þ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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)
|
PART
I – FINANCIAL INFORMATION
|
Page
|
|
Item
1.
|
Financial
Statements
|
|
Consolidated
Statements of Financial Condition (Unaudited) as of September 30, 2008 and
December 31, 2007
|
1
|
|
Consolidated
Statements of Income (Unaudited) for the Three Months and Nine Months
Ended September 30, 2008 and 2007
|
2
|
|
Consolidated
Statements of Cash Flows (Unaudited) for the Nine Months Ended September
30, 2008 and 2007
|
3
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
Item
4.
|
Controls
and Procedures
|
20
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Item
4T.
|
Controls
and Procedures
|
21
|
PART
II – OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
21
|
Item
1A.
|
Risk
Factors
|
21
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
22
|
Item
3.
|
Defaults
Upon Senior Securities
|
22
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
Item
5.
|
Other
Information
|
22
|
Item
6.
|
Exhibits
|
22
|
SIGNATURES
|
23
|
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Cash
and due from banks
|
$ | 7,083 | $ | 6,415 | ||||
Interest
bearing deposits in other banks
|
350 | 814 | ||||||
Federal
funds sold
|
11,016 | 4,037 | ||||||
Cash
and cash equivalents
|
18,449 | 11,266 | ||||||
Investment
securities held to maturity
|
1,356 | 2,383 | ||||||
Loans
held for sale
|
- | 1,101 | ||||||
Loans
receivable, net of allowance for loan losses of $12,155 and $10,781,
respectively
|
885,219 | 891,913 | ||||||
Premises
and equipment, net
|
30,563 | 31,289 | ||||||
Federal
Home Loan Bank of Atlanta stock at cost
|
8,694 | 10,172 | ||||||
Foreclosed
real estate
|
8,506 | 2,993 | ||||||
Accrued
interest receivable and other assets
|
11,492 | 11,117 | ||||||
Total
assets
|
$ | 964,279 | $ | 962,234 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Liabilities
|
||||||||
Deposits
|
$ | 689,662 | $ | 652,773 | ||||
Short-term
borrowings
|
- | 15,000 | ||||||
Long-term
borrowings
|
153,000 | 175,000 | ||||||
Subordinated
debentures
|
20,619 | 20,619 | ||||||
Accrued
interest payable and other liabilities
|
3,095 | 3,566 | ||||||
Total
liabilities
|
866,376 | 866,958 | ||||||
Stockholders’
Equity
|
||||||||
Common
stock, $0.01 par value, 20,000,000 shares authorized;
|
||||||||
10,066,679
issued and outstanding
|
101 | 101 | ||||||
Additional
paid-in capital
|
46,864 | 46,768 | ||||||
Retained
earnings
|
50,938 | 48,407 | ||||||
Total
stockholders' equity
|
97,903 | 95,276 | ||||||
Total
liabilities and stockholders' equity
|
$ | 964,279 | $ | 962,234 |
For
Three Months Ended
|
For
Nine Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
Income
|
||||||||||||||||
Loans
|
$ | 14,910 | $ | 17,795 | $ | 47,271 | $ | 52,990 | ||||||||
Securities,
taxable
|
17 | 52 | 56 | 171 | ||||||||||||
Other
|
121 | 354 | 613 | 1,040 | ||||||||||||
Total
interest income
|
15,048 | 18,201 | 47,940 | 54,201 | ||||||||||||
Interest
Expense
|
||||||||||||||||
Deposits
|
6,133 | 7,568 | 19,800 | 21,809 | ||||||||||||
Short-term
borrowings
|
25 | 183 | 62 | 407 | ||||||||||||
Long-term
borrowings and subordinated debentures
|
1,766 | 2,121 | 5,659 | 6,061 | ||||||||||||
Total
interest expense
|
7,924 | 9,872 | 25,521 | 28,277 | ||||||||||||
Net
interest income
|
7,124 | 8,329 | 22,419 | 25,924 | ||||||||||||
Provision
for loan losses
|
2,865 | 750 | 4,365 | 1,712 | ||||||||||||
Net
interest income after provision for loan losses
|
4,259 | 7,579 | 18,054 | 24,212 | ||||||||||||
Other
Income
|
||||||||||||||||
Real
estate commissions
|
329 | 299 | 707 | 1,903 | ||||||||||||
Real
estate management fees
|
159 | 172 | 506 | 492 | ||||||||||||
Mortgage
banking activities
|
27 | 101 | 316 | 469 | ||||||||||||
Other
|
222 | 101 | 580 | 790 | ||||||||||||
Total
other income
|
737 | 673 | 2,109 | 3,654 | ||||||||||||
Non-Interest
Expenses
|
||||||||||||||||
Compensation
and related expenses
|
2,076 | 2,556 | 6,829 | 8,555 | ||||||||||||
Occupancy,
net
|
437 | 416 | 1,253 | 1,273 | ||||||||||||
Other
|
1,475 | 1,042 | 4,726 | 2,921 | ||||||||||||
Total
non-interest expenses
|
3,988 | 4,014 | 12,808 | 12,749 | ||||||||||||
Income
before income tax provision
|
1,008 | 4,238 | 7,355 | 15,117 | ||||||||||||
Income
tax provision
|
421 | 1,806 | 3,012 | 6,304 | ||||||||||||
Net
income
|
$ | 587 | $ | 2,432 | $ | 4,343 | $ | 8,813 | ||||||||
Basic
earnings per share
|
$ | .06 | $ | .24 | $ | .43 | $ | .88 | ||||||||
Diluted
earnings per share
|
$ | .06 | $ | .24 | $ | .43 | $ | .87 | ||||||||
Common
stock dividends declared per share
|
$ | .06 | $ | .06 | $ | .18 | $ | .18 |
For
The Nine Months Ended
September
30,
|
||||||||
2008
|
2007
|
|||||||
Cash Flows from
Operating Activities
|
||||||||
Net
income
|
$ | 4,343 | $ | 8,813 | ||||
Adjustments
to reconcile net income to net
|
||||||||
cash
provided by operating activities:
|
||||||||
Amortization
of deferred loan fees
|
(1,990 | ) | (2,606 | ) | ||||
Net
amortization of premiums and discounts
|
3 | 3 | ||||||
Provision
for loan losses
|
4,365 | 1,712 | ||||||
Provision
for depreciation
|
1,011 | 974 | ||||||
Gain
on sale of loans
|
(225 | ) | (159 | ) | ||||
Proceeds
from loans sold to others
|
16,903 | 18,778 | ||||||
Loans
originated for sale
|
(15,577 | ) | (16,050 | ) | ||||
Stock-based
compensation expense
|
96 | 96 | ||||||
Increase
in accrued interest receivable and other assets
|
(375 | ) | (1,075 | ) | ||||
Decrease
in accrued interest payable and other liabilities
|
(471 | ) | (1,538 | ) | ||||
Net
cash provided by operating activities
|
8,083 | 8,948 | ||||||
Cash Flows from
Investing Activities
|
||||||||
Proceeds
from maturing investment securities
|
1,000 | 2,000 | ||||||
Principal
collected on mortgage backed securities
|
24 | 364 | ||||||
Net
increase in loans
|
(6,116 | ) | (38,826 | ) | ||||
Net
proceeds from sale of foreclosed property
|
4,922 | 1,319 | ||||||
Investment
in premises and equipment
|
(285 | ) | (3,668 | ) | ||||
Proceeds
from disposal of premises and equipment
|
- | 1,784 | ||||||
Redemption
(purchase) of Federal Home Loan Bank of Atlanta stock
|
1,478 | (704 | ) | |||||
Net
cash provided by (used in) investing activities
|
1,023 | (37,731 | ) |
For
The Nine Months Ended
September
30,
|
||||||||
2008
|
2007
|
|||||||
Cash Flows from
Financing Activities
|
||||||||
Net
increase in deposits
|
36,889 | 10,289 | ||||||
Net
increase (decrease) in short-term borrowings
|
(15,000 | ) | 7,000 | |||||
Additional
borrowed funds, long-term
|
30,000 | 20,000 | ||||||
Repayment
of borrowed funds, long-term
|
(52,000 | ) | (10,000 | ) | ||||
Cash
dividends and cash paid in lieu of fractional shares
|
(1,812 | ) | (1,814 | ) | ||||
Proceeds
from exercise of options
|
- | 13 | ||||||
Net
cash provided by (used in) financing activities
|
(1,923 | ) | 25,488 |
Increase
(decrease) in cash and cash equivalents
|
7,183 | (3,295 | ) | |||||
Cash
and cash equivalents at beginning of year
|
11,266 | 18,715 | ||||||
Cash
and cash equivalents at end of period
|
$ | 18,449 | $ | 15,420 | ||||
Supplemental
disclosure of cash flows information:
|
||||||||
Cash
paid during period for:
|
||||||||
Interest
paid
|
$ | 25,916 | $ | 27,989 | ||||
Income
taxes paid
|
$ | 3,844 | $ | 7,064 | ||||
Transfer
of loans to foreclosed real estate
|
$ | 13,494 | $ | 2,860 |
Three
Months Ended
|
Nine
Months Ended
|
||||
September
30,
|
September
30,
|
||||
2008
|
2007
|
2008
|
2007
|
||
Common
shares – weighted average (basic)
|
10,066,679
|
10,066,679
|
10,066,679
|
10,066,150
|
|
Common
share equivalents – weighted average
|
-
|
-
|
-
|
9,489
|
|
Common
shares – diluted
|
10,066,679
|
10,066,679
|
10,066,679
|
10,075,639
|
Actual
|
Actual
|
To
Be Well Capitalized Under
|
||||||||||
at September 30, 2008
|
at December 31, 2007
|
Prompt Corrective
Provisions
|
||||||||||
Tangible
(1)
|
11.5 | % | 11.3 | % | N/A | |||||||
Tier
I Capital (2)
|
14.2 | % | 13.7 | % | 6.0 | % | ||||||
Core
(1)
|
11.5 | % | 11.3 | % | 5.0 | % | ||||||
Total
Capital (2)
|
15.2 | % | 14.9 | % | 10.0 | % |
Fair
Value Measurement at Reporting Date Using
|
||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Loans
accounted for under SFAS 114
|
$31,311
|
-
|
-
|
$31,311
|
Foreclosed
real estate
|
8,506
|
-
|
-
|
8,506
|
Impaired
Loans
|
Foreclosed
Real Estate
|
|||||||
Balance
at December 31, 2007
|
$ | 6,599 | $ | 2,993 | ||||
Transfer
to foreclosed real estate
|
(7,653 | ) | 10,695 | |||||
Additions
|
40,292 | 92 | ||||||
Additional
reserves
|
(4,758 | ) | (611 | ) | ||||
Paid
off/sold
|
(3,169 | ) | (4,663 | ) | ||||
Balance
at September 30, 2008
|
$ | 31,311 | $ | 8,506 |
·
|
Expand customer focus and
product offerings. The Bank is expanding beyond a core
savings and real estate related mortgage lending focus to provide a full
array of consumer and commercial banking products and services such as
asset-based lending, cash management, and demand deposit
services. For instance, the Bank has expanded its commercial
lending activities to include asset-based financing for small and
medium-sized businesses where collateral for such loans may include
borrower assets such as accounts receivable, inventory, machinery,
equipment, and other forms of security as well as real estate. As of
September 30, 2008, $6.8 million, or 0.8%, of the Bank’s loan portfolio
consisted of commercial loans for business purposes. The Bank has also
begun penetrating the commercial deposit-taking market including efforts
to provide cash management services and related commercial deposit
products to small and medium-sized businesses in its target geographic
market.
|
·
|
Deepen its relationship-based
approach to real estate related mortgage lending. During
the current period of weakening real estate markets, the Bank is pursuing
an intensified relationship-based lending approach focused on
strengthening ties to existing and past customers and is not aggressively
pursuing new customers for its real estate related mortgage lending
products.
|
·
|
Strengthen brand visibility
and leadership. The Bank has launched a new brand-building campaign
designed to differentiate it in the marketplace, emphasizing a full set of
financial services offerings as the leading independent, locally oriented
bank.
|
·
|
Selectively branch out within
the target market. The Bank is pursuing a branch
acquisition “fill-in” market distribution and service coverage strategy
designed to ensure convenience of branch locations for its
customers. With four existing branches, the Bank provides
significant market coverage. However, with the continued growth
and increasing geographic dispersion of its customer base within its
target market, the opportunity exists to further increase the convenience
and accessibility of its full service branches to its customer
base.
|
September
30, 2008
|
Number
of loans
|
December
31, 2007
|
Number
of loans
|
|||||||||||||
Loans
accounted for on a non-accrual basis:
|
||||||||||||||||
Mortgage
loans:
|
||||||||||||||||
Residential
- consumer
|
$ | 19,628 | 54 | $ | 3,975 | 11 | ||||||||||
Residential
- builder
|
23,258 | 40 | 3,389 | 6 | ||||||||||||
Commercial
|
882 | 5 | 336 | 2 | ||||||||||||
Non-mortgage
loans:
|
||||||||||||||||
Consumer
|
1 | 2 | - | |||||||||||||
Commercial
loans
|
- | - | ||||||||||||||
Total
non-accrual loans
|
$ | 43,769 | 101 | $ | 7,700 | 19 | ||||||||||
Accruing
loans greater than 90 days past due
|
$ | - | $ | - | ||||||||||||
Foreclosed
real-estate
|
$ | 8,506 | $ | 2,993 | ||||||||||||
Total
non-performing assets
|
$ | 52,275 | $ | 10,693 | ||||||||||||
Total
non-accrual loans to net loans
|
4.9 | % | 0.9 | % | ||||||||||||
Allowance
for loan losses
|
$ | 12,155 | $ | 10,781 | ||||||||||||
Allowance
to total loans
|
1.4 | % | 1.2 | % | ||||||||||||
Allowance
for loan losses to total non-performing loans,
|
||||||||||||||||
including
loans contractually past due 90 days or more
|
27.8 | % | 140.0 | % | ||||||||||||
Total
non-accrual and accruing loans greater than
|
||||||||||||||||
90
days past due to total assets
|
4.5 | % | 0.8 | % | ||||||||||||
Total
non-performing assets to total assets
|
5.4 | % | 1.1 | % |
Impaired
loans at December 31, 2007
|
$ | 17,960 | ||
Added
to impaired loans
|
60,974 | |||
Gross
loans transferred to foreclosed real estate
|
(13,494 | ) | ||
Paid
off prior to foreclosure
|
(8,139 | ) | ||
Impaired
loans at September 30, 2008
|
$ | 57,301 |
Foreclosed
real estate at December 31, 2007
|
$ | 2,993 | ||
Transferred
from impaired loans, net of specific reserves of $2,799
|
10,695 | |||
Property
improvements
|
92 | |||
Property
sold
|
(4,663 | ) | ||
Additional
write downs
|
(611 | ) | ||
Foreclosed
real estate at September 30, 2008
|
$ | 8,506 |
Principal
Amount
|
Rate
|
Maturity
|
|
$ -
|
-
|
2008
|
|
28,000
|
2.940%
to 4.996%
|
2009
|
|
10,000
|
5.00%
|
2010
|
|
-
|
-
|
2011
|
|
-
|
-
|
2012
|
|
115,000
|
2.364%
to 4.340%
|
Thereafter
|
|
$
153,000
|
·
|
contribution
to the Bank (including investment in equity or subordinated indebtedness
of the Bank) to fund its operations or provide additional capital for
regulatory purposes,
|
·
|
possible
repayment of indebtedness of the Bank or the Company,
and
|
·
|
other
general corporate purposes.
|
Nine
Months Ended September 30, 2008
|
Nine
Months Ended September 30, 2007
|
|||||||||||
Average
Balance
|
Interest
|
Rate
Annualized
|
Average
Balance
|
Interest
|
Rate
Annualized
|
|||||||
(dollars
in thousands)
|
||||||||||||
ASSETS
|
||||||||||||
Loans
(1)
|
$891,045
|
$47,271
|
7.07%
|
$847,303
|
$52,990
|
8.34%
|
||||||
Investment
securities(2)
|
1,368
|
56
|
5.46%
|
5,774
|
171
|
3.95%
|
||||||
Other
interest-earning assets (3)
|
20,682
|
613
|
3.95%
|
19,859
|
1,040
|
6.98%
|
||||||
Total
interest-earning assets
|
913,095
|
47,940
|
7.00%
|
872,936
|
54,201
|
8.28%
|
||||||
Non-interest
earning assets
|
49,567
|
52,268
|
||||||||||
Total
assets
|
$962,662
|
$925,204
|
||||||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||
Savings
and checking deposits
|
$119,170
|
1,495
|
1.67%
|
$134,039
|
2,420
|
2.41%
|
||||||
Certificates
of deposit
|
550,233
|
18,305
|
4.44%
|
506,884
|
19,389
|
5.07%
|
||||||
Short-term
borrowings
|
2,222
|
62
|
3.72%
|
11,111
|
407
|
4.88%
|
||||||
Long-term
borrowings
|
168,444
|
5,659
|
4.48%
|
153,889
|
6,061
|
5.25%
|
||||||
Total
interest-bearing liabilities
|
840,069
|
25,521
|
4.05%
|
808,923
|
28,277
|
4.66%
|
||||||
Non-interest
bearing liabilities
|
25,077
|
25,403
|
||||||||||
Stockholders'
equity
|
97,516
|
90,878
|
||||||||||
Total
liabilities and stockholders’ equity
|
$962,662
|
$925,204
|
||||||||||
Net
interest income and interest rate spread
|
$22,419
|
2.95%
|
$25,924
|
3.62%
|
||||||||
Net
interest margin
|
3.27%
|
3.96%
|
||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
108.69%
|
107.91%
|
(1)
|
Non-accrual
loans are included in the average balances and in the computation of
yields.
|
(2)
|
The
Company does not have any tax-exempt
securities.
|
(3)
|
Other
interest-earning assets includes interest-bearing deposits in other banks,
federal funds sold and FHLB stock
investments.
|
Financial
Instruments Whose Contract
|
Contract
Amount At
|
|
Amounts
Represent Credit Risk
|
September
30, 2008
|
|
Standby
letters of credit
|
$11,623
|
|
Home
equity lines of credit
|
$22,260
|
|
Unadvanced
construction commitments
|
$58,306
|
|
Loan
commitments
|
$14,268
|
|
Lines
of credit
|
$34,409
|
|
Loans
sold with limited repurchase
|
||
provisions
|
$2,678
|
|
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
|
SEVERN
BANCORP, INC.
|
||
November 6,
2008
|
_Alan
J. Hyatt___________________________
|
|
Alan
J. Hyatt, Chairman of the Board, President and Chief Executive
Officer
|
||
(Principal
Executive Officer)
|
||
November 6,
2008
|
_Thomas
G. Bevivino______________________
|
|
Thomas
G. Bevivino, Executive Vice President and Chief Financial
Officer
|
||
(Principal
Financial and Accounting Officer)
|