-sale securities arising during the period, income tax benefit $ 1 $ 14 $ 57 $ 21
v3.20.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Comprehensive Loss [Member]
Total
Beginning balance at Dec. 31, 2018 $ 128 $ 65,538 $ 32,860 $ (73) $ 98,453
Balance (in shares) at Dec. 31, 2018 12,759,576        
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income     4,785   4,785
Stock-based compensation   77     77
Dividends paid on common stock     (767)   (767)
Exercise of stock options   81     $ 81
Exercise of stock options (in shares) 15,561       15,561
Other comprehensive income (loss)       62 $ 62
Ending balance at Jun. 30, 2019 $ 128 65,696 36,878 (11) 102,691
Balance (in shares) at Jun. 30, 2019 12,775,137        
Beginning balance at Mar. 31, 2019 $ 128 65,662 35,087 (49) 100,828
Balance (in shares) at Mar. 31, 2019 12,775,087        
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income     2,176   2,176
Stock-based compensation   34     34
Dividends paid on common stock     (385)   (385)
Exercise of stock options (in shares) 50        
Other comprehensive income (loss)       38 38
Ending balance at Jun. 30, 2019 $ 128 65,696 36,878 (11) 102,691
Balance (in shares) at Jun. 30, 2019 12,775,137        
Beginning balance at Dec. 31, 2019 $ 128 65,944 39,445 (45) 105,472
Balance (in shares) at Dec. 31, 2019 12,810,926        
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income     2,302   2,302
Stock-based compensation   68     68
Dividends paid on common stock     (1,024)   (1,024)
Exercise of stock options   14     $ 14
Exercise of stock options (in shares) 2,050       2,050
Other comprehensive income (loss)       150 $ 150
Ending balance at Jun. 30, 2020 $ 128 66,026 40,723 105 106,982
Balance (in shares) at Jun. 30, 2020 12,812,976        
Beginning balance at Mar. 31, 2020 $ 128 65,992 39,497 104 105,721
Balance (in shares) at Mar. 31, 2020 12,812,976        
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income     1,737   1,737
Stock-based compensation   34     34
Dividends paid on common stock     (511)   (511)
Other comprehensive income (loss)       1 1
Ending balance at Jun. 30, 2020 $ 128 $ 66,026 $ 40,723 $ 105 $ 106,982
Balance (in shares) at Jun. 30, 2020 12,812,976        
v3.20.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [Abstract]        
Dividend paid on common stock $ 0.04 $ 0.03 $ 0.08 $ 0.06
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 2,302 $ 4,785
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation and amortization 788 703
Amortization of deferred loan fees (1,024) (949)
Net (accretion) amortization of premiums and discounts on securities (36) 80
Provision for loan losses 750  
Write-downs and losses on real estate acquired through foreclosure, net of gains 551 171
Gain on sale of mortgage loans (3,624) (1,807)
Loss on disposal of property 76  
Proceeds from sale of mortgage loans held for sale 126,925 81,725
Originations of loans held for sale (123,820) (88,867)
Stock-based compensation 68 77
Increase in cash surrender value of bank-owned life insurance (73) (78)
Deferred income taxes (25) 173
Decrease in accrued interest receivable (20) 243
Increase in other assets (358) (2,610)
Increase in accrued expenses and other liabilities 1,167 2,729
Net cash (used in) provided by operating activities 3,647 (3,625)
Cash flows from investing activities:    
Redemption of certificates of deposit held for investment 1,466 1,240
Loan principal repayments, net of (disbursements) (14,382) 4,252
Redemption of restricted stock investments 132 909
Purchases of premises and equipment, net (262) (410)
Activity in securities held to maturity:    
Maturities/calls/repayments 4,603 5,300
Activity in available-for-sale securities:    
Purchases (7,857)  
Maturities/calls/repayments 5,247 1,000
Proceeds from sales of real estate acquired through foreclosure 826 107
Net cash provided by investing activities (10,227) 12,398
Cash flows from financing activities:    
Net (decrease) increase in deposits 87,867 (94,090)
Repayments of long-term borrowings   (25,000)
Common stock dividends (1,024) (767)
Exercise of stock options 14 81
Net cash provided by (used in) financing activities 86,857 (119,776)
Increase (decrease) in cash and cash equivalents 80,277 (111,003)
Cash and cash equivalents at beginning of period 88,193 188,340
Cash and cash equivalents at end of period 168,470 77,337
Supplemental Noncash Disclosures:    
Interest paid on deposits and borrowed funds 3,918 4,925
Income taxes paid $ 493 1,909
Real estate acquired in satisfaction of loans   171
Initial recognition of operating lease right-of-use asset   2,684
Initial recognition of operating lease liability   2,684
Transfers of loans held for sale to loan portfolio   $ 648
v3.20.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 1 -  Summary of Significant Accounting Policies

Basis of Presentation

The accounting and reporting policies of Severn Bancorp, Inc. and subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) and prevailing practices within the financial services industry for interim financial information and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements and prevailing practices within the banking industry. In the opinion of management, all adjustments (comprising only of those of a normal recurring nature) necessary for a fair presentation of the results of operations for the interim periods presented have been made. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other interim or future period. Events occurring after the date of the financial statements up to the date the financial statements were available to be issued were considered in the preparation of the consolidated financial statements.

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

COVID-19 Risks and Uncertainties

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the U.S. and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 has adversely impacted and could continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to a target range of 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income, noninterest income, credit quality, the allowance for loan losses (“Allowance”), and the provision for loan losses. Additionally, there could be a potential for goodwill impairment. Other financial impact could occur though such potential impact is unknown at this time.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Severn Bancorp, Inc., and its wholly-owned subsidiaries, Mid-Maryland Title Company, Inc., SBI Mortgage Company, and Severn Savings Bank, FSB (the “Bank”), along with the Bank’s subsidiaries, Louis Hyatt, Inc., Homeowners Title and Escrow Corporation, Severn Financial Services Corporation, SSB Realty Holdings, LLC, SSB Realty Holdings II, LLC, and HS West, LLC. Also included are the accounts of SBI Mortgage Company’s subsidiary, Crownsville Development Corporation, and its subsidiary, Crownsville Holdings I, LLC. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

Use of Estimates

The preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have, or could have, a material impact on the carrying value of certain assets or on income. These estimates and assumptions affect the reported amounts of assets

and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The accounting policies we view as critical are those relating to the Allowance, the valuation of real estate acquired through foreclosure, and the valuation of deferred tax assets and liabilities.

Cash Flows

For reporting purposes, assets grouped in the Consolidated Statements of Financial Condition under the captions “Cash and due from banks” and “Federal funds sold and interest-bearing deposits in other banks” are considered cash or cash equivalents. For financial statement purposes, these assets are carried at cost. Federal funds sold and interest-bearing deposits in other banks generally have overnight maturities and are in excess of amounts that would be recoverable under Federal Deposit Insurance Corporation (“FDIC”) insurance.

Reclassifications

Certain reclassifications have been made to amounts previously reported to conform to current period presentation.

Recent Accounting Pronouncements

Pronouncements Issued

In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 13, Financial Instruments – Credit Losses, which sets forth a current expected credit loss (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In July 2019, the FASB issued a proposal to delay the implementation for smaller reporting companies such as us until January 2023. In October, 2019, that proposal was finalized with the issuance of ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-05 was issued to address concerns with the adoption of ASU 2016-13. ASU 2019-05 gives entities the ability to irrevocably elect the fair value option in Subtopic 825-10 for certain existing financial assets upon transition to ASU 2016-03. Financial assets that are eligible for this fair value election are those that qualify under Subtopic 825-10 and are within the scope of Subtopic 326-10, Financial Instruments - Credit Losses - Measured at Amortized Costs. An exception to this is held-to-maturity (“HTM”) debt securities, which do not qualify for this transition election. The effective date for the amendment is the same as the effective date in ASU 2016-03. In November 2019, FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 was issued to defer the effective dates for certain guidance for certain entities. The amendments in this update amend the mandatory effective dates for ASC 326, Financial Instruments - Credit Losses, for entities eligible to be smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim reporting periods within that reporting period.

We have contracted with a third party vendor to assist in the transition to CECL. The Bank has purchased the third party vendor’s CECL software and has separately contracted with their advisory services group to help with the installation and transition. As the Bank has been using other software of this specific vendor, they have access to the Bank’s historical data. The Bank has been updating the data and the process by which data will be transferred to the third party vendor, so that they have all of the information necessary for CECL calculations. This process is complete. The next stage in the process is to convert to the vendor’s incurred loss model, which must be completed prior to the final conversion to CECL. This process is almost complete. Management, in conjunction with the third party vendor, has also begun determining which economic factors are most directly responsible for the Bank’s historical losses. The third party vendor has also started to recommend pools to be used for CECL calculations, and appropriate methods (as prescribed by CECL) to calculate the reserve for the various pools. As the third party vendor has many financial institution clients, they will be able to provide peer group data to the extent the Bank’s data is not sufficient to make the many determinations required under CECL.

Although the implementation of CECL has been delayed, the Bank is continuing with the implementation at a pace to ensure that we will be in position to completely transition to CECL by the required date.  

While we are currently in the process of evaluating the impact of the amended guidance on our Consolidated Financial Statements, it is quite possible that the Allowance will increase upon adoption given that the Allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of our loan portfolio at the time of adoption.

In November 2019, FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2019-11 was issued to address issues raised by stakeholders during the implementation of ASU 2016-13. ASU 2019-11 provides transition relief when adjusting the effective interest rate for troubled debt restructure loans (“TDR” or “TDRs”) that exist as of the adoption date, extends the disclosure relief in ASU 2019-04 to disclose accrued interest receivable balances separately from the amortized cost basis to additional disclosures involving amortized cost basis, and provides clarification regarding application of the guidance in paragraph 326-20-35-6 for financial assets secured by collateral maintenance provisions that provide a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of a financial asset and the fair value of collateral securing the financial asset as of the reporting date. The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13.

In December 2019, FASB issued ASU No. 2019-12, Simplifying the Accounting for Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions in the current codification. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2019 12 is not expected to have a material impact on our financial position, results of operations, or cash flows.

In January 2020, FASB issued ASU No. 2020-01, Investments – Equity securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and  Derivatives and Hedging (Topic 815), which clarifies the interaction between the three Topics. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2020 01 is not expected to have a material impact on our financial position, results of operations, or cash flows.

v3.20.2
Securities
6 Months Ended
Jun. 30, 2020
Securities [Abstract]  
Securities

Note 2 - Securities

The amortized cost and fair values of our available-for-sale (“AFS”) securities portfolio were as follows:

    

June 30, 2020

Amortized

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

3,017

$

50

$

$

3,067

Corporate obligations

2,000

16

1,984

Mortgage-backed securities

10,644

156

45

10,755

$

15,661

$

206

$

61

$

15,806

    

December 31, 2019

Amortized

    

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

5,017

$

2

$

$

5,019

Mortgage-backed securities

7,951

64

7,887

$

12,968

$

2

$

64

$

12,906

The amortized cost and fair values of our HTM securities portfolio were as follows:

June 30, 2020

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

998

$

12

$

$

1,010

U.S. government agency notes

 

2,985

 

171

 

 

3,156

Mortgage-backed securities

 

17,327

 

616

 

 

17,943

$

21,310

$

799

$

$

22,109

December 31, 2019

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

994

$

14

$

$

1,008

U.S. government agency notes

 

4,986

 

100

 

5

 

5,081

Mortgage-backed securities

 

19,980

 

114

 

25

 

20,069

$

25,960

$

228

$

30

$

26,158

Gross unrealized losses and fair value by length of time that the individual AFS securities have been in an unrealized loss position at the dates indicated are presented in the following tables:

June 30, 2020

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Corporate obligations

1

$

1,984

$

16

$

$

1

$

1,984

$

16

Mortgage-backed securities

3

 

3,618

 

45

 

 

3

 

3,618

 

45

4

$

5,602

$

61

$

$

4

$

5,602

$

61

December 31, 2019

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Mortgage-backed securities

7

$

7,887

$

64

$

$

7

$

7,887

$

64

7

$

7,887

$

64

$

$

7

$

7,887

$

64

Gross unrealized losses and fair value by length of time that the individual HTM securities have been in an unrealized loss position at the dates indicated are presented in the following table as of December 31, 2019. There were no HTM securities in an unrealized loss position as of June 30, 2020.

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

U.S. government agency notes

$

$

3

$

3,003

$

5

3

3,003

5

Mortgage-backed securities

2

 

2,544

 

17

2

 

1,238

 

8

4

 

3,782

 

25

2

$

2,544

$

17

5

$

4,241

$

13

7

$

6,785

$

30

All of the securities that are currently in a gross unrealized loss position are so due to declines in fair values resulting from changes in interest rates or increased liquidity spreads since the time they were purchased. We have the intent and ability to hold these debt securities to maturity (including the AFS securities) and do not intend to sell, nor do we believe it will be more likely than not that we will be required to sell, any impaired securities prior to a recovery of amortized cost. We

expect these securities will be repaid in full, with no losses realized. As such, management considers any impairment to be temporary.

Contractual maturities of debt securities at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

AFS Securities

HTM Securities

    

Amortized

    

Fair

    

Amortized

    

Fair

Cost

Value

Cost

Value

(dollars in thousands)

Due in one year or less

$

1,002

$

1,006

$

2,001

$

2,017

Due after one through five years

 

 

 

1,982

 

2,149

Due after five years through ten years

 

4,015

 

4,045

 

 

Mortgage-backed securities

 

10,644

 

10,755

 

17,327

 

17,943

$

15,661

$

15,806

$

21,310

$

22,109

We did not sell any securities during the three or six months ended June 30, 2020 or 2019.

There were no securities pledged as collateral as of June 30, 2020 or December 31, 2019.

v3.20.2
Loans Receivable and Allowance for Loan Losses
6 Months Ended
Jun. 30, 2020
Loans Receivable and Allowance for Loan Losses [Abstract]  
Loans Receivable and Allowance for Loan Losses

Note 3 - Loans Receivable and Allowance for Loan Losses

Loans receivable are summarized as follows:

    

June 30, 2020

    

December 31, 2019

(dollars in thousands)

Residential mortgage

$

237,266

$

269,654

Commercial

 

87,931

 

43,127

Commercial real estate

 

225,588

 

229,257

Construction, land acquisition, and development

 

100,812

 

92,822

Home equity/2nds

 

12,027

 

12,031

Consumer

 

1,384

 

1,541

Total loans receivable, before net unearned fees

 

665,008

 

648,432

Unearned loan fees

 

(3,636)

 

(2,747)

Loans receivable

$

661,372

$

645,685

Certain loans in the amount of $143.2 million have been pledged under a blanket floating lien to the Federal Home Loan Bank of Atlanta (“FHLB”) as collateral against advances at June 30, 2020.

At June 30, 2020, the Bank was servicing $63.0 million in loans for the Federal National Mortgage Association (“FNMA”) and $20.1 million in loans for the Federal Home Loan Mortgage Corporation (“FHLMC”). At December 31, 2019, the Bank was servicing $25.9 million in loans for FNMA and $13.0 million in loans for FHLMC. These loans are not included in the table above. Also not included in the table above were mortgage-servicing rights (“MSRs”) of $615,000 and $323,000 as of June 30, 2020 and December 31, 2019, respectively.

Credit Quality

An Allowance is provided through charges to income in an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible based on evaluations of the collectability of loans and prior loan loss experience. Management has an established methodology to determine the adequacy of the Allowance that assesses the risks and losses inherent in the loan portfolio. The methodology takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers’ ability to pay. Determining the amount of the Allowance requires the use of estimates and assumptions. Actual results could differ significantly from those estimates. While management uses all

available information to estimate losses on loans, future additions to the Allowance may be necessary based on changes in economic conditions and our actual loss experience. In addition, various regulatory agencies periodically review the Allowance as an integral part of their examination process. Such agencies may require us to recognize additions to the Allowance based on their judgments about information available to them at the time of their examination. Management believes the Allowance is adequate as of June 30, 2020 and December 31, 2019.

For purposes of determining the Allowance, we have segmented our loan portfolio by product type. Our portfolio loan segments are residential mortgage, commercial, commercial real estate, construction, land acquisition, and development (“ADC”), Home equity/2nds, and consumer. We have looked at all segments and have determined that no additional subcategorization is warranted based upon our consideration of risk. Our portfolio classes are the same as our portfolio segments.

Inherent Credit Risks

The inherent credit risks within the loan portfolio vary depending upon the loan class as follows:

Residential mortgage - secured by one to four family dwelling units. The loans generally have limited risk as they are secured by first mortgages on the unit, which are generally the primary residence of the borrower, and are generally at a loan-to-value ratio (“LTV”) of 80% or less.

Commercial - underwritten in accordance with our policies and include evaluating historical and projected profitability and cash flow to determine the borrower’s ability to repay the obligation as agreed. Commercial loans are made primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral supporting the loan. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. These loans are viewed primarily as cash flow dependent and, secondarily, as loans secured by real-estate and/or other assets. Repayment of these loans is generally dependent upon the principal business conducted on the property securing the loan. Line of credit loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates line of credit loans based on collateral and risk-rating criteria.

U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) - We are participating in the PPP and began origination of such loans that are expected to be 100% guaranteed by the SBA early in the second quarter of 2020. This loan program was designed to assist our commercial customers in remaining operational during this time of uncertainty surrounding the COVID-19 pandemic. As of June 30, 2020, we held $46.5 million in PPP loans in our loan portfolio, all of which have an interest forbearance piece.

Commercial real estate - subject to the underwriting standards and processes similar to commercial, in addition to those underwriting standards for real estate loans. These loans are viewed primarily as loans secured by real estate and secondarily as cash flow dependent. As repayment of these loans is generally dependent upon the successful operation of the property securing the loan, we look closely at the cash flows generated by the property securing the loan, although the primary underwriting criteria for these loan types is the sufficient value of the underlying collateral. Commercial real estate loans may be adversely affected by conditions in the real estate markets or the economy in general. Management monitors and evaluates commercial real estate loans based on collateral and risk-rating criteria. The Bank also utilizes third-party experts to provide environmental and market valuations. The nature of commercial real estate loans makes them more difficult to monitor and evaluate.

ADC - underwritten in accordance with our underwriting policies which include a financial analysis of the developers, property owners, construction cost estimates, and independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project rather than the ability of the borrower or guarantor to repay principal and interest. Additionally, land is underwritten according to our policies which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development. These cost and valuation estimates may be inaccurate.

The sources of repayment of these loans is typically permanent financing expected to be obtained upon completion or sales of developed property. These loans are closely monitored by onsite inspections and are considered to be of a higher risk than other real estate loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term financing, interest rate sensitivity, and governmental regulation of real property.

If the Bank is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that the Bank will be able to recover all of the unpaid balance of the loan as well as related foreclosure and holding costs. In addition, the Bank may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time.

Home equity/2nds - subject to the underwriting standards and processes similar to residential mortgages and secured by one to four family dwelling units. Home equity/2nds loans have greater risk than residential mortgages as a result of the Bank generally being in a second lien position.

Consumer - consist of loans to individuals through the Bank’s retail network and typically unsecured or secured by personal property. Consumer loans have a greater credit risk than residential loans because of the lower value of the underlying collateral, if any.

COVID-19 - The COVID-19 pandemic has created additional risk for all loan segments due to the economic downturn, both nationally and locally. Many business were temporarily shut down and many people were unemployed during the national and local “stay at home” orders that were in place in many areas during the beginning of the second quarter of 2020. Although most “stay at home” orders have since been lifted, many businesses are operating at significantly reduced capacities and many people remain unemployed. During this time of economic uncertainty, borrowers have faced and could continue to face extended periods of unemployment and may not be able to meet their loan obligations. Additionally, real estate collateral values could significantly decline and full repayment of loans could be in doubt. We have adjusted some of our economic qualitative factors that affect our Allowance calculation to reflect our best estimate of these risks. Management will continue to evaluate the adequacy of the Allowance as more economic data becomes available and as changes within our portfolio are known. The effects of the pandemic may require us to fund additional increases in the Allowance in future periods.

Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to U.S. GAAP in certain circumstances. In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification is not subject to classification as a TDR.

CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to both qualified commercial and consumer loan borrowers. Due to the widespread impact of COVID-19, we have had loan borrowers seek loan forbearance or loan modification agreements under the CARES Act. We modified $96.6 million in loans under the CARES Act during the six months ended June 30, 2020. We have recorded $166,000 in interest that has not yet been collected on these loans due to the forbearance agreements.

The following tables present, by portfolio segment, the changes in the Allowance and the recorded investment in loans:

Three Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,484

$

1,565

$

1,040

$

2,615

$

151

$

$

63

$

7,918

Charge-offs

 

 

 

 

 

 

 

 

Recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

Net recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

(Reversal of) provision for loan losses

 

(239)

109

(32)

174

13

 

 

(25)

 

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Six Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Charge-offs

 

 

 

 

 

 

(15)

 

 

(15)

Recoveries

 

180

 

8

 

102

 

 

3

 

3

 

 

296

Net recoveries (charge-offs)

 

180

 

8

 

102

 

 

3

 

(12)

 

 

281

(Reversal of) provision for loan losses

 

(22)

248

(8)

503

28

 

12

 

(11)

 

750

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending balance - individually evaluated for impairment

$

675

$

$

60

$

29

$

$

$

$

764

Ending balance - collectively evaluated for impairment

 

1,747

1,677

1,018

2,760

165

38

 

7,405

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending loan balance -individually evaluated for impairment

$

12,713

$

$

1,278

$

385

$

526

$

65

$

14,967

Ending loan balance -collectively evaluated for impairment

 

224,553

 

87,931

 

224,310

 

100,427

 

11,501

 

1,319

 

650,041

$

237,266

$

87,931

$

225,588

$

100,812

$

12,027

$

1,384

$

665,008

December 31, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Ending balance - individually evaluated for impairment

$

752

$

$

64

$

32

$

2

$

$

$

850

Ending balance - collectively evaluated for impairment

 

1,512

 

1,421

 

920

 

2,254

 

132

 

 

49

 

6,288

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Ending loan balance - individually evaluated for impairment

$

11,517

$

$

1,221

$

880

$

563

$

69

$

14,250

Ending loan balance - collectively evaluated for impairment

 

258,137

 

43,127

 

228,036

 

91,942

 

11,468

 

1,472

 

634,182

$

269,654

$

43,127

$

229,257

$

92,822

$

12,031

$

1,541

$

648,432

Three Months Ended June 30, 2019

  

Residential

  

  

Commercial

  

  

Home Equity/

  

  

  

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,572

$

1,740

$

712

$

2,579

$

242

$

1

$

239

$

8,085

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

3

 

 

33

 

 

4

 

 

 

40

Net (charge-offs) recoveries

 

(17)

 

 

33

 

 

4

 

(12)

 

 

8

Provision for (reversal of) loan losses

 

11

 

(174)

 

47

 

104

 

(23)

 

11

 

24

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Six Months Ended June 30, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,224

$

2,736

$

457

$

2,239

$

222

$

1

$

165

$

8,044

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

8

 

 

67

 

 

6

 

 

 

81

Net (charge-offs) recoveries

 

(12)

 

 

67

 

 

6

 

(12)

 

 

49

Provision for (reversal of) loan losses

 

354

 

(1,170)

 

268

 

444

 

(5)

 

11

 

98

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending balance - individually evaluated for impairment

$

889

$

$

67

$

32

$

24

$

$

$

1,012

Ending balance - collectively evaluated for impairment

 

1,677

 

1,566

 

725

 

2,651

 

199

 

 

263

 

7,081

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending loan balance - individually evaluated for impairment

$

13,205

$

$

1,889

$

1,119

$

859

$

72

$

17,144

Ending loan balance - collectively evaluated for impairment

 

262,808

 

45,347

 

236,810

 

107,063

 

11,722

 

1,549

 

665,299

$

276,013

$

45,347

$

238,699

$

108,182

$

12,581

$

1,621

$

682,443

The following tables present the credit quality breakdown of our loan portfolio by class:

June 30, 2020

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

 

(dollars in thousands)

Residential mortgage

$

231,224

$

$

6,042

 

$

237,266

Commercial

 

86,731

 

1,200

 

 

 

87,931

Commercial real estate

 

222,429

 

2,047

 

1,112

 

 

225,588

ADC

 

100,325

 

 

487

 

 

100,812

Home equity/2nds

 

11,906

 

 

121

 

 

12,027

Consumer

 

1,384

 

 

 

 

1,384

$

653,999

$

3,247

$

7,762

 

$

665,008

December 31, 2019

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

(dollars in thousands)

Residential mortgage

$

265,510

$

$

4,144

$

269,654

Commercial

 

41,927

 

1,200

 

 

43,127

Commercial real estate

 

225,363

 

2,835

 

1,059

 

229,257

ADC

 

92,304

 

 

518

 

92,822

Home equity/2nds

 

11,490

 

402

 

139

 

12,031

Consumer

 

1,541

 

 

 

1,541

$

638,135

$

4,437

$

5,860

$

648,432

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans:

June 30, 2020

Past Due

 

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

(dollars in thousands)

Residential mortgage

$

437

$

$

4,879

$

5,316

$

231,950

$

237,266

$

5,676

Commercial

 

 

 

 

 

87,931

 

87,931

 

Commercial real estate

 

7

 

112

 

307

 

426

 

225,162

 

225,588

 

307

ADC

 

 

125

 

 

125

 

100,687

 

100,812

 

131

Home equity/2nds

 

 

 

121

 

121

 

11,906

 

12,027

 

131

Consumer

 

 

 

 

 

1,384

 

1,384

 

$

444

$

237

$

5,307

$

5,988

$

659,020

$

665,008

$

6,245

December 31, 2019

Past Due

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

 

(dollars in thousands)

Residential mortgage

$

3,183

$

81

$

2,200

$

5,464

$

264,190

$

269,654

$

3,766

Commercial

 

 

 

 

 

43,127

 

43,127

 

Commercial real estate

 

 

 

126

 

126

 

229,131

 

229,257

 

237

ADC

 

 

89

 

 

89

 

92,733

 

92,822

 

89

Home equity/2nds

 

 

 

139

 

139

 

11,892

 

12,031

 

150

Consumer

 

 

15

 

 

15

 

1,526

 

1,541

 

$

3,183

$

185

$

2,465

$

5,833

$

642,599

$

648,432

$

4,242

We did not have any loans greater than 90 days past due and still accruing as of June 30, 2020 or December 31, 2019.

The interest which would have been recorded on the above nonaccrual loans if those loans had been performing in accordance with their contractual terms was approximately $547,000 and $382,000 for the six months ended June 30, 2020 and 2019, respectively. The actual interest earned on those loans amounted to $74,000 and $82,000 for the six months ended June 30, 2020 and 2019, respectively.

The following tables summarize impaired loans:

June 30, 2020

December 31, 2019

    

Unpaid

    

    

    

Unpaid

    

    

 

Principal

Recorded

Related

Principal

Recorded

Related

Balance

Investment

Allowance

Balance

Investment

Allowance

With no related Allowance:

(dollars in thousands)

Residential mortgage

$

9,025

$

8,780

$

$

7,258

$

7,035

$

Commercial

 

 

 

 

 

 

Commercial real estate

 

734

 

734

 

 

908

 

668

 

ADC

 

286

 

281

 

 

752

 

752

 

Home equity/2nds

 

939

 

526

 

 

996

 

553

 

Consumer

 

65

 

65

 

 

69

 

69

 

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

4,056

 

3,933

 

675

 

4,604

 

4,482

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

544

 

544

 

60

 

553

 

553

 

64

ADC

 

104

 

104

 

29

 

128

 

128

 

32

Home equity/2nds

 

 

 

 

12

 

10

 

2

Consumer

 

 

 

 

 

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

13,081

 

12,713

 

675

 

11,862

 

11,517

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

1,278

 

1,278

 

60

 

1,461

 

1,221

 

64

ADC

 

390

 

385

 

29

 

880

 

880

 

32

Home equity/2nds

 

939

 

526

 

 

1,008

 

563

 

2

Consumer

 

65

 

65

 

 

69

 

69

 

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

Recorded

Income

Recorded

Income

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

Investment

Recognized

Investment

Recognized

With no related Allowance:

 

(dollars in thousands)

Residential mortgage

$

8,835

$

53

$

7,197

$

81

$

8,860

$

133

$

6,950

$

160

Commercial

 

 

 

 

 

 

 

 

Commercial real estate

 

733

 

5

 

1,327

 

17

 

735

 

20

 

1,245

 

37

ADC

 

225

 

2

 

977

 

7

 

230

 

6

 

1,034

 

15

Home equity/2nds

 

337

 

8

 

834

 

17

 

345

 

15

 

844

 

30

Consumer

 

65

 

1

 

224

 

1

 

82

 

2

 

46

 

2

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

3,939

 

30

 

5,706

 

80

 

3,951

 

78

 

5,731

 

160

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

544

 

11

 

567

 

11

 

547

 

19

 

694

 

20

ADC

 

104

 

 

132

 

2

 

104

 

1

 

134

 

4

Home equity/2nds

 

 

 

34

 

 

 

 

19

 

1

Consumer

 

 

 

4

 

 

 

 

28

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

12,774

 

83

 

12,903

 

161

 

12,811

 

211

 

12,681

 

320

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

1,277

 

16

 

1,894

 

28

 

1,282

 

39

 

1,939

 

57

ADC

 

329

 

2

 

1,109

 

9

 

334

 

7

 

1,168

 

19

Home equity/2nds

 

337

 

8

 

868

 

17

 

345

 

15

 

863

 

31

Consumer

 

65

 

1

 

228

 

1

 

82

 

2

 

74

 

2

There were $1.4 million in consumer mortgage properties included in real estate acquired through foreclosure at December 31, 2019. There were no such properties at June 30, 2020. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction totaled $5.0 million as of June 30, 2020 and $2.3 million as of December 31, 2019.

TDRs

See discussion above in this Note regarding the CARES Act relating to loan modifications during the COVID-19 pandemic.

Our portfolio of TDRs was accounted for under the following methods:

June 30, 2020

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

28

$

6,966

 

1

$

82

 

29

$

7,048

Commercial real estate

 

2

 

971

 

 

 

2

 

971

ADC

 

1

 

129

 

 

 

1

 

129

Consumer

 

1

 

65

 

 

 

1

 

65

 

32

$

8,131

 

1

$

82

 

33

$

8,213

December 31, 2019

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

31

$

7,675

 

1

$

85

 

32

$

7,760

Commercial real estate

 

2

 

984

 

 

 

2

 

984

ADC

 

1

 

130

 

 

 

1

 

130

Consumer

 

2

 

69

 

 

 

2

 

69

 

36

$

8,858

 

1

$

85

 

37

$

8,943

There were no TDRs that defaulted during the three or six months ended June 30, 2020 or 2019 which were modified during the previous 12 month period.

We did not modify any loans that would qualify as TDRs during the three and six months ended June 30, 2020 or 2019.

v3.20.2
Regulatory Matters
6 Months Ended
Jun. 30, 2020
Regulatory Matters [Abstract]  
Regulatory Matters

Note 4 -  Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, federal bank regulatory agencies issued final rules to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and included transition provisions which implement certain portions of the rules through January 1, 2019. Under the final rules, the effects of certain accumulated other comprehensive income items are not

excluded, however, banking organizations like us that are not considered “advanced approaches” banking organizations may make a one-time permanent election to continue to exclude these items, which we have done.

The Basel III rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition, which we did on January 1, 2020. The CARES Act temporarily lowered this ratio to 8% beginning in the second quarter of 2020.  The ratio would then rise to 8.5% for 2021 until it re-establishes at 9% on January 1, 2022.

As of the date of our last regulatory exam, the Bank was considered “well capitalized” and as of June 30, 2020, the Bank continued to meet the requirements to be considered “well capitalized” based on applicable U.S. regulatory capital ratio requirements.

The Bank’s regulatory capital amounts and ratios were as follows:

Minimum

Minimum

To be Well

 

Requirements

Requirements

Capitalized Under

 

for Capital Adequacy

with Capital

Prompt Corrective

 

Actual

Purposes

Conservation Buffer

Action Provision

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

June 30, 2020

(dollars in thousands)

 

Community bank leverage ratio

$

118,713

 

13.8

%  

60,341

7.0

%

N/A

N/A

$

68,962

8.0

%

December 31, 2019

 

  

Common Equity Tier 1 Capital (to risk-weighted assets)

$

117,492

 

18.5

%  

$

28,617

 

4.5

%  

$

44,515

 

7.0

%  

$

41,336

 

6.5

%

Total capital (to risk-weighted assets)

 

124,619

 

19.6

%

 

50,875

 

8.0

%

 

66,773

 

10.5

%

 

63,593

 

10.0

%

Tier 1 capital (to risk-weighted assets)

 

117,492

 

18.5

%  

 

38,156

 

6.0

%  

 

54,054

 

8.5

%  

 

50,875

 

8.0

%

Tier 1 capital (to average quarterly assets)

 

117,492

 

13.4

%  

 

34,995

 

4.0

%  

 

56,867

 

6.5

%  

 

43,744

 

5.0

%

v3.20.2
Earnings Per Share
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share

Note 5 -  Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for each period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. There were 173,250 shares that were anti-dilutive for the three and six months ended June 30, 2020. There were no shares that were anti-dilutive for the three or six months ended June 30, 2019.

Information relating to the calculations of our income per common share is summarized as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

(dollars in thousands, except for per share data)

Weighted-average shares outstanding - basic

 

12,812,976

 

12,775,123

 

12,812,808

 

12,774,191

Dilution

 

5,580

 

87,168

 

21,540

 

85,789

Weighted-average share outstanding - diluted

 

12,818,556

 

12,862,291

 

12,834,348

 

12,859,980

Net income

$

1,737

$

2,176

$

2,302

$

4,785

Net income per share - basic

$

0.14

$

0.17

$

0.18

$

0.37

Net income per share - diluted

$

0.14

$

0.17

$

0.18

$

0.37

v3.20.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2020
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

Note 6 - Stock-Based Compensation

We maintain a stock-based compensation plan for directors, officers, and other key employees of the Company. The aggregate number of shares of common stock that could be issued with respect to the awards granted under the 2019 plan is 500,000. Under the terms of the 2019 stock-based compensation plan, the Company has the ability to grant various stock compensation incentives, including stock options, stock appreciation rights, and restricted stock. The 2019 stock-based compensation plan was granted under terms and conditions determined by the Compensation Committee of the Board of Directors. Under the 2019 stock-based compensation plan, stock options generally have a maximum term of ten years and are granted with an exercise price at least equal to the fair market value of the common stock on the date the options are granted. Generally, options granted to directors, officers, and employees of the Company vest over a five-year period, although the Compensation Committee has the authority to provide for different vesting schedules.

We account for stock-based compensation in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the Statement of Income at fair value. Additionally, we are required to recognize the expense of employee services received in share-based payment transactions and measure the expense based on the grant date fair value of the award. The expense is recognized over the period during which an employee is required to provide service in exchange for the award. Stock-based compensation expense included in the consolidated Statements of Income for both the three months ended June 30, 2020 and 2019 totaled $34,000. Stock-based compensation expense included in the consolidated Statements of Income for the six months ended June 30, 2020 and 2019 totaled $68,000 and $77,000, respectively. 

Information regarding our stock-based compensation plan is as follows as of and for the six months ended June 30:

2020

2019

    

    

    

Weighted-

    

    

    

    

Weighted-

    

 

Weighted-

Average

Aggregate

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Average

Remaining

Intrinsic

Number

Exercise

Contractual

Value

Number

Exercise

Contractual

Value

of Shares

Price

Term (in years)

(in thousands)

of Shares

Price

Term (in years)

(in thousands)

Outstanding at beginning of period

 

234,173

$

6.60

 

  

 

  

 

349,023

$

6.32

 

  

 

  

Granted

 

10,500

 

8.26

 

  

 

  

 

 

 

  

 

  

Exercised

 

(2,050)

 

6.78

 

  

 

$

 

(15,561)

 

5.25

 

  

 

$

54

Forfeited

 

(1,000)

 

7.10

 

  

 

  

 

(38,500)

 

6.41

 

  

 

  

Outstanding at end of period

 

241,623

$

6.67

 

2.4

$

75

 

294,962

$

6.37

 

3.0

$

684

Exercisable at end of period

 

171,356

$

6.39

 

2.0

$

75

 

179,200

$

5.95

 

2.3

$

492

The stock-based compensation expense amounts and fair values of options at the time of the grants were derived using the Black-Scholes option-pricing model. The following weighted average assumptions were used to value options granted for the six months ended June 30, 2020. There were no options granted in 2019.

Expected life

    

5.5 years

 

Risk-free interest rate

0.95

%  

Expected volatility

27.83

%  

Expected dividend yield

$

1.95

 

Weighted average per share fair value of options granted

$

1.75

As of June 30, 2020, there was $209,000 of total unrecognized stock-based compensation expense related to nonvested stock options, which is expected to be recognized over the next 29 months.

v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

Note 7 - Commitments and Contingencies

Off-Balance Sheet Instruments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The contract amounts of these instruments express the extent of involvement we have in each class of financial instruments.

Our exposure to credit loss from nonperformance by the other party to the above mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless otherwise noted, we require collateral or other security to support financial instruments with off-balance sheet credit risk.

June 30, 

December 31, 

    

2020

    

2019

(dollars in thousands)

Standby letters of credit

$

2,806

$

3,325

Home equity lines of credit

 

15,417

 

16,917

Unadvanced construction commitments

 

67,170

 

79,378

Mortgage loan commitments

 

 

701

Lines of credit

 

25,553

 

16,501

Loans sold and serviced with limited repurchase provisions

 

65,234

 

76,536

Standby letters of credit are conditional commitments issued by the Bank guaranteeing performance by a customer to various municipalities. These guarantees are issued primarily to support performance arrangements and are limited to real estate transactions. The majority of these standby letters of credit expire within twelve months, with automatic one year renewals. The Bank has the option to stop any automatic renewal. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management believes, except for certain standby letters of credit, that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of June 30, 2020 and December 31, 2019 for guarantees under standby letters of credit issued was $10,000 and $14,000, respectively.

Home equity lines of credit are loan commitments to individuals as long as there is no violation of any condition established in the contract. Commitments under home equity lines expire ten years after the date the loan closes and are secured by real estate. We evaluate each customer’s credit worthiness on a case-by-case basis.

Unadvanced construction commitments are loan commitments made to borrowers for both residential and commercial projects that are either in process or are expected to begin construction shortly.

Residential mortgage loan commitments at December 31, 2019 not reflected in the accompanying statements of financial condition included three loans totaling $701,000. No such commitments existed at June 30, 2020.

Lines of credit are loan commitments to individuals and companies as long as there is no violation of any condition established in the contract. Lines of credit have a fixed expiration date. The Bank evaluates each customer’s credit worthiness on a case-by-case basis.

The Bank has entered into several agreements to sell mortgage loans to third parties. These agreements contain limited provisions that require the Bank to repurchase a loan if the loan becomes delinquent within a period ranging generally from 120 to 180 days after the sale date depending on the investor agreement. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers. We did not repurchase any loans during the six months ended June 30, 2020 or 2019.

Other Contingencies

The Company provides banking services to customers who do business in the medical-use cannabis industry. While the growing, processing, and sales of medical-use cannabis is legal in the state of Maryland, the business currently violates Federal law. The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers. The strict enforcement of Federal laws regarding medical-use cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the Federal government, including imprisonment and fines. There is an uncertainty of the potential impact to the Company’s consolidated financial statements if the Federal government takes actions against the Company. As of June 30, 2020, the Company has not accrued an amount for the potential impact of any such actions.

Following is a summary of the level of business activities with our medical-use cannabis customers:

•  Deposit and loan balances at June 30, 2020 were approximately $41.0 million, or 5.5% of total deposits, and $17.1 million, or 2.6% of total loans, respectively. Deposit and loan balances at December 31, 2019 were approximately $22.8 million, or 3.4% of total deposits, and $14.0 million, or 2.2% of total loans, respectively.

Interest and noninterest income for the three months ended June 30, 2020 were approximately $358,000 and $1.1 million, respectively. Interest and noninterest income for the three months ended June 30, 2019 were approximately $233,000 and $491,000, respectively.

Interest and noninterest income for the six months ended June 30, 2020 were approximately $513,000 and $1.6 million, respectively. Interest and noninterest income for the six months ended June 30, 2019 were approximately $428,000 and $941,000, respectively.

The volume of deposits in the accounts of medical-use cannabis customers for the three and six months ended June 30, 2020 was approximately $132.0 million and $232.8 million, respectively. The volume of deposits in the accounts of medical-use cannabis customers for the three and six months ended June 30, 2019 was approximately $56.6 million and $106.1 million, respectively.

v3.20.2
Derivatives
6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

Note 8 - Derivatives

We maintain and account for derivatives, in the form of interest-rate lock commitments (“IRLCs”) and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities. We recognize gains and losses on IRLCs, mandatory forward contracts, and best effort forward contracts on the loan pipeline through mortgage-banking revenue in the Consolidated Statements of Income.

IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives. We are exposed to price risk from the time a mortgage loan closes until the time the loan is sold. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 60 days. For these IRLCs, we attempt to protect the Bank from changes in interest rates through the use of best efforts and mandatory forward contracts.

Mandatory forward contracts are also considered derivatives and are reported in the table below. Best efforts forward contracts are not derivatives, however, we have elected to measure and report these commitments at fair value. These assets and liabilities are included in the Consolidated Statements of Financial Condition in other assets and accrued expenses and other liabilities, respectively.

Information pertaining to the carrying amounts of our derivative financial instruments follows:

June 30, 2020

December 31, 2019

    

Notional

    

Estimated

    

Notional

    

Estimated

Amount

Fair Value

Amount

Fair Value

(dollars in thousands)

Asset - IRLCs

$

30,087

$

546

$

7,645

$

179

Asset - mandatory forward contracts

 

5,235

 

49

 

10,591

 

23

Liability - mandatory forward contracts

5,826

70

v3.20.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2020
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments

Note 9 - Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

A fair value hierarchy that prioritizes the inputs to valuation methods is used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair market hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

We record transfers between levels at the end of the reporting period in which the change in significant inputs occurs.

Assets Measured on a Recurring Basis

The following table presents fair value measurements for assets that are measured at fair value on a recurring basis as of and for the six months ended June 30, 2020:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

3,067

$

$

3,067

$

$

AFS Securities - corporate obligations

1,984

1,984

AFS Securities - mortgage-backed securities

10,755

10,755

Mortgage loans held for sale ("LHFS")

 

11,429

 

 

11,429

 

 

49

MSRs

 

615

 

 

 

615

 

(496)

IRLCs

 

546

 

 

 

546

 

367

Best efforts forward contracts

 

96

 

 

96

 

 

64

Mandatory forward contracts

 

49

 

 

49

 

 

11

Liabilities:

Mandatory forward contracts

 

70

 

 

70

 

 

(55)

Best efforts forward contracts

 

141

 

 

141

 

 

(132)

The following table presents fair value measurements for assets and liabilities that are measured at fair value on a recurring basis as of and for the year ended December 31, 2019:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

5,019

$

$

5,019

$

$

AFS Securities - mortgage-backed securities

7,887

7,887

LHFS

 

10,910

 

 

10,910

 

 

(5)

MSRs

 

323

 

 

 

323

 

(114)

IRLCs

 

179

 

 

 

179

 

79

Mandatory forward contracts

23

 

23

 

39

Best efforts forward contracts

23

 

23

 

23

The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

    

Fair Value

    

Valuation

    

Unobservable

    

Range

 

Estimate

Technique

Input

(Weighted-Average)

 

June 30, 2020:

 

(dollars in thousands)

 

  

 

  

MSRs (1)

$

615

 

Market Approach

 

Weighted average prepayment speed (PSA) (2)

 

302

IRLCs - net asset

546

Market Approach

Range of pull through rate

70% - 100

%

Average pull through rate

88

%

  

 

  

 

  

 

  

 

  

December 31, 2019:

 

  

 

  

 

  

 

  

MSRs (1)

$

323

 

Market Approach

 

Weighted average prepayment speed (CPR) (2)

 

11.10

%

IRLCs - net asset

179

 

Market Approach

 

Range of pull through rate

70% - 95

%

Average pull through rate

83

%

(1)The weighted average was calculated with reference to the principal balance of the underlying mortgages.
(2)PSA = Public Securities Association Standard Prepayment Model; CPR = Conditional Prepayment Rate

The following table shows the activity in the MSRs:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

240

$

400

$

323

$

437

Additions

788

788

Valuation adjustment

(413)

(57)

(496)

(94)

Ending balance

$

615

$

343

$

615

$

343

The following table shows the activity in the IRLCs:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

(61)

$

335

$

179

$

100

Valuation adjustment

607

10

367

245

Ending balance

$

546

$

345

$

546

$

345

AFS Securities

The estimated fair values of AFS debt securities are obtained from a nationally-recognized pricing service. This pricing service develops estimated fair values by analyzing like securities and applying available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to prepare valuations. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things, and are based on market data obtained from sources independent from the Bank. U.S Treasury Securities are considered Level 1 and all of our other securities are considered Level 2. The Level 2 investments in the Bank’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing service, reflect the assumptions that market participants would use to price the assets. The Bank has determined that the Level 2 designation is appropriate for these securities because, as with most fixed-income securities, those in the Bank’s portfolio are not exchange-traded, and such nonexchange-traded fixed income securities are typically priced by correlation to observed market data.

LHFS

LHFS are carried at fair value, which is determined based on outstanding investor commitments or, in the absence of such commitments, on current investor yield requirements or third party pricing models. 

MSRs

The fair value of MSRs is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income, and other ancillary income such as late fees. Management reviews all significant assumptions on a monthly basis. Mortgage loan prepayment speed, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change. In the second quarter of 2020, we changed third party vendors. The new vendor expresses the average prepayment speed in PSAs instead of CPRs as the former vendor expressed it.

IRLCs

We utilize a third party specialist model to estimate the fair value of our IRLCs, which are valued based upon mandatory pricing quotes from correspondent lenders less estimated costs to process and settle the loan. Fair value is adjusted for the estimated probability of the loan closing with the borrower.

Forward Contracts

To avoid interest rate risk, we enter into best efforts forward sales commitments with investors at the time we make an IRLC to a borrower. Once a loan has been closed and funded, the best efforts commitments convert to mandatory forward sales commitments. The mandatory commitments are derivatives, and the bank measures and reports them at fair value. Fair value is based on the gain or loss that would occur if we were to pair-off the transaction with the investor at the measurement date. This is a level 2 input. We have elected to measure and report best efforts commitments at fair value using a valuation methodology similar to that used for our mandatory commitments.

Assets Measured on a Nonrecurring Basis

June 30, 2020

 

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

 

(dollars in thousands)

Impaired loans

$

3,817

$

$

$

3,817

 

0% - 14%

7

%

December 31, 2019

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

  

(dollars in thousands)

Impaired loans

$

4,437

$

$

$

4,437

 

0% - 160%

8

%

Real estate acquired through foreclosure

 

1,174

 

 

 

1,174

 

0% - 16%

10

%

(1)Discount based on current market conditions and estimated selling costs
(2)Inputs are weighted based on the relative fair values of the instruments

Impaired Loans

Impaired loans are those for which we have measured impairment based on the present value of expected future cash flows or on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. If it is determined that the repayment of the loan will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment, the loan is considered collateral dependent. Impaired loans that are considered collateral dependent are carried at lower-of-cost-or-market (“LCM”). Collateral may be in the form of real estate or business assets including equipment, inventory, and/or accounts receivable. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

For such loans that are classified as impaired, an Allowance is established when the present value of the expected future cash flows of the impaired loan is lower than the carrying value of that loan. For such impaired loans that are classified as collateral dependent, an Allowance is established when the current market value of the underlying collateral less its estimated disposal costs has not been finalized, but management determines that it is likely that the value is lower than the carrying value of that loan. Once the net collateral value has been determined, a charge-off is taken for the difference between the net collateral value and the carrying value of the loan.

Real Estate Acquired Through Foreclosure

We record foreclosed real estate assets at the fair value less estimated selling costs on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. We generally obtain certified external appraisals of real estate acquired through foreclosure and estimate fair value using those appraisals. Other valuation sources may be used, including broker price opinions, letters of intent, and executed sale agreements.

Fair Value of All Financial Instruments

The carrying value and fair value of all financial instruments are summarized in the following tables:

June 30, 2020

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands)

Cash and cash equivalents

$

168,470

$

168,470

$

$

$

168,470

Certificates of deposit held for investment

6,074

 

6,074

 

 

 

6,074

AFS securities

 

15,806

 

 

15,806

 

 

15,806

HTM securities

 

21,310

 

1,010

 

21,099

 

 

22,109

LHFS

 

11,429

 

 

11,429

 

 

11,429

Loans receivable, net

 

653,203

 

 

 

654,599

 

654,599

Restricted stock investments

 

2,299

 

 

2,299

 

 

2,299

Accrued interest receivable

 

2,478

 

 

2,478

 

 

2,478

MSRs

 

615

 

 

 

615

 

615

IRLCs

 

546

 

 

 

546

 

546

Mandatory forward contracts

 

49

 

 

49

 

 

49

Best effort forward contracts

 

96

 

 

96

 

 

96

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

748,916

 

 

753,085

 

 

753,085

Accrued interest payable

 

276

 

 

276

 

 

276

Borrowings

 

35,000

 

 

35,437

 

 

35,437

Subordinated debentures

 

20,619

 

 

 

16,298

 

16,298

Mandatory forward contracts

70

 

70

 

 

70

Best effort forward contracts

 

141

 

 

141

 

 

141

December 31, 2019

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands) 

Cash and cash equivalents

$

88,193

$

88,193

$

$

$

88,193

Certificates of deposit held for investment

7,540

 

7,540

 

 

 

7,540

AFS securities

 

12,906

 

 

12,906

 

 

12,906

HTM securities

 

25,960

 

1,008

 

25,150

 

 

26,158

LHFS

 

10,910

 

 

10,910

 

 

10,910

Loans receivable, net

 

638,547

 

 

 

647,238

 

647,238

Restricted stock investments

 

2,431

 

 

2,431

 

 

2,431

Accrued interest receivable

 

2,458

 

 

2,458

 

 

2,458

MSRs

 

323

 

 

 

323

 

323

IRLCs

 

179

 

 

 

179

 

179

Mandatory forward contracts

 

23

 

 

23

 

23

Best effort forward contracts

 

23

 

 

23

 

23

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

661,049

 

 

662,418

 

 

662,418

Accrued interest payable

 

317

 

 

317

 

317

Borrowings

 

35,000

 

 

35,063

 

 

35,063

Subordinated debentures

 

20,619

 

 

 

16,754

16,754

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates do not reflect any premium or discount that could result from a one-time sale of our total holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect estimates. The above information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of our assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between our disclosures and those of other companies may not be meaningful.

There were no transfers between any of Levels 1, 2 and 3 for the six months ended June 30, 2020 or 2019 or for the year ended December 31, 2019.

v3.20.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2020
Summary of Significant Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The accounting and reporting policies of Severn Bancorp, Inc. and subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) and prevailing practices within the financial services industry for interim financial information and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements and prevailing practices within the banking industry. In the opinion of management, all adjustments (comprising only of those of a normal recurring nature) necessary for a fair presentation of the results of operations for the interim periods presented have been made. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other interim or future period. Events occurring after the date of the financial statements up to the date the financial statements were available to be issued were considered in the preparation of the consolidated financial statements.

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

COVID-19 Risks and Uncertainties

COVID-19 Risks and Uncertainties

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the U.S. and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 has adversely impacted and could continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to a target range of 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income, noninterest income, credit quality, the allowance for loan losses (“Allowance”), and the provision for loan losses. Additionally, there could be a potential for goodwill impairment. Other financial impact could occur though such potential impact is unknown at this time.

Principles of Consolidation

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Severn Bancorp, Inc., and its wholly-owned subsidiaries, Mid-Maryland Title Company, Inc., SBI Mortgage Company, and Severn Savings Bank, FSB (the “Bank”), along with the Bank’s subsidiaries, Louis Hyatt, Inc., Homeowners Title and Escrow Corporation, Severn Financial Services Corporation, SSB Realty Holdings, LLC, SSB Realty Holdings II, LLC, and HS West, LLC. Also included are the accounts of SBI Mortgage Company’s subsidiary, Crownsville Development Corporation, and its subsidiary, Crownsville Holdings I, LLC. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have, or could have, a material impact on the carrying value of certain assets or on income. These estimates and assumptions affect the reported amounts of assets

and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The accounting policies we view as critical are those relating to the Allowance, the valuation of real estate acquired through foreclosure, and the valuation of deferred tax assets and liabilities.

Cash and Cash Equivalents

Cash Flows

For reporting purposes, assets grouped in the Consolidated Statements of Financial Condition under the captions “Cash and due from banks” and “Federal funds sold and interest-bearing deposits in other banks” are considered cash or cash equivalents. For financial statement purposes, these assets are carried at cost. Federal funds sold and interest-bearing deposits in other banks generally have overnight maturities and are in excess of amounts that would be recoverable under Federal Deposit Insurance Corporation (“FDIC”) insurance.

Reclassifications

Reclassifications

Certain reclassifications have been made to amounts previously reported to conform to current period presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Pronouncements Issued

In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 13, Financial Instruments – Credit Losses, which sets forth a current expected credit loss (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In July 2019, the FASB issued a proposal to delay the implementation for smaller reporting companies such as us until January 2023. In October, 2019, that proposal was finalized with the issuance of ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-05 was issued to address concerns with the adoption of ASU 2016-13. ASU 2019-05 gives entities the ability to irrevocably elect the fair value option in Subtopic 825-10 for certain existing financial assets upon transition to ASU 2016-03. Financial assets that are eligible for this fair value election are those that qualify under Subtopic 825-10 and are within the scope of Subtopic 326-10, Financial Instruments - Credit Losses - Measured at Amortized Costs. An exception to this is held-to-maturity (“HTM”) debt securities, which do not qualify for this transition election. The effective date for the amendment is the same as the effective date in ASU 2016-03. In November 2019, FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 was issued to defer the effective dates for certain guidance for certain entities. The amendments in this update amend the mandatory effective dates for ASC 326, Financial Instruments - Credit Losses, for entities eligible to be smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim reporting periods within that reporting period.

We have contracted with a third party vendor to assist in the transition to CECL. The Bank has purchased the third party vendor’s CECL software and has separately contracted with their advisory services group to help with the installation and transition. As the Bank has been using other software of this specific vendor, they have access to the Bank’s historical data. The Bank has been updating the data and the process by which data will be transferred to the third party vendor, so that they have all of the information necessary for CECL calculations. This process is complete. The next stage in the process is to convert to the vendor’s incurred loss model, which must be completed prior to the final conversion to CECL. This process is almost complete. Management, in conjunction with the third party vendor, has also begun determining which economic factors are most directly responsible for the Bank’s historical losses. The third party vendor has also started to recommend pools to be used for CECL calculations, and appropriate methods (as prescribed by CECL) to calculate the reserve for the various pools. As the third party vendor has many financial institution clients, they will be able to provide peer group data to the extent the Bank’s data is not sufficient to make the many determinations required under CECL.

Although the implementation of CECL has been delayed, the Bank is continuing with the implementation at a pace to ensure that we will be in position to completely transition to CECL by the required date.  

While we are currently in the process of evaluating the impact of the amended guidance on our Consolidated Financial Statements, it is quite possible that the Allowance will increase upon adoption given that the Allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of our loan portfolio at the time of adoption.

In November 2019, FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2019-11 was issued to address issues raised by stakeholders during the implementation of ASU 2016-13. ASU 2019-11 provides transition relief when adjusting the effective interest rate for troubled debt restructure loans (“TDR” or “TDRs”) that exist as of the adoption date, extends the disclosure relief in ASU 2019-04 to disclose accrued interest receivable balances separately from the amortized cost basis to additional disclosures involving amortized cost basis, and provides clarification regarding application of the guidance in paragraph 326-20-35-6 for financial assets secured by collateral maintenance provisions that provide a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of a financial asset and the fair value of collateral securing the financial asset as of the reporting date. The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13.

In December 2019, FASB issued ASU No. 2019-12, Simplifying the Accounting for Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions in the current codification. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2019 12 is not expected to have a material impact on our financial position, results of operations, or cash flows.

In January 2020, FASB issued ASU No. 2020-01, Investments – Equity securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and  Derivatives and Hedging (Topic 815), which clarifies the interaction between the three Topics. The standard is effective for fiscal years beginning after December 15, 2020. The adoption of ASU No. 2020 01 is not expected to have a material impact on our financial position, results of operations, or cash flows.

v3.20.2
Securities (Tables)
6 Months Ended
Jun. 30, 2020
Securities [Abstract]  
Amortized cost and fair value of investment securities AFS

The amortized cost and fair values of our available-for-sale (“AFS”) securities portfolio were as follows:

    

June 30, 2020

Amortized

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

3,017

$

50

$

$

3,067

Corporate obligations

2,000

16

1,984

Mortgage-backed securities

10,644

156

45

10,755

$

15,661

$

206

$

61

$

15,806

    

December 31, 2019

Amortized

    

Unrealized

    

Unrealized

    

Cost

Gains

Losses

Fair Value

(dollars in thousands)

U.S. government agency notes

$

5,017

$

2

$

$

5,019

Mortgage-backed securities

7,951

64

7,887

$

12,968

$

2

$

64

$

12,906

Amortized cost and fair value of investment securities held to maturity

The amortized cost and fair values of our HTM securities portfolio were as follows:

June 30, 2020

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

998

$

12

$

$

1,010

U.S. government agency notes

 

2,985

 

171

 

 

3,156

Mortgage-backed securities

 

17,327

 

616

 

 

17,943

$

21,310

$

799

$

$

22,109

December 31, 2019

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

Cost

Gains

Losses

Value

(dollars in thousands)

U.S. Treasury securities

$

994

$

14

$

$

1,008

U.S. government agency notes

 

4,986

 

100

 

5

 

5,081

Mortgage-backed securities

 

19,980

 

114

 

25

 

20,069

$

25,960

$

228

$

30

$

26,158

Schedule of AFS securities in an unrealized loss position

Gross unrealized losses and fair value by length of time that the individual AFS securities have been in an unrealized loss position at the dates indicated are presented in the following tables:

June 30, 2020

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Corporate obligations

1

$

1,984

$

16

$

$

1

$

1,984

$

16

Mortgage-backed securities

3

 

3,618

 

45

 

 

3

 

3,618

 

45

4

$

5,602

$

61

$

$

4

$

5,602

$

61

December 31, 2019

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

Mortgage-backed securities

7

$

7,887

$

64

$

$

7

$

7,887

$

64

7

$

7,887

$

64

$

$

7

$

7,887

$

64

Schedule of temporary impairment losses

Gross unrealized losses and fair value by length of time that the individual HTM securities have been in an unrealized loss position at the dates indicated are presented in the following table as of December 31, 2019. There were no HTM securities in an unrealized loss position as of June 30, 2020.

Less than 12 months

12 months or more

Total

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

    

# of

    

Fair

    

Unrealized

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

(dollars in thousands)

U.S. government agency notes

$

$

3

$

3,003

$

5

3

3,003

5

Mortgage-backed securities

2

 

2,544

 

17

2

 

1,238

 

8

4

 

3,782

 

25

2

$

2,544

$

17

5

$

4,241

$

13

7

$

6,785

$

30

Amortized cost and estimated fair value of debt securities

Contractual maturities of debt securities at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

AFS Securities

HTM Securities

    

Amortized

    

Fair

    

Amortized

    

Fair

Cost

Value

Cost

Value

(dollars in thousands)

Due in one year or less

$

1,002

$

1,006

$

2,001

$

2,017

Due after one through five years

 

 

 

1,982

 

2,149

Due after five years through ten years

 

4,015

 

4,045

 

 

Mortgage-backed securities

 

10,644

 

10,755

 

17,327

 

17,943

$

15,661

$

15,806

$

21,310

$

22,109

v3.20.2
Loans Receivable and Allowance for Loan Losses (Tables)
6 Months Ended
Jun. 30, 2020
Loans Receivable and Allowance for Loan Losses [Abstract]  
Summary of loans receivable

Loans receivable are summarized as follows:

    

June 30, 2020

    

December 31, 2019

(dollars in thousands)

Residential mortgage

$

237,266

$

269,654

Commercial

 

87,931

 

43,127

Commercial real estate

 

225,588

 

229,257

Construction, land acquisition, and development

 

100,812

 

92,822

Home equity/2nds

 

12,027

 

12,031

Consumer

 

1,384

 

1,541

Total loans receivable, before net unearned fees

 

665,008

 

648,432

Unearned loan fees

 

(3,636)

 

(2,747)

Loans receivable

$

661,372

$

645,685

Changes in allowance for loan losses and recorded investment

Three Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,484

$

1,565

$

1,040

$

2,615

$

151

$

$

63

$

7,918

Charge-offs

 

 

 

 

 

 

 

 

Recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

Net recoveries

 

177

 

3

 

70

 

 

1

 

 

 

251

(Reversal of) provision for loan losses

 

(239)

109

(32)

174

13

 

 

(25)

 

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Six Months Ended June 30, 2020

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Charge-offs

 

 

 

 

 

 

(15)

 

 

(15)

Recoveries

 

180

 

8

 

102

 

 

3

 

3

 

 

296

Net recoveries (charge-offs)

 

180

 

8

 

102

 

 

3

 

(12)

 

 

281

(Reversal of) provision for loan losses

 

(22)

248

(8)

503

28

 

12

 

(11)

 

750

Ending Balance

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending balance - individually evaluated for impairment

$

675

$

$

60

$

29

$

$

$

$

764

Ending balance - collectively evaluated for impairment

 

1,747

1,677

1,018

2,760

165

38

 

7,405

$

2,422

$

1,677

$

1,078

$

2,789

$

165

$

$

38

$

8,169

Ending loan balance -individually evaluated for impairment

$

12,713

$

$

1,278

$

385

$

526

$

65

$

14,967

Ending loan balance -collectively evaluated for impairment

 

224,553

 

87,931

 

224,310

 

100,427

 

11,501

 

1,319

 

650,041

$

237,266

$

87,931

$

225,588

$

100,812

$

12,027

$

1,384

$

665,008

December 31, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Ending balance - individually evaluated for impairment

$

752

$

$

64

$

32

$

2

$

$

$

850

Ending balance - collectively evaluated for impairment

 

1,512

 

1,421

 

920

 

2,254

 

132

 

 

49

 

6,288

$

2,264

$

1,421

$

984

$

2,286

$

134

$

$

49

$

7,138

Ending loan balance - individually evaluated for impairment

$

11,517

$

$

1,221

$

880

$

563

$

69

$

14,250

Ending loan balance - collectively evaluated for impairment

 

258,137

 

43,127

 

228,036

 

91,942

 

11,468

 

1,472

 

634,182

$

269,654

$

43,127

$

229,257

$

92,822

$

12,031

$

1,541

$

648,432

Three Months Ended June 30, 2019

  

Residential

  

  

Commercial

  

  

Home Equity/

  

  

  

 

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,572

$

1,740

$

712

$

2,579

$

242

$

1

$

239

$

8,085

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

3

 

 

33

 

 

4

 

 

 

40

Net (charge-offs) recoveries

 

(17)

 

 

33

 

 

4

 

(12)

 

 

8

Provision for (reversal of) loan losses

 

11

 

(174)

 

47

 

104

 

(23)

 

11

 

24

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Six Months Ended June 30, 2019

    

Residential

    

    

Commercial

    

    

Home Equity/

    

    

    

Mortgage

Commercial

Real Estate

ADC

2nds

Consumer

Unallocated

Total

(dollars in thousands)

Beginning Balance

$

2,224

$

2,736

$

457

$

2,239

$

222

$

1

$

165

$

8,044

Charge-offs

 

(20)

 

 

 

 

 

(12)

 

 

(32)

Recoveries

 

8

 

 

67

 

 

6

 

 

 

81

Net (charge-offs) recoveries

 

(12)

 

 

67

 

 

6

 

(12)

 

 

49

Provision for (reversal of) loan losses

 

354

 

(1,170)

 

268

 

444

 

(5)

 

11

 

98

 

Ending Balance

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending balance - individually evaluated for impairment

$

889

$

$

67

$

32

$

24

$

$

$

1,012

Ending balance - collectively evaluated for impairment

 

1,677

 

1,566

 

725

 

2,651

 

199

 

 

263

 

7,081

$

2,566

$

1,566

$

792

$

2,683

$

223

$

$

263

$

8,093

Ending loan balance - individually evaluated for impairment

$

13,205

$

$

1,889

$

1,119

$

859

$

72

$

17,144

Ending loan balance - collectively evaluated for impairment

 

262,808

 

45,347

 

236,810

 

107,063

 

11,722

 

1,549

 

665,299

$

276,013

$

45,347

$

238,699

$

108,182

$

12,581

$

1,621

$

682,443

Credit quality breakdown of loan portfolio by class

The following tables present the credit quality breakdown of our loan portfolio by class:

June 30, 2020

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

 

(dollars in thousands)

Residential mortgage

$

231,224

$

$

6,042

 

$

237,266

Commercial

 

86,731

 

1,200

 

 

 

87,931

Commercial real estate

 

222,429

 

2,047

 

1,112

 

 

225,588

ADC

 

100,325

 

 

487

 

 

100,812

Home equity/2nds

 

11,906

 

 

121

 

 

12,027

Consumer

 

1,384

 

 

 

 

1,384

$

653,999

$

3,247

$

7,762

 

$

665,008

December 31, 2019

    

    

Special

    

    

 

Pass

Mention

Substandard

Total

(dollars in thousands)

Residential mortgage

$

265,510

$

$

4,144

$

269,654

Commercial

 

41,927

 

1,200

 

 

43,127

Commercial real estate

 

225,363

 

2,835

 

1,059

 

229,257

ADC

 

92,304

 

 

518

 

92,822

Home equity/2nds

 

11,490

 

402

 

139

 

12,031

Consumer

 

1,541

 

 

 

1,541

$

638,135

$

4,437

$

5,860

$

648,432

Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans

June 30, 2020

Past Due

 

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

(dollars in thousands)

Residential mortgage

$

437

$

$

4,879

$

5,316

$

231,950

$

237,266

$

5,676

Commercial

 

 

 

 

 

87,931

 

87,931

 

Commercial real estate

 

7

 

112

 

307

 

426

 

225,162

 

225,588

 

307

ADC

 

 

125

 

 

125

 

100,687

 

100,812

 

131

Home equity/2nds

 

 

 

121

 

121

 

11,906

 

12,027

 

131

Consumer

 

 

 

 

 

1,384

 

1,384

 

$

444

$

237

$

5,307

$

5,988

$

659,020

$

665,008

$

6,245

December 31, 2019

Past Due

30-59

60-89

90+

Non-

    

Days

    

Days

    

Days

    

Total

    

Current

    

Total

    

Accrual

 

(dollars in thousands)

Residential mortgage

$

3,183

$

81

$

2,200

$

5,464

$

264,190

$

269,654

$

3,766

Commercial

 

 

 

 

 

43,127

 

43,127

 

Commercial real estate

 

 

 

126

 

126

 

229,131

 

229,257

 

237

ADC

 

 

89

 

 

89

 

92,733

 

92,822

 

89

Home equity/2nds

 

 

 

139

 

139

 

11,892

 

12,031

 

150

Consumer

 

 

15

 

 

15

 

1,526

 

1,541

 

$

3,183

$

185

$

2,465

$

5,833

$

642,599

$

648,432

$

4,242

Summary of Impaired loans

The following tables summarize impaired loans:

June 30, 2020

December 31, 2019

    

Unpaid

    

    

    

Unpaid

    

    

 

Principal

Recorded

Related

Principal

Recorded

Related

Balance

Investment

Allowance

Balance

Investment

Allowance

With no related Allowance:

(dollars in thousands)

Residential mortgage

$

9,025

$

8,780

$

$

7,258

$

7,035

$

Commercial

 

 

 

 

 

 

Commercial real estate

 

734

 

734

 

 

908

 

668

 

ADC

 

286

 

281

 

 

752

 

752

 

Home equity/2nds

 

939

 

526

 

 

996

 

553

 

Consumer

 

65

 

65

 

 

69

 

69

 

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

4,056

 

3,933

 

675

 

4,604

 

4,482

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

544

 

544

 

60

 

553

 

553

 

64

ADC

 

104

 

104

 

29

 

128

 

128

 

32

Home equity/2nds

 

 

 

 

12

 

10

 

2

Consumer

 

 

 

 

 

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

13,081

 

12,713

 

675

 

11,862

 

11,517

 

752

Commercial

 

 

 

 

 

 

Commercial real estate

 

1,278

 

1,278

 

60

 

1,461

 

1,221

 

64

ADC

 

390

 

385

 

29

 

880

 

880

 

32

Home equity/2nds

 

939

 

526

 

 

1,008

 

563

 

2

Consumer

 

65

 

65

 

 

69

 

69

 

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

2019

2020

2019

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

    

Average

    

Interest

Recorded

Income

Recorded

Income

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

Investment

Recognized

Investment

Recognized

With no related Allowance:

 

(dollars in thousands)

Residential mortgage

$

8,835

$

53

$

7,197

$

81

$

8,860

$

133

$

6,950

$

160

Commercial

 

 

 

 

 

 

 

 

Commercial real estate

 

733

 

5

 

1,327

 

17

 

735

 

20

 

1,245

 

37

ADC

 

225

 

2

 

977

 

7

 

230

 

6

 

1,034

 

15

Home equity/2nds

 

337

 

8

 

834

 

17

 

345

 

15

 

844

 

30

Consumer

 

65

 

1

 

224

 

1

 

82

 

2

 

46

 

2

With a related Allowance:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

3,939

 

30

 

5,706

 

80

 

3,951

 

78

 

5,731

 

160

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

544

 

11

 

567

 

11

 

547

 

19

 

694

 

20

ADC

 

104

 

 

132

 

2

 

104

 

1

 

134

 

4

Home equity/2nds

 

 

 

34

 

 

 

 

19

 

1

Consumer

 

 

 

4

 

 

 

 

28

 

Totals:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgage

 

12,774

 

83

 

12,903

 

161

 

12,811

 

211

 

12,681

 

320

Commercial

 

 

 

 

 

 

 

143

 

Commercial real estate

 

1,277

 

16

 

1,894

 

28

 

1,282

 

39

 

1,939

 

57

ADC

 

329

 

2

 

1,109

 

9

 

334

 

7

 

1,168

 

19

Home equity/2nds

 

337

 

8

 

868

 

17

 

345

 

15

 

863

 

31

Consumer

 

65

 

1

 

228

 

1

 

82

 

2

 

74

 

2

Schedule of Troubled Debt Restructure Loans

June 30, 2020

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

28

$

6,966

 

1

$

82

 

29

$

7,048

Commercial real estate

 

2

 

971

 

 

 

2

 

971

ADC

 

1

 

129

 

 

 

1

 

129

Consumer

 

1

 

65

 

 

 

1

 

65

 

32

$

8,131

 

1

$

82

 

33

$

8,213

December 31, 2019

    

    

    

    

    

Total

    

Total

Number of

Accrual

Number of

Nonaccrual

Number of

Balance of

Modifications

Status

Modifications

Status

Modifications

Modifications

(dollars in thousands)

Residential mortgage

 

31

$

7,675

 

1

$

85

 

32

$

7,760

Commercial real estate

 

2

 

984

 

 

 

2

 

984

ADC

 

1

 

130

 

 

 

1

 

130

Consumer

 

2

 

69

 

 

 

2

 

69

 

36

$

8,858

 

1

$

85

 

37

$

8,943

v3.20.2
Regulatory Matters (Tables)
6 Months Ended
Jun. 30, 2020
Regulatory Matters [Abstract]  
Bank's actual capital amounts and ratios

The Bank’s regulatory capital amounts and ratios were as follows:

Minimum

Minimum

To be Well

 

Requirements

Requirements

Capitalized Under

 

for Capital Adequacy

with Capital

Prompt Corrective

 

Actual

Purposes

Conservation Buffer

Action Provision

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

June 30, 2020

(dollars in thousands)

 

Community bank leverage ratio

$

118,713

 

13.8

%  

60,341

7.0

%

N/A

N/A

$

68,962

8.0

%

December 31, 2019

 

  

Common Equity Tier 1 Capital (to risk-weighted assets)

$

117,492

 

18.5

%  

$

28,617

 

4.5

%  

$

44,515

 

7.0

%  

$

41,336

 

6.5

%

Total capital (to risk-weighted assets)

 

124,619

 

19.6

%

 

50,875

 

8.0

%

 

66,773

 

10.5

%

 

63,593

 

10.0

%

Tier 1 capital (to risk-weighted assets)

 

117,492

 

18.5

%  

 

38,156

 

6.0

%  

 

54,054

 

8.5

%  

 

50,875

 

8.0

%

Tier 1 capital (to average quarterly assets)

 

117,492

 

13.4

%  

 

34,995

 

4.0

%  

 

56,867

 

6.5

%  

 

43,744

 

5.0

%

v3.20.2
Earnings Per Share (Tables)
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Earnings per share reconciliation

Information relating to the calculations of our income per common share is summarized as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

(dollars in thousands, except for per share data)

Weighted-average shares outstanding - basic

 

12,812,976

 

12,775,123

 

12,812,808

 

12,774,191

Dilution

 

5,580

 

87,168

 

21,540

 

85,789

Weighted-average share outstanding - diluted

 

12,818,556

 

12,862,291

 

12,834,348

 

12,859,980

Net income

$

1,737

$

2,176

$

2,302

$

4,785

Net income per share - basic

$

0.14

$

0.17

$

0.18

$

0.37

Net income per share - diluted

$

0.14

$

0.17

$

0.18

$

0.37

v3.20.2
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2020
Stock-Based Compensation [Abstract]  
Information regarding stock option plan

Information regarding our stock-based compensation plan is as follows as of and for the six months ended June 30:

2020

2019

    

    

    

Weighted-

    

    

    

    

Weighted-

    

 

Weighted-

Average

Aggregate

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Average

Remaining

Intrinsic

Number

Exercise

Contractual

Value

Number

Exercise

Contractual

Value

of Shares

Price

Term (in years)

(in thousands)

of Shares

Price

Term (in years)

(in thousands)

Outstanding at beginning of period

 

234,173

$

6.60

 

  

 

  

 

349,023

$

6.32

 

  

 

  

Granted

 

10,500

 

8.26

 

  

 

  

 

 

 

  

 

  

Exercised

 

(2,050)

 

6.78

 

  

 

$

 

(15,561)

 

5.25

 

  

 

$

54

Forfeited

 

(1,000)

 

7.10

 

  

 

  

 

(38,500)

 

6.41

 

  

 

  

Outstanding at end of period

 

241,623

$

6.67

 

2.4

$

75

 

294,962

$

6.37

 

3.0

$

684

Exercisable at end of period

 

171,356

$

6.39

 

2.0

$

75

 

179,200

$

5.95

 

2.3

$

492

Stock options valuation assumptions

Expected life

    

5.5 years

 

Risk-free interest rate

0.95

%  

Expected volatility

27.83

%  

Expected dividend yield

$

1.95

 

Weighted average per share fair value of options granted

$

1.75

v3.20.2
Commitments and Contingencies (Tables)
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies [Abstract]  
Schedule of commitments and guarantees

June 30, 

December 31, 

    

2020

    

2019

(dollars in thousands)

Standby letters of credit

$

2,806

$

3,325

Home equity lines of credit

 

15,417

 

16,917

Unadvanced construction commitments

 

67,170

 

79,378

Mortgage loan commitments

 

 

701

Lines of credit

 

25,553

 

16,501

Loans sold and serviced with limited repurchase provisions

 

65,234

 

76,536

v3.20.2
Derivatives (Tables)
6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of information pertaining to carrying amounts of derivatives

June 30, 2020

December 31, 2019

    

Notional

    

Estimated

    

Notional

    

Estimated

Amount

Fair Value

Amount

Fair Value

(dollars in thousands)

Asset - IRLCs

$

30,087

$

546

$

7,645

$

179

Asset - mandatory forward contracts

 

5,235

 

49

 

10,591

 

23

Liability - mandatory forward contracts

5,826

70

v3.20.2
Fair Value of Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2020
Fair Value of Financial Instruments [Abstract]  
Schedule of fair value measurements for assets and liabilities on a recurring basis

The following table presents fair value measurements for assets that are measured at fair value on a recurring basis as of and for the six months ended June 30, 2020:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

3,067

$

$

3,067

$

$

AFS Securities - corporate obligations

1,984

1,984

AFS Securities - mortgage-backed securities

10,755

10,755

Mortgage loans held for sale ("LHFS")

 

11,429

 

 

11,429

 

 

49

MSRs

 

615

 

 

 

615

 

(496)

IRLCs

 

546

 

 

 

546

 

367

Best efforts forward contracts

 

96

 

 

96

 

 

64

Mandatory forward contracts

 

49

 

 

49

 

 

11

Liabilities:

Mandatory forward contracts

 

70

 

 

70

 

 

(55)

Best efforts forward contracts

 

141

 

 

141

 

 

(132)

The following table presents fair value measurements for assets and liabilities that are measured at fair value on a recurring basis as of and for the year ended December 31, 2019:

    

  

    

  

    

Significant

    

  

    

  

  

  

Other

Significant

Total Changes

  

Quoted

Observable

Unobservable

In Fair Values

Carrying

Prices

Inputs

Inputs

Included In

Value

(Level 1)

(Level 2)

(Level 3)

Period Income

Assets:

(dollars in thousands)

AFS Securities - U.S. government agency notes

$

5,019

$

$

5,019

$

$

AFS Securities - mortgage-backed securities

7,887

7,887

LHFS

 

10,910

 

 

10,910

 

 

(5)

MSRs

 

323

 

 

 

323

 

(114)

IRLCs

 

179

 

 

 

179

 

79

Mandatory forward contracts

23

 

23

 

39

Best efforts forward contracts

23

 

23

 

23

Schedule of additional quantitative information about assets measured at fair value on a recurring basis

    

Fair Value

    

Valuation

    

Unobservable

    

Range

 

Estimate

Technique

Input

(Weighted-Average)

 

June 30, 2020:

 

(dollars in thousands)

 

  

 

  

MSRs (1)

$

615

 

Market Approach

 

Weighted average prepayment speed (PSA) (2)

 

302

IRLCs - net asset

546

Market Approach

Range of pull through rate

70% - 100

%

Average pull through rate

88

%

  

 

  

 

  

 

  

 

  

December 31, 2019:

 

  

 

  

 

  

 

  

MSRs (1)

$

323

 

Market Approach

 

Weighted average prepayment speed (CPR) (2)

 

11.10

%

IRLCs - net asset

179

 

Market Approach

 

Range of pull through rate

70% - 95

%

Average pull through rate

83

%

(1)The weighted average was calculated with reference to the principal balance of the underlying mortgages.
(2)PSA = Public Securities Association Standard Prepayment Model; CPR = Conditional Prepayment Rate

Schedule of activity of servicing assets at fair value

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

240

$

400

$

323

$

437

Additions

788

788

Valuation adjustment

(413)

(57)

(496)

(94)

Ending balance

$

615

$

343

$

615

$

343

Schedule of activity of assets at fair value

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

2019

2020

    

2019

(dollars in thousands)

Beginning balance

$

(61)

$

335

$

179

$

100

Valuation adjustment

607

10

367

245

Ending balance

$

546

$

345

$

546

$

345

Schedule of assets measured at fair value on a nonrecurring basis

June 30, 2020

 

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

 

(dollars in thousands)

Impaired loans

$

3,817

$

$

$

3,817

 

0% - 14%

7

%

December 31, 2019

Significant

 

Other 

Significant

 

Quoted 

Observable

Unobservable

 

Carrying 

Prices

Inputs

Inputs

Range of

Weighted

 

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Discount (1)

    

Average (2)

  

(dollars in thousands)

Impaired loans

$

4,437

$

$

$

4,437

 

0% - 160%

8

%

Real estate acquired through foreclosure

 

1,174

 

 

 

1,174

 

0% - 16%

10

%

(1)Discount based on current market conditions and estimated selling costs
(2)Inputs are weighted based on the relative fair values of the instruments
Estimated fair values of financial instruments

The carrying value and fair value of all financial instruments are summarized in the following tables:

June 30, 2020

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands)

Cash and cash equivalents

$

168,470

$

168,470

$

$

$

168,470

Certificates of deposit held for investment

6,074

 

6,074

 

 

 

6,074

AFS securities

 

15,806

 

 

15,806

 

 

15,806

HTM securities

 

21,310

 

1,010

 

21,099

 

 

22,109

LHFS

 

11,429

 

 

11,429

 

 

11,429

Loans receivable, net

 

653,203

 

 

 

654,599

 

654,599

Restricted stock investments

 

2,299

 

 

2,299

 

 

2,299

Accrued interest receivable

 

2,478

 

 

2,478

 

 

2,478

MSRs

 

615

 

 

 

615

 

615

IRLCs

 

546

 

 

 

546

 

546

Mandatory forward contracts

 

49

 

 

49

 

 

49

Best effort forward contracts

 

96

 

 

96

 

 

96

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

748,916

 

 

753,085

 

 

753,085

Accrued interest payable

 

276

 

 

276

 

 

276

Borrowings

 

35,000

 

 

35,437

 

 

35,437

Subordinated debentures

 

20,619

 

 

 

16,298

 

16,298

Mandatory forward contracts

70

 

70

 

 

70

Best effort forward contracts

 

141

 

 

141

 

 

141

December 31, 2019

Carrying

Fair Value

    

Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

(dollars in thousands) 

Cash and cash equivalents

$

88,193

$

88,193

$

$

$

88,193

Certificates of deposit held for investment

7,540

 

7,540

 

 

 

7,540

AFS securities

 

12,906

 

 

12,906

 

 

12,906

HTM securities

 

25,960

 

1,008

 

25,150

 

 

26,158

LHFS

 

10,910

 

 

10,910

 

 

10,910

Loans receivable, net

 

638,547

 

 

 

647,238

 

647,238

Restricted stock investments

 

2,431

 

 

2,431

 

 

2,431

Accrued interest receivable

 

2,458

 

 

2,458

 

 

2,458

MSRs

 

323

 

 

 

323

 

323

IRLCs

 

179

 

 

 

179

 

179

Mandatory forward contracts

 

23

 

 

23

 

23

Best effort forward contracts

 

23

 

 

23

 

23

Liabilities:

 

  

 

  

 

 

  

 

  

Deposits

 

661,049

 

 

662,418

 

 

662,418

Accrued interest payable

 

317

 

 

317

 

317

Borrowings

 

35,000

 

 

35,063

 

 

35,063

Subordinated debentures

 

20,619

 

 

 

16,754

16,754

v3.20.2
Securities - AFS (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Amortized cost and fair value of investment securities Available-for-sale [Abstract]    
Amortized Cost $ 15,661 $ 12,968
Unrealized Gains 206 2
Unrealized Losses 61 64
Securities available for sale, at fair value 15,806 12,906
U.S. Government Agency Notes [Member]    
Amortized cost and fair value of investment securities Available-for-sale [Abstract]    
Amortized Cost 3,017 5,017
Unrealized Gains 50 2
Securities available for sale, at fair value 3,067 5,019
Corporate obligations    
Amortized cost and fair value of investment securities Available-for-sale [Abstract]    
Amortized Cost 2,000  
Unrealized Losses 16  
Securities available for sale, at fair value 1,984  
Mortgage-backed Securities [Member]    
Amortized cost and fair value of investment securities Available-for-sale [Abstract]    
Amortized Cost 10,644 7,951
Unrealized Gains 156  
Unrealized Losses 45 64
Securities available for sale, at fair value $ 10,755 $ 7,887
v3.20.2
Securities, Held-to-maturity Securities (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Amortized cost and fair value of investment securities held to maturity [Abstract]    
Amortized Cost $ 21,310 $ 25,960
Unrealized Gains 799 228
Unrealized Losses   30
Fair Value 22,109 26,158
U.S. Treasury Securities [Member]    
Amortized cost and fair value of investment securities held to maturity [Abstract]    
Amortized Cost 998 994
Unrealized Gains 12 14
Fair Value 1,010 1,008
U.S. Government Agency Notes [Member]    
Amortized cost and fair value of investment securities held to maturity [Abstract]    
Amortized Cost 2,985 4,986
Unrealized Gains 171 100
Unrealized Losses   5
Fair Value 3,156 5,081
Mortgage-backed Securities [Member]    
Amortized cost and fair value of investment securities held to maturity [Abstract]    
Amortized Cost 17,327 19,980
Unrealized Gains 616 114
Unrealized Losses   25
Fair Value $ 17,943 $ 20,069
v3.20.2
Securities, AFS by loss position (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
item
Dec. 31, 2019
USD ($)
item
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]    
Less than 12 months Securities | item 4 7
Total Securities | item 4 7
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]    
Less than 12 Months, Fair Value $ 5,602 $ 7,887
Total, Estimated Fair Value 5,602 7,887
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss [Abstract]    
Less than 12 Months, Unrealized Losses 61 64
Total, Unrealized Losses $ 61 $ 64
Corporate obligations    
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]    
Less than 12 months Securities | item 1  
Total Securities | item 1  
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]    
Less than 12 Months, Fair Value $ 1,984  
Total, Estimated Fair Value 1,984  
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss [Abstract]    
Less than 12 Months, Unrealized Losses 16  
Total, Unrealized Losses $ 16  
Mortgage-backed Securities [Member]    
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]    
Less than 12 months Securities | item 3 7
Total Securities | item 3 7
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]    
Less than 12 Months, Fair Value $ 3,618 $ 7,887
Total, Estimated Fair Value 3,618 7,887
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss [Abstract]    
Less than 12 Months, Unrealized Losses 45 64
Total, Unrealized Losses $ 45 $ 64
v3.20.2
Securities - HTM by loss position (Details)
$ in Thousands
Dec. 31, 2019
USD ($)
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Number Of Position[Abstract]  
Less than 12 Months Securities 2
12 Months or Longer Securities 5
Total Securities 7
Fair Value [Abstract]  
Less than 12 Months, Fair Value $ 2,544
12 Months or More, Fair Value 4,241
Total, Estimated Fair Value 6,785
Unrealized Losses [Abstract]  
Less than 12 Months, Unrealized Losses 17
12 Months or More, Unrealized Losses 13
Total, Unrealized Losses $ 30
U.S. Government Agency Notes [Member]  
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Number Of Position[Abstract]  
12 Months or Longer Securities 3
Total Securities 3
Fair Value [Abstract]  
12 Months or More, Fair Value $ 3,003
Total, Estimated Fair Value 3,003
Unrealized Losses [Abstract]  
12 Months or More, Unrealized Losses 5
Total, Unrealized Losses $ 5
Mortgage-backed Securities [Member]  
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Number Of Position[Abstract]  
Less than 12 Months Securities 2
12 Months or Longer Securities 2
Total Securities 4
Fair Value [Abstract]  
Less than 12 Months, Fair Value $ 2,544
12 Months or More, Fair Value 1,238
Total, Estimated Fair Value 3,782
Unrealized Losses [Abstract]  
Less than 12 Months, Unrealized Losses 17
12 Months or More, Unrealized Losses 8
Total, Unrealized Losses $ 25
v3.20.2
Securities, Contractual maturities (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
security
Jun. 30, 2019
security
Jun. 30, 2020
USD ($)
security
Jun. 30, 2019
security
Dec. 31, 2019
USD ($)
Amortized Cost [Abstract]          
Due in one year or less $ 1,002   $ 1,002    
Due after five years through ten years 4,015   4,015    
Mortgage-backed securities 10,644   10,644    
Amortized Cost 15,661   15,661   $ 12,968
Estimated Fair Value [Abstract]          
Due in one year or less 1,006   1,006    
Due after five years through ten years 4,045   4,045    
Mortgage-backed securities 10,755   10,755    
Fair Value 15,806   15,806   12,906
Amortized Cost [Abstract]          
Due in one year or less 2,001   2,001    
Due after one through five years 1,982   1,982    
Mortgage-backed securities 17,327   17,327    
Amortized Cost 21,310   21,310   25,960
Estimated Fair Value [Abstract]          
Due in one year or less 2,017   2,017    
Due after one through five years 2,149   2,149    
Mortgage-backed securities 17,943   17,943    
Fair Value $ 22,109   $ 22,109   26,158
Number of securities sold during the period | security 0 0 0 0  
Collateral Pledged          
Estimated Fair Value [Abstract]          
Securities pledged as collateral for borrowings $ 0   $ 0   $ 0
v3.20.2
Loans Receivable and Allowance for Loan Losses, Summary of Loans Receivable (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
item
Jun. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Summary of loans receivable [Abstract]          
Total loans receivable $ 665,008 $ 682,443 $ 665,008 $ 682,443 $ 648,432
Unearned loan fees (3,636)   (3,636)   (2,747)
Loans receivable 661,372   661,372   645,685
Loans pledged as collateral 143,200   143,200    
Total Modifications 8,213   8,213   8,943
Interest income recorded 8,078 9,226 16,416 18,393  
MSRs [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 615   615   323
Federal National Mortgage Association [Member]          
Summary of loans receivable [Abstract]          
Mortgage loans serviced 63,000   63,000   25,900
Federal Home Loan Mortgage Corporation          
Summary of loans receivable [Abstract]          
Mortgage loans serviced 20,100   20,100   13,000
Residential Mortgage [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 237,266 276,013 237,266 276,013 269,654
Total Modifications 7,048   $ 7,048   7,760
Loan to value ratio     80.00%    
Residential Mortgage [Member] | Minimum [Member]          
Summary of loans receivable [Abstract]          
Number of dwelling units | item     1    
Residential Mortgage [Member] | Maximum [Member]          
Summary of loans receivable [Abstract]          
Number of dwelling units | item     4    
Commercial [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 87,931 45,347 $ 87,931 45,347 43,127
Paycheck Protection Program PPP Loans [Member]          
Summary of loans receivable [Abstract]          
Loans originated during the period     46,500    
Interest income recorded     166    
Commercial Real Estate [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 225,588 238,699 225,588 238,699 229,257
Total Modifications 971   971   984
Construction, land acquisition and development          
Summary of loans receivable [Abstract]          
Total loans receivable 100,812 108,182 100,812 108,182 92,822
Total Modifications 129   129   130
Home Equity/2nds [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 12,027 12,581 $ 12,027 12,581 12,031
Home Equity/2nds [Member] | Minimum [Member]          
Summary of loans receivable [Abstract]          
Number of dwelling units | item     1    
Home Equity/2nds [Member] | Maximum [Member]          
Summary of loans receivable [Abstract]          
Number of dwelling units | item     4    
Consumer [Member]          
Summary of loans receivable [Abstract]          
Total loans receivable 1,384 $ 1,621 $ 1,384 $ 1,621 1,541
Total Modifications 65   65   $ 69
Cares Act [Member]          
Summary of loans receivable [Abstract]          
Total Modifications $ 96,600   $ 96,600    
v3.20.2
Loans Receivable and Allowance for Loan Losses, Changes in Allowance for Loan Losses and Recorded Investment (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2019
Allowance for Loan losses [Roll Forward]              
Beginning Balance $ 7,918 $ 8,085 $ 7,138 $ 8,044      
Charge-offs   (32) (15) (32)      
Recoveries 251 40 296 81      
Net (charge-offs) recoveries 251 8 281 49      
Provision for loan losses     750        
Ending Balance 8,169 8,093 8,169 8,093      
Ending balance - individually evaluated for impairment         $ 764 $ 850 $ 1,012
Ending balance - collectively evaluated for impairment         7,405 6,288 7,081
Ending balance 7,918 8,093 7,138 8,093 8,169 7,138 8,093
Ending loan balance - individually evaluated for impairment         14,967 14,250 17,144
Ending loan balance - collectively evaluated for impairment         650,041 634,182 665,299
Total loans receivable         665,008 648,432 682,443
Residential Mortgage [Member]              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 2,484 2,572 2,264 2,224      
Charge-offs   (20)   (20)      
Recoveries 177 3 180 8      
Net (charge-offs) recoveries 177 (17) 180 (12)      
Provision for loan losses (239) 11 (22) 354      
Ending Balance 2,422 2,566 2,422 2,566      
Ending balance - individually evaluated for impairment         675 752 889
Ending balance - collectively evaluated for impairment         1,747 1,512 1,677
Ending balance 2,422 2,566 2,264 2,566 2,422 2,264 2,566
Ending loan balance - individually evaluated for impairment         12,713 11,517 13,205
Ending loan balance - collectively evaluated for impairment         224,553 258,137 262,808
Total loans receivable         237,266 269,654 276,013
Commercial [Member]              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 1,565 1,740 1,421 2,736      
Recoveries 3   8        
Net (charge-offs) recoveries 3   8        
Provision for loan losses 109 (174) 248 (1,170)      
Ending Balance 1,677 1,566 1,677 1,566      
Ending balance - collectively evaluated for impairment         1,677 1,421 1,566
Ending balance 1,677 1,566 1,421 2,736 1,677 1,421 1,566
Ending loan balance - collectively evaluated for impairment         87,931 43,127 45,347
Total loans receivable         87,931 43,127 45,347
Commercial Real Estate [Member]              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 1,040 712 984 457      
Recoveries 70 33 102 67      
Net (charge-offs) recoveries 70 33 102 67      
Provision for loan losses (32) 47 (8) 268      
Ending Balance 1,078 792 1,078 792      
Ending balance - individually evaluated for impairment         60 64 67
Ending balance - collectively evaluated for impairment         1,018 920 725
Ending balance 1,078 792 984 792 1,078 984 792
Ending loan balance - individually evaluated for impairment         1,278 1,221 1,889
Ending loan balance - collectively evaluated for impairment         224,310 228,036 236,810
Total loans receivable         225,588 229,257 238,699
Construction, land acquisition and development              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 2,615 2,579 2,286 2,239      
Provision for loan losses 174 104 503 444      
Ending Balance 2,789 2,683 2,789 2,683      
Ending balance - individually evaluated for impairment         29 32 32
Ending balance - collectively evaluated for impairment         2,760 2,254 2,651
Ending balance 2,789 2,683 2,286 2,239 2,789 2,286 2,683
Ending loan balance - individually evaluated for impairment         385 880 1,119
Ending loan balance - collectively evaluated for impairment         100,427 91,942 107,063
Total loans receivable         100,812 92,822 108,182
Home Equity/2nds [Member]              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 151 242 134 222      
Recoveries 1 4 3 6      
Net (charge-offs) recoveries 1 4 3 6      
Provision for loan losses 13 (23) 28 (5)      
Ending Balance 165 223 165 223      
Ending balance - individually evaluated for impairment           2 24
Ending balance - collectively evaluated for impairment         165 132 199
Ending balance 165 223 134 223 165 134 223
Ending loan balance - individually evaluated for impairment         526 563 859
Ending loan balance - collectively evaluated for impairment         11,501 11,468 11,722
Total loans receivable         12,027 12,031 12,581
Consumer [Member]              
Allowance for Loan losses [Roll Forward]              
Beginning Balance   1   1      
Charge-offs   (12) (15) (12)      
Recoveries     3        
Net (charge-offs) recoveries   (12) (12) (12)      
Provision for loan losses   11 12 11      
Ending balance   1   1      
Ending loan balance - individually evaluated for impairment         65 69 72
Ending loan balance - collectively evaluated for impairment         1,319 1,472 1,549
Total loans receivable         1,384 1,541 1,621
Unallocated              
Allowance for Loan losses [Roll Forward]              
Beginning Balance 63 239 49 165      
Provision for loan losses (25) 24 (11) 98      
Ending Balance 38 263 38 263      
Ending balance - collectively evaluated for impairment         38 49 263
Ending balance $ 38 $ 263 $ 49 $ 263 $ 38 $ 49 $ 263
v3.20.2
Loans Receivable and Allowance for Loan Losses, Credit Quality Breakdown of Loan Portfolio by Class (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2019
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable $ 665,008 $ 648,432 $ 682,443
Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 653,999 638,135  
Special Mention [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 3,247 4,437  
Substandard [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 7,762 5,860  
Residential Mortgage [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 237,266 269,654 276,013
Residential Mortgage [Member] | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 231,224 265,510  
Residential Mortgage [Member] | Substandard [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 6,042 4,144  
Commercial [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 87,931 43,127 45,347
Commercial [Member] | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 86,731 41,927  
Commercial [Member] | Special Mention [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 1,200 1,200  
Commercial Real Estate [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 225,588 229,257 238,699
Commercial Real Estate [Member] | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 222,429 225,363  
Commercial Real Estate [Member] | Special Mention [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 2,047 2,835  
Commercial Real Estate [Member] | Substandard [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 1,112 1,059  
Construction, land acquisition and development      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 100,812 92,822 108,182
Construction, land acquisition and development | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 100,325 92,304  
Construction, land acquisition and development | Substandard [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 487 518  
Home Equity/2nds [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 12,027 12,031 12,581
Home Equity/2nds [Member] | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 11,906 11,490  
Home Equity/2nds [Member] | Special Mention [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable   402  
Home Equity/2nds [Member] | Substandard [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 121 139  
Consumer [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable 1,384 1,541 $ 1,621
Consumer [Member] | Pass [Member]      
Financing Receivable, Recorded Investment [Line Items]      
Total loans receivable $ 1,384 $ 1,541  
v3.20.2
Loans Receivable and Allowance for Loan Losses, Classes of Loan Portfolio by Aging Categories of Performing and Nonaccrual Loans (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due $ 5,988   $ 5,833
Current 659,020   642,599
Total loans 665,008 $ 682,443 648,432
Non-accrual 6,245   4,242
Interest which would have been recorded on the loans in nonaccrual status 547 382  
Actual interest income recorded on nonaccrual loans 74 82  
30 to 59 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 444   3,183
60 to 89 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 237   185
90+ Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 5,307   2,465
Residential Mortgage [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 5,316   5,464
Current 231,950   264,190
Total loans 237,266 276,013 269,654
Non-accrual 5,676   3,766
Residential Mortgage [Member] | 30 to 59 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 437   3,183
Residential Mortgage [Member] | 60 to 89 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due     81
Residential Mortgage [Member] | 90+ Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 4,879   2,200
Commercial [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Current 87,931   43,127
Total loans 87,931 45,347 43,127
Commercial Real Estate [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 426   126
Current 225,162   229,131
Total loans 225,588 238,699 229,257
Non-accrual 307   237
Commercial Real Estate [Member] | 30 to 59 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 7    
Commercial Real Estate [Member] | 60 to 89 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 112    
Commercial Real Estate [Member] | 90+ Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 307   126
Construction, land acquisition and development      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 125   89
Current 100,687   92,733
Total loans 100,812 108,182 92,822
Non-accrual 131   89
Construction, land acquisition and development | 60 to 89 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 125   89
Home Equity/2nds [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 121   139
Current 11,906   11,892
Total loans 12,027 12,581 12,031
Non-accrual 131   150
Home Equity/2nds [Member] | 90+ Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due 121   139
Consumer [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due     15
Current 1,384   1,526
Total loans $ 1,384 $ 1,621 1,541
Consumer [Member] | 60 to 89 Days Past Due [Member]      
Classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans [Abstract]      
Total past due     $ 15
v3.20.2
Loans Receivable and Allowance for Loan Losses, Summary of Impaired loans (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Interest income recognized [Abstract]          
Real estate acquired through foreclosure $ 1,010   $ 1,010   $ 2,387
Residential Mortgage [Member]          
Unpaid principal balance [Abstract]          
With no related allowance 9,025   9,025   7,258
With a related allowance 4,056   4,056   4,604
Total 13,081   13,081   11,862
Recorded investment [Abstract]          
With no related allowance 8,780   8,780   7,035
With a related allowance 3,933   3,933   4,482
Total 12,713   12,713   11,517
Related allowance 675   675   752
Average recorded investment [Abstract]          
With no related allowance 8,835 $ 7,197 8,860 $ 6,950  
With a related allowance 3,939 5,706 3,951 5,731  
Total 12,774 12,903 12,811 12,681  
Interest income recognized [Abstract]          
With no related allowance 53 81 133 160  
With a related allowance 30 80 78 160  
Total 83 161 211 320  
Commercial [Member]          
Average recorded investment [Abstract]          
With a related allowance       143  
Total       143  
Commercial Real Estate [Member]          
Unpaid principal balance [Abstract]          
With no related allowance 734   734   908
With a related allowance 544   544   553
Total 1,278   1,278   1,461
Recorded investment [Abstract]          
With no related allowance 734   734   668
With a related allowance 544   544   553
Total 1,278   1,278   1,221
Related allowance 60   60   64
Average recorded investment [Abstract]          
With no related allowance 733 1,327 735 1,245  
With a related allowance 544 567 547 694  
Total 1,277 1,894 1,282 1,939  
Interest income recognized [Abstract]          
With no related allowance 5 17 20 37  
With a related allowance 11 11 19 20  
Total 16 28 39 57  
Construction, land acquisition and development          
Unpaid principal balance [Abstract]          
With no related allowance 286   286   752
With a related allowance 104   104   128
Total 390   390   880
Recorded investment [Abstract]          
With no related allowance 281   281   752
With a related allowance 104   104   128
Total 385   385   880
Related allowance 29   29   32
Average recorded investment [Abstract]          
With no related allowance 225 977 230 1,034  
With a related allowance 104 132 104 134  
Total 329 1,109 334 1,168  
Interest income recognized [Abstract]          
With no related allowance 2 7 6 15  
With a related allowance   2 1 4  
Total 2 9 7 19  
Home Equity/2nds [Member]          
Unpaid principal balance [Abstract]          
With no related allowance 939   939   996
With a related allowance         12
Total 939   939   1,008
Recorded investment [Abstract]          
With no related allowance 526   526   553
With a related allowance         10
Total 526   526   563
Related allowance         2
Average recorded investment [Abstract]          
With no related allowance 337 834 345 844  
With a related allowance   34   19  
Total 337 868 345 863  
Interest income recognized [Abstract]          
With no related allowance 8 17 15 30  
With a related allowance       1  
Total 8 17 15 31  
Consumer [Member]          
Unpaid principal balance [Abstract]          
With no related allowance 65   65   69
Total 65   65   69
Recorded investment [Abstract]          
With no related allowance 65   65   69
Total 65   65   69
Average recorded investment [Abstract]          
With no related allowance 65 224 82 46  
With a related allowance   4   28  
Total 65 228 82 74  
Interest income recognized [Abstract]          
With no related allowance 1 1 2 2  
Total 1 $ 1 2 $ 2  
Real estate acquired through foreclosure 1,400   1,400   0
Residential mortgage loans secured by residential real estate properties in formal foreclosure proceedings $ 5,000   $ 5,000   $ 2,300
v3.20.2
Loans Receivable and Allowance for Loan Losses, Loans modified as TDRs (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
contract
loan
Jun. 30, 2019
contract
loan
Jun. 30, 2020
USD ($)
contract
loan
Jun. 30, 2019
contract
loan
Dec. 31, 2019
USD ($)
contract
Loans modified [Abstract]          
Number of modifications | loan 0 0 0 0  
TDRs loans accounted under method [Abstract]          
Number of modifications, accrual status 32   32   36
Accrual status | $ $ 8,131   $ 8,131   $ 8,858
Number of modifications, nonaccrual status 1   1   1
Nonaccrual status | $ $ 82   $ 82   $ 85
Total number of modifications 33   33   37
Total balance of modifications | $ $ 8,213   $ 8,213   $ 8,943
Number of contract, subsequent defaults 0 0 0 0  
Residential Mortgage [Member]          
TDRs loans accounted under method [Abstract]          
Number of modifications, accrual status 28   28   31
Accrual status | $ $ 6,966   $ 6,966   $ 7,675
Number of modifications, nonaccrual status 1   1   1
Nonaccrual status | $ $ 82   $ 82   $ 85
Total number of modifications 29   29   32
Total balance of modifications | $ $ 7,048   $ 7,048   $ 7,760
Commercial Real Estate [Member]          
TDRs loans accounted under method [Abstract]          
Number of modifications, accrual status 2   2   2
Accrual status | $ $ 971   $ 971   $ 984
Total number of modifications 2   2   2
Total balance of modifications | $ $ 971   $ 971   $ 984
Construction, land acquisition and development          
TDRs loans accounted under method [Abstract]          
Number of modifications, accrual status 1   1   1
Accrual status | $ $ 129   $ 129   $ 130
Total number of modifications 1   1   1
Total balance of modifications | $ $ 129   $ 129   $ 130
Consumer [Member]          
TDRs loans accounted under method [Abstract]          
Number of modifications, accrual status 1   1   2
Accrual status | $ $ 65   $ 65   $ 69
Total number of modifications 1   1   2
Total balance of modifications | $ $ 65   $ 65   $ 69
v3.20.2
Regulatory Matters (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Common Equity Tier 1 Capital (to risk-weighted assets) [Abstract]    
Common Equity Tier I Capital Actual, Amount $ 118,713 $ 117,492
Common Equity Tier I Capital, Ratio 13.80% 18.50%
Common Equity Tier I Capital for Capital Adequacy Purposes, Amount $ 60,341 $ 28,617
Common Equity Tier I Capital for Capital Adequacy Purposes, Ratio 7.00% 4.50%
Common Equity Tier 1 Capital Minimum Capital Adequacy with Capital Buffer, Amount   $ 44,515
Common Equity Tier 1 Capital Minimum Capital Adequacy with Capital Buffer, Ratio   7.00%
Common Equity Tier I Capital To Be Well Capitalized Under Prompt Corrective Provisions, Amount $ 68,962 $ 41,336
Common Equity Tier I Capital To Be Well Capitalized Under Prompt Corrective Provisions, Ratio 8.00% 6.50%
Total capital (to risk-weighted assets) [Abstract]    
Total Capital, Actual Amount   $ 124,619
Total Capital, Ratio   19.60%
Total For Capital Adequacy Purposes, Amount   $ 50,875
Total For Capital Adequacy Purposes, Ratio   8.00%
Total For Capital Adequacy with Capital Buffer, Amount   $ 66,773
Total For Capital Adequacy with Capital Buffer, Ratio   10.50%
Total To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount   $ 63,593
Total Capital To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio   10.00%
Tier 1 capital (to risk-weighted assets) [Abstract]    
Tier I Capital, Actual Amount   $ 117,492
Tier I Capital, Ratio   18.50%
Tier I Capital for Capital Adequacy Purposes, Amount   $ 38,156
Tier I Capital for Capital Adequacy Purposes, Ratio   6.00%
Tier I Capital Minimum Capital Adequacy with Capital Buffer, Amount   $ 54,054
Tier I Capital Minimum Capital Adequacy with Capital Buffer, Ratio   8.50%
Tier I Capital To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount   $ 50,875
Tier I Capital To Be Well Capitalized Under Prompt Corrective Provisions, Ratio   8.00%
Tier 1 capital (to average quarterly assets) [Abstract]    
Tier I Capital average, Actual Amount   $ 117,492
Tier I Capital average, Ratio   13.40%
Tier I Capital average for Capital Adequacy Purposes, Amount   $ 34,995
Tier I Capital average for Capital Adequacy Purposes, Ratio   4.00%
Tier I Capital Average Minimum Capital Adequacy with Capital Buffer, Amount   $ 56,867
Tier I Capital Average Minimum Capital Adequacy with Capital Buffer, Ratio   6.50%
Tier I Capital Average To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount   $ 43,744
Tier I Capital Average To Be Well Capitalized Under Prompt Corrective Provisions, Ratio   5.00%
v3.20.2
Earnings Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Earnings Per Share [Abstract]        
Antidilutive securities excluded from computation of earnings per share (in shares) 173,250 0 173,250 0
Weighted average number of shares outstanding reconciliation [Abstract]        
Weighted-average shares outstanding - basic (in shares) 12,812,976 12,775,123 12,812,808 12,774,191
Dilution (in shares) 5,580 87,168 21,540 85,789
Weighted-average share outstanding - diluted (in shares) 12,818,556 12,862,291 12,834,348 12,859,980
Net income available to common stockholders $ 1,737 $ 2,176 $ 2,302 $ 4,785
Net income per common share - basic (in dollars per share) $ 0.14 $ 0.17 $ 0.18 $ 0.37
Net income per common share - diluted (in dollars per share) $ 0.14 $ 0.17 $ 0.18 $ 0.37
v3.20.2
Stock-Based Compensation (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares authorized under the plan (in shares) 500,000   500,000  
Stock-based compensation expense $ 34,000 $ 34,000 $ 68,000 $ 77,000
Shares [Roll Forward]        
Outstanding at beginning of period (in shares)     234,173 349,023
Granted (in shares)     10,500 0
Exercised (in shares)     (2,050) (15,561)
Forfeited (in shares)     (1,000) (38,500)
Outstanding at end of period (in shares) 241,623 294,962 241,623 294,962
Exercisable at end of period (in shares) 171,356 179,200 171,356 179,200
Weighted Average Price [Roll Forward]        
Outstanding at beginning of period (in dollars per share)     $ 6.60 $ 6.32
Granted (in dollars per share)     8.26 0
Exercised (in dollars per share)     6.78 5.25
Forfeited (in dollars per share)     7.10 6.41
Outstanding at end of period (in dollars per share) $ 6.67 $ 6.37 6.67 6.37
Exercisable at end of period (in dollars per share) $ 6.39 $ 5.95 $ 6.39 $ 5.95
Weighted Average Remaining Life [Abstract]        
Weighted-average remaining contractual term, outstanding     2 years 4 months 24 days 3 years
Weighted-average remaining contractual term, exercisable     2 years 2 years 3 months 18 days
Aggregate Intrinsic Value [Abstract]        
Aggregate intrinsic value of the options exercised during the period       $ 54,000
Aggregate intrinsic value of the options outstanding $ 75,000 $ 684,000 $ 75,000 684,000
Aggregate intrinsic value of the options exercisable $ 75,000 $ 492,000 $ 75,000 492,000
Fair value assumptions for options granted [Abstract]        
Expected life     5 years 6 months  
Risk-free interest rate     0.95%  
Expected volatility     27.83%  
Dividend yield     1.95%  
Weighted average per share fair value of options granted (in dollars per share) $ 1.75   $ 1.75  
Proceeds from exercise of stock options     $ 14,000 $ 81,000
Unrecognized stock-based compensation expense $ 209,000   $ 209,000  
Unrecognized stock-based compensation expected to be recognized period     29 months  
Stock Options [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options vesting period     5 years  
Stock Options [Member] | Maximum [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options expiry period     10 years  
v3.20.2
Commitments and Contingencies (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
item
Financial instruments whose contract amount represents credit risk [Abstract]          
Letters of credit renewal period     1 year    
Deposits $ 748,916,000   $ 748,916,000   $ 661,049,000
Interest income 6,645,000 $ 7,845,000 13,400,000 $ 15,930,000  
Noninterest Income 3,237,000 2,615,000 6,262,000 4,875,000  
Standby Letters of Credit [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk 2,806,000   $ 2,806,000   3,325,000
Letters of credit expiry period     12 months    
Current liability for guarantees 10,000   $ 10,000   14,000
Home Equity Lines of Credit [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk 15,417,000   $ 15,417,000   16,917,000
Loan expiry period     10 years    
Unadvanced Construction Commitments [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk 67,170,000   $ 67,170,000   79,378,000
Mortgage Loan Commitments [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk         $ 701,000
Number of mortgage loan commitments at fixed interest rate | item         3
Residential mortgage loan commitments 0   0   $ 701,000
Lines of Credit [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk 25,553,000   25,553,000   16,501,000
Loans Sold and Serviced with Limited Repurchase Provisions [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Off-balance sheet credit risk 65,234,000   65,234,000   76,536,000
Repurchases of loans previously sold     $ 0 0  
Loans Sold and Serviced with Limited Repurchase Provisions [Member] | Minimum [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Period of delinquency under repurchase agreement     120 days    
Loans Sold and Serviced with Limited Repurchase Provisions [Member] | Maximum [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Period of delinquency under repurchase agreement     180 days    
Business activities with medical-use cannabis customers [Member] | Cannabis Customers [Member]          
Financial instruments whose contract amount represents credit risk [Abstract]          
Deposits 41,000,000.0   $ 41,000,000.0   22,800,000
Loan balances $ 17,100,000   $ 17,100,000   $ 14,000,000.0
Percentage of deposits in total deposits 5.50%   5.50%   3.40%
Percentage of loans in total loans 2.60%   2.60%   2.20%
Interest income $ 358,000 233,000 $ 513,000 428,000  
Noninterest Income 1,100,000 491,000 1,600,000 941,000  
Volume of deposits accepted $ 132,000,000.0 $ 56,600,000 $ 232,800,000 $ 106,100,000  
v3.20.2
Derivatives (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Mandatory Forward Contract Liability    
Derivative [Line Items]    
Derivative Liability, Notional Amount $ 5,826  
Estimated fair value, liability 70  
IRLCs [Member]    
Derivative [Line Items]    
Derivative Asset, Notional Amount 30,087 $ 7,645
Estimated fair value, asset $ 546 179
IRLCs [Member] | Minimum [Member]    
Derivative [Line Items]    
Derivative, Term of Contract 14 days  
IRLCs [Member] | Maximum [Member]    
Derivative [Line Items]    
Derivative, Term of Contract 60 days  
Mandatory Forward Contracts [Member]    
Derivative [Line Items]    
Derivative Asset, Notional Amount $ 5,235 10,591
Estimated fair value, asset $ 49 $ 23
v3.20.2
Fair Value of Financial Instruments (Details) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities $ 15,806 $ 12,906        
U.S. Government Agency Notes [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 3,067 5,019        
Corporate obligations            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 1,984          
Mortgage-backed Securities [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 10,755 7,887        
Level 2 [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 15,806 12,906        
Loans held for sale ("LHFS") 11,429 10,910        
Best efforts forward contracts 96 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Best effort forward contracts 141          
Mandatory forward contracts 70          
Level 3 [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Mortgage servicing rights ("MSRs") 615 323        
Interest rate lock commitments ("IRLCs") 546 179        
Carrying Value [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 15,806 12,906        
Loans held for sale ("LHFS") 11,429 10,910        
Mortgage servicing rights ("MSRs") 615 323        
Interest rate lock commitments ("IRLCs") 546 179        
Best efforts forward contracts 96 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Best effort forward contracts 141          
Mandatory forward contracts 70          
Recurring [Member] | LHFS [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income 49 (5)        
Recurring [Member] | MSRs [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Mortgage servicing rights ("MSRs") 615 323 $ 240 $ 343 $ 400 $ 437
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income (496) (114)        
Recurring [Member] | IRLCs [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income 367          
Recurring [Member] | IRLCs [Member] | IRLCs [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income   79        
Recurring [Member] | Mandatory Forward Contract [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income   39        
Recurring [Member] | Mandatory Forward Contract [Member] | Mandatory Forward Contract Liability            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income (55)          
Recurring [Member] | Mandatory Forward Contract [Member] | Mandatory Forward Contracts [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income 11          
Recurring [Member] | Best Efforts Forward Contract [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income   23        
Recurring [Member] | Best Efforts Forward Contract [Member] | Best Effort Forward Contracts [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income (132)          
Recurring [Member] | Best Efforts Forward Contract [Member] | Best Effort Forward Contracts [Member]            
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Total changes in fair values included in period income 64          
Recurring [Member] | Level 2 [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Loans held for sale ("LHFS") 11,429 10,910        
Recurring [Member] | Level 2 [Member] | U.S. Government Agency Notes [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 3,067 5,019        
Recurring [Member] | Level 2 [Member] | Corporate obligations            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 1,984          
Recurring [Member] | Level 2 [Member] | Mortgage-backed Securities [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 10,755 7,887        
Recurring [Member] | Level 2 [Member] | Mandatory Forward Contract [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 49 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Derivative Liability 70          
Recurring [Member] | Level 2 [Member] | Best Efforts Forward Contract [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 96 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Derivative Liability 141          
Recurring [Member] | Level 3 [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Mortgage servicing rights ("MSRs") 615 323        
Recurring [Member] | Level 3 [Member] | IRLCs [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 546 179        
Recurring [Member] | Carrying Value [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Loans held for sale ("LHFS") 11,429 10,910        
Mortgage servicing rights ("MSRs") 615 323        
Recurring [Member] | Carrying Value [Member] | U.S. Government Agency Notes [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 3,067 5,019        
Recurring [Member] | Carrying Value [Member] | Corporate obligations            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 1,984          
Recurring [Member] | Carrying Value [Member] | Mortgage-backed Securities [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
AFS Securities 10,755 7,887        
Recurring [Member] | Carrying Value [Member] | IRLCs [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 546 179        
Recurring [Member] | Carrying Value [Member] | Mandatory Forward Contract [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 49 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Derivative Liability 70          
Recurring [Member] | Carrying Value [Member] | Best Efforts Forward Contract [Member]            
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]            
Derivative Asset 96 $ 23        
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]            
Derivative Liability $ 141          
v3.20.2
Fair Value of Financial Instruments, Fair Values of Financial Instruments, Assets, Quantitative Information (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
item
Dec. 31, 2019
USD ($)
item
MSRs [Member] | Recurring [Member] | Level 3 [Member] | Weighted Average [Member] | Measurement Input, Constant Prepayment Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
MSRs, Measurement input | item 3.02 0.1110
Impaired loans [Member] | Nonrecurring [Member] | Minimum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0 0
Impaired loans [Member] | Nonrecurring [Member] | Maximum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0.14 1.60
Impaired loans [Member] | Nonrecurring [Member] | Weighted Average [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0.07 0.08
Impaired loans [Member] | Nonrecurring [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 4,437
Impaired loans [Member] | Nonrecurring [Member] | Level 3 [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets $ 3,817  
Impaired loans [Member] | Nonrecurring [Member] | Carrying Value [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 4,437
Impaired loans [Member] | Nonrecurring [Member] | Carrying Value [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets 3,817  
Foreclosed real estate [Member] | Nonrecurring [Member] | Minimum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0
Foreclosed real estate [Member] | Nonrecurring [Member] | Maximum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0.16
Foreclosed real estate [Member] | Nonrecurring [Member] | Weighted Average [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0.10
Foreclosed real estate [Member] | Nonrecurring [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 1,174
Foreclosed real estate [Member] | Nonrecurring [Member] | Carrying Value [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   1,174
Market Approach [Member] | MSRs [Member] | Recurring [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets 615 323
Market Approach [Member] | IRLCs [Member] | Recurring [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets $ 546 $ 179
Market Approach [Member] | IRLCs [Member] | Recurring [Member] | Level 3 [Member] | Minimum [Member] | Measurement Input, Pull Through Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Interest-rate lock commitments, measurement input | item 0.70 0.70
Market Approach [Member] | IRLCs [Member] | Recurring [Member] | Level 3 [Member] | Maximum [Member] | Measurement Input, Pull Through Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Interest-rate lock commitments, measurement input | item 1 0.95
Market Approach [Member] | IRLCs [Member] | Recurring [Member] | Level 3 [Member] | Weighted Average [Member] | Measurement Input, Pull Through Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Interest-rate lock commitments, measurement input | item 0.88 0.83
v3.20.2
Fair Value of Financial Instruments - Assets, Activity (Details) - Recurring [Member] - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
MSRs [Member]        
Servicing Asset at Fair Value, Amount [Roll Forward]        
Servicing Asset at Fair Value, Amount, Beginning Balance $ 240 $ 400 $ 323 $ 437
Servicing Asset at Fair Value, Additions 788   788  
Servicing Asset at Fair Value, Valuation adjustment (413) (57) (496) (94)
Servicing Asset at Fair Value, Amount, Ending Balance 615 343 615 343
IRLCs [Member]        
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]        
Fair Value, Net, Beginning Balance (61) 335 179 100
Valuation adjustment, asset 607 10 367 245
Fair Value, Net, Ending Balance $ 546 $ 345 $ 546 $ 345
v3.20.2
Fair Value of Financial Instruments - Nonrecurring (Details) - Nonrecurring [Member]
$ in Thousands
Jun. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Impaired loans [Member] | Minimum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0 0
Impaired loans [Member] | Maximum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0.14 1.60
Impaired loans [Member] | Weighted Average [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Impaired loan, measurement input 0.07 0.08
Impaired loans [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 4,437
Impaired loans [Member] | Level 3 [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets $ 3,817  
Impaired loans [Member] | Carrying Value [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 4,437
Impaired loans [Member] | Carrying Value [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets $ 3,817  
Foreclosed real estate [Member] | Minimum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0
Foreclosed real estate [Member] | Maximum [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0.16
Foreclosed real estate [Member] | Weighted Average [Member] | Measurement Input, Discount Rate    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Real estate acquired through foreclosure, measurement input   0.10
Foreclosed real estate [Member] | Level 3 [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 1,174
Foreclosed real estate [Member] | Carrying Value [Member]    
Quantitative Information about Level 3 Fair Value Measurements [Abstract]    
Fair value estimate, assets   $ 1,174
v3.20.2
Fair Value of Financial Instruments, Assets, Balance Sheet Grouping (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Assets [Abstract]      
AFS Securities $ 15,806   $ 12,906
HTM securities 22,109   26,158
Liabilities [Abstract]      
Assets or liabilities transferred between levels 1, 2 and 3 0 $ 0 0
Carrying Value [Member]      
Assets [Abstract]      
Cash and cash equivalents 168,470   88,193
Certificates of deposit held as investment 6,074   7,540
AFS Securities 15,806   12,906
HTM securities 21,310   25,960
LHFS 11,429   10,910
Loans receivable, net 653,203   638,547
Restricted stock investments 2,299   2,431
Accrued interest receivable 2,478   2,458
MSRs 615   323
IRLCs 546   179
Best effort forward contracts 96   23
Mandatory forward contracts 49   23
Liabilities [Abstract]      
Deposits 748,916   661,049
Accrued interest payable 276   317
Borrowings 35,000   35,000
Subordinated debentures 20,619   20,619
Mandatory forward contracts 70    
Best effort forward contracts 141    
Total [Member]      
Assets [Abstract]      
Cash and cash equivalents 168,470   88,193
Certificates of deposit held as investment 6,074   7,540
AFS Securities 15,806   12,906
HTM securities 22,109   26,158
LHFS 11,429   10,910
Loans receivable, net 654,599   647,238
Restricted stock investments 2,299   2,431
Accrued interest receivable 2,478   2,458
MSRs 615   323
IRLCs 546   179
Best effort forward contracts 96   23
Mandatory forward contracts 49   23
Liabilities [Abstract]      
Deposits 753,085   662,418
Accrued interest payable 276   317
Borrowings 35,437   35,063
Subordinated debentures 16,298   16,754
Mandatory forward contracts 70    
Best effort forward contracts 141    
Level 1 [Member]      
Assets [Abstract]      
Cash and cash equivalents 168,470   88,193
Certificates of deposit held as investment 6,074   7,540
HTM securities 1,010   1,008
Level 2 [Member]      
Assets [Abstract]      
AFS Securities 15,806   12,906
HTM securities 21,099   25,150
LHFS 11,429   10,910
Restricted stock investments 2,299   2,431
Accrued interest receivable 2,478   2,458
Best effort forward contracts 96   23
Mandatory forward contracts 49   23
Liabilities [Abstract]      
Deposits 753,085   662,418
Accrued interest payable 276   317
Borrowings 35,437   35,063
Mandatory forward contracts 70    
Best effort forward contracts 141    
Level 3 [Member]      
Assets [Abstract]      
Loans receivable, net 654,599   647,238
MSRs 615   323
IRLCs 546   179
Liabilities [Abstract]      
Subordinated debentures $ 16,298   $ 16,754