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, 2009 and
December 31, 2008
|
1
|
|
Consolidated
Statements of Operations (Unaudited) for the Three Months and Nine Months
Ended September 30, 2009 and 2008
|
2
|
|
Consolidated
Statements of Cash Flows (Unaudited) for the Nine Months Ended September
30, 2009 and 2008
|
3
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
Item
4.
|
Controls
and Procedures
|
27
|
PART
II – OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
27
|
Item
1A.
|
Risk
Factors
|
27
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
28
|
SIGNATURES
|
29
|
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Cash
and due from banks
|
$ | 29,837 | $ | 14,082 | ||||
Interest
bearing deposits in other banks
|
474 | 271 | ||||||
Federal
funds sold
|
40,000 | 17,952 | ||||||
Cash
and cash equivalents
|
70,311 | 32,305 | ||||||
Investment
securities held to maturity
|
9,229 | 1,345 | ||||||
Loans
held for sale
|
1,418 | 453 | ||||||
Loans
receivable, net of allowance for loan losses of
|
||||||||
$34,009
and $14,813, respectively
|
835,756 | 896,006 | ||||||
Premises
and equipment, net
|
29,411 | 30,267 | ||||||
Other
real estate owned
|
17,877 | 6,317 | ||||||
Federal
Home Loan Bank of Atlanta stock at cost
|
8,609 | 8,694 | ||||||
Accrued
interest receivable and other assets
|
23,293 | 12,264 | ||||||
Total
assets
|
$ | 995,904 | $ | 987,651 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Liabilities
|
||||||||
Deposits
|
$ | 725,040 | $ | 683,866 | ||||
Long-term
borrowings
|
135,000 | 153,000 | ||||||
Subordinated
debentures
|
24,119 | 24,119 | ||||||
Accrued
interest payable and other liabilities
|
2,533 | 2,999 | ||||||
Total
liabilities
|
886,692 | 863,984 | ||||||
Stockholders’ Equity
|
||||||||
Preferred
stock, $0.01 par value, 1,000,000 shares authorized;
|
||||||||
Preferred
stock series “A”, 437,500 shares issued and outstanding
|
4 | 4 | ||||||
Preferred
stock series “B”, 23,393 shares issued and
outstanding
|
- | - | ||||||
Common
stock, $0.01 par value, 20,000,000 shares authorized;
|
||||||||
10,066,679
shares issued and outstanding
|
101 | 101 | ||||||
Additional
paid-in capital
|
73,820 | 73,522 | ||||||
Retained
earnings
|
35,287 | 50,040 | ||||||
Total
stockholders' equity
|
109,212 | 123,667 | ||||||
Total
liabilities and stockholders' equity
|
$ | 995,904 | $ | 987,651 |
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||
September
30,
|
September
30,
|
|||
2009
|
2008
|
2009
|
2008
|
|
Interest Income
|
||||
Loans,
including fees
|
$13,278
|
$14,910
|
$39,760
|
$47,271
|
Securities,
taxable
|
33
|
17
|
65
|
56
|
Other
|
36
|
121
|
11
|
613
|
Total
interest income
|
13,347
|
15,048
|
39,836
|
47,940
|
Interest Expense
|
||||
Deposits
|
4,727
|
6,133
|
15,551
|
19,800
|
Short-term
borrowings
|
-
|
25
|
12
|
62
|
Long-term
borrowings and subordinated debentures
|
1,569
|
1,766
|
4,821
|
5,659
|
Total
interest expense
|
6,296
|
7,924
|
20,384
|
25,521
|
Net
interest income
|
7,051
|
7,124
|
19,452
|
22,419
|
Provision
for loan losses
|
8,909
|
2,865
|
25,944
|
4,365
|
Net
interest income (loss) after provision for loan losses
|
(1,858)
|
4,259
|
(6,492)
|
18,054
|
Non-Interest Income
|
||||
Real
estate commissions
|
108
|
329
|
519
|
707
|
Real
estate management fees
|
231
|
159
|
551
|
506
|
Mortgage
banking activities
|
37
|
27
|
241
|
316
|
Other
|
194
|
222
|
604
|
580
|
Total
non-interest income
|
570
|
737
|
1,915
|
2,109
|
Non-Interest Expenses
|
||||
Compensation
and related expenses
|
2,408
|
2,076
|
7,072
|
6,829
|
Occupancy
|
343
|
437
|
985
|
1,253
|
Foreclosed
real estate expenses, net
|
1,339
|
32
|
3,005
|
426
|
Legal
fees
|
308
|
213
|
731
|
483
|
FDIC
assessments and regulatory expense
|
593
|
189
|
1,414
|
537
|
Other
|
989
|
1,041
|
3,027
|
3,280
|
Total
non-interest expenses
|
5,980
|
3,988
|
16,234
|
12,808
|
Income
(loss) before income tax provision (benefit)
|
(7,268)
|
1,008
|
(20,811)
|
7,355
|
Income
tax provision (benefit)
|
(2,909)
|
421
|
(8,234)
|
3,012
|
Net
income (loss)
|
($4,359)
|
$587
|
($12,577)
|
$4,343
|
Amortization
of discount on preferred stock
|
68
|
-
|
203
|
-
|
Dividends
on preferred stock
|
363
|
-
|
1,068
|
-
|
Net
income (loss) available to common stockholders
|
($4,790)
|
$587
|
($13,848)
|
$4,343
|
Basic
earnings (loss) per share
|
($.48)
|
$.06
|
($1.38)
|
$.43
|
Diluted
earnings (loss) per share
|
($.48)
|
$.06
|
($1.38)
|
$.43
|
Common
stock dividends declared per share
|
$.03
|
$.06
|
$.09
|
$.18
|
For
the Nine Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Cash Flows from Operating
Activities
|
||||||||
Net
income (loss)
|
$ | (12,577 | ) | $ | 4,343 | |||
Adjustments
to reconcile net income (loss) to net
|
||||||||
cash
provided by operating activities:
|
||||||||
Amortization
of deferred loan fees
|
(1,602 | ) | (1,990 | ) | ||||
Net
amortization of premiums and
|
||||||||
discounts
|
2 | 3 | ||||||
Provision
for loan losses
|
25,944 | 4,365 | ||||||
Provision
for depreciation
|
959 | 1,011 | ||||||
Gain
on sale of loans
|
(241 | ) | (225 | ) | ||||
Loss
on sale of foreclosed real estate
|
83 | - | ||||||
Proceeds
from loans sold to others
|
24,660 | 16,903 | ||||||
Loans
originated for sale
|
(25,384 | ) | (15,577 | ) | ||||
Stock-based
compensation expense
|
96 | 96 | ||||||
Increase
in net deferred tax asset
|
(8,607 | ) | (81 | ) | ||||
Increase
in accrued interest receivable
|
||||||||
and
other assets
|
(294 | ) | (294 | ) | ||||
Decrease
in accrued interest payable and other
liabilities
|
(466 | ) | (471 | ) | ||||
Net
cash provided by operating activities
|
2,573 | 8,083 | ||||||
Cash Flows from Investing
Activities
|
||||||||
Purchase
of investment securities held to maturity
|
(7,999 | ) | - | |||||
Proceeds
from maturing investment securities
|
- | 1,000 | ||||||
Principal
collected on mortgage-backed securities
|
113 | 24 | ||||||
Net
(increase) decrease in loans
|
16,176 | (6,116 | ) | |||||
Proceeds
from sale of foreclosed real estate
|
5,961 | 4,922 | ||||||
Investment
in premises and equipment
|
(127 | ) | (285 | ) | ||||
Proceeds
from disposal of premises and equipment
|
24 | - | ||||||
Net
redemption of Federal Home Loan Bank
|
||||||||
of
Atlanta stock
|
85 | 1,478 | ||||||
Net
cash provided by investing activities
|
14,233 | 1,023 |
For
the Nine Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Cash Flows from Financing
Activities
|
||||||||
Net
increase in deposits
|
41,174 | 36,889 | ||||||
Decrease
in short-term borrowings
|
- | (15,000 | ) | |||||
Additional
borrowed funds, long term
|
- | 30,000 | ||||||
Repayment
of borrowed funds, long-term
|
(18,000 | ) | (52,000 | ) | ||||
Common
stock dividend paid
|
(906 | ) | (1,812 | ) | ||||
Series
A preferred stock dividend paid
|
(210 | ) | - | |||||
Series
B preferred stock dividend paid
|
(858 | ) | - | |||||
Net
cash provided by (used in) financing activities
|
21,200 | (1,923 | ) |
Increase
in cash and cash equivalents
|
38,006 | 7,183 | ||||||
Cash
and cash equivalents at beginning of year
|
32,305 | 11,266 | ||||||
Cash
and cash equivalents at end of period
|
$ | 70,311 | $ | 18,449 | ||||
Supplemental
disclosure of cash flows information:
|
||||||||
Cash
paid during period for:
|
||||||||
Interest
|
$ | 20,667 | $ | 25,916 | ||||
Income
taxes
|
$ | 2,458 | $ | 3,844 | ||||
Transfer
of loans to foreclosed real estate
|
$ | 19,649 | $ | 13,494 |
Three
Months Ended
|
Nine
Months Ended
|
||||
September
30,
|
September
30,
|
||||
2009
|
2008
|
2009
|
2008
|
||
Common
shares – weighted average (basic)
|
10,066,679
|
10,066,679
|
10,066,679
|
10,066,679
|
|
Common
share equivalents – weighted average
|
-
|
-
|
-
|
-
|
|
Common
shares – diluted
|
10,066,679
|
10,066,679
|
10,066,679
|
10,066,679
|
Actual
|
Actual
|
To
Be Well Capitalized Under
|
|
at September 30, 2009
|
at December 31, 2008
|
Prompt Corrective
Provisions
|
|
Tangible
(1)
|
12.2%
|
13.5%
|
N/A
|
Tier
I Capital (2)
|
15.5%
|
16.9%
|
6.0%
|
Core
(1)
|
12.2%
|
13.5%
|
5.0%
|
Total
Capital (2)
|
16.8%
|
18.1%
|
10.0%
|
2009
|
|||
Weighted
Average
|
|||
Exercise
Price
|
|||
Shares
|
Per
Share
|
||
Outstanding
at beginning of year
|
114,950
|
$15.87
|
|
Options
granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
(1,210)
|
$15.62
|
|
Outstanding
at period end
|
113,740
|
$15.87
|
|
Exercisable
at period end
|
84,085
|
$15.86
|
Weighted
Average Remaining
|
Weighted
Average
|
||
Range
of Exercise Prices
|
Number
Outstanding
|
Contractual
Life
|
Exercise
Price
|
$15.62
|
71,077
|
1.39
|
$15.62
|
$17.18
|
13,008
|
1.39
|
$17.18
|
$15.62-$17.18
|
84,085
|
1.39
|
$15.86
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Fair
Value
|
|||||||||||||
(dollars
in thousands)
|
||||||||||||||||
September 30, 2009:
|
||||||||||||||||
US
Treasury securities
|
$ | 7,999 | $ | 43 | $ | ( - | ) | $ | 8,042 | |||||||
Residential
mortgage backed securities
|
1,230 | 26 | (14 | ) | 1,242 | |||||||||||
Total
|
$ | 9,229 | $ | 69 | $ | (14 | ) | $ | 9,284 | |||||||
December 31, 2008:
|
||||||||||||||||
Residential
mortgage backed securities
|
$ | 1,345 | $ | 11 | $ | (27 | ) | $ | 1,329 |
After
|
After
|
||||
In
|
One
Year
|
Five
Years
|
|||
One
Year
|
Through
|
Through
|
After
|
||
(in
thousands)
|
Or
Less
|
Five
Years
|
Ten
Years
|
Ten
Years
|
Total
|
Securities
held-to-maturity
|
|||||
US
Treasury securities
|
$1,998
|
$6,044
|
$-
|
$-
|
$8,042
|
Residential
mortgage backed
|
-
|
-
|
-
|
$1,242
|
1,242
|
Total
securities
|
$1,998
|
$6,044
|
$-
|
$1,242
|
$9,284
|
Less
than 12 months
|
12
Months or More
|
Total
|
||||
Unrealized
|
Unrealized
|
Unrealized
|
||||
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
|
September 30, 2009:
|
(dollars
in thousands)
|
|||||
Mortgage
backed securities
|
$-
|
$-
|
$268
|
($14)
|
$268
|
($14)
|
December 31, 2008:
|
||||||
Mortgage
backed securities
|
$-
|
$-
|
$1,151
|
($27)
|
$1,151
|
($27)
|
Fair
Value Measurement at September 30, 2009 Using
|
||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Loans
accounted for under FASB ASC 310-10-35
|
$48,994
|
-
|
-
|
$48,994
|
Foreclosed
real estate
|
17,877
|
-
|
-
|
17,877
|
Fair
Value Measurement at December 31, 2008 Using
|
||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Loans
accounted for under FASB ASC 310-10-35
|
$32,054
|
-
|
-
|
$32,054
|
Foreclosed
real estate
|
6,317
|
-
|
-
|
6,317
|
Impaired Loans
|
Foreclosed Real Estate
|
|||||||
Balance
at December 31, 2008
|
$ | 32,054 | $ | 6,317 | ||||
Transfer
to foreclosed real estate
|
(10,755 | ) | 19,649 | |||||
Additions
|
57,507 | 213 | ||||||
Additional
allowances
|
(11,358 | ) | (2,258 | ) | ||||
Paid
off/sold
|
(18,454 | ) | (6,044 | ) | ||||
Balance
at September 30, 2009
|
$ | 48,994 | $ | 17,877 |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
(dollars
in thousands)
|
||||||||||||||||
Financial Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 70,311 | $ | 70,311 | $ | 32,305 | $ | 32,305 | ||||||||
Investment
securities
|
9,229 | 9,284 | 1,345 | 1,329 | ||||||||||||
FHLB
stock
|
8,609 | 8,609 | 8,694 | 8,694 | ||||||||||||
Loans
held for sale
|
1,418 | 1,418 | 453 | 453 | ||||||||||||
Loans
receivable, net
|
835,756 | 873,124 | 896,006 | 899,991 | ||||||||||||
Accrued
interest receivable
|
3,530 | 3,530 | 4,363 | 4,363 | ||||||||||||
Financial Liabilities
|
||||||||||||||||
Deposits
|
$ | 725,040 | $ | 728,475 | $ | 683,866 | $ | 687,067 | ||||||||
FHLB
advances
|
135,000 | 126,883 | 153,000 | 151,142 | ||||||||||||
Subordinated
debentures
|
24,119 | 24,119 | 24,119 | 24,119 | ||||||||||||
Accrued
interest payable
|
837 | 837 | 1,120 | 1,120 | ||||||||||||
Off Balance Sheet
Commitments
|
$ | - | $ | - | $ | - | $ | - |
September
30,
2009
|
Number
of loans
|
December
31, 2008
|
Number
of loans
|
|||||||||||||
|
|
|||||||||||||||
Loans
accounted for on a non-accrual basis:
|
||||||||||||||||
Mortgage
loans:
|
||||||||||||||||
Residential
- consumer
|
$ | 45,249 | 86 | $ | 30,769 | 73 | ||||||||||
Residential
- builder
|
17,417 | 48 | 20,970 | 45 | ||||||||||||
Commercial
|
4,741 | 12 | 3,047 | 11 | ||||||||||||
Non-mortgage
loans:
|
||||||||||||||||
Consumer
|
11 | 2 | 9 | 2 | ||||||||||||
Commercial
loans
|
1,383 | 3 | - | - | ||||||||||||
Total
non-accrual loans
|
$ | 68,801 | 151 | $ | 54,795 | 131 | ||||||||||
Accruing
loans greater than 90 days past due
|
$ | - | $ | - | ||||||||||||
Foreclosed
real-estate
|
$ | 17,877 | $ | 6,317 | ||||||||||||
Total
non-performing assets
|
$ | 86,678 | $ | 61,112 | ||||||||||||
Total
troubled debt restructurings
|
$ | 22,552 | 32 | $ | 2,142 | 3 | ||||||||||
Total
non-accrual loans to net loans
|
8.2 | % | 6.1 | % | ||||||||||||
Allowance
for loan losses
|
$ | 34,009 | $ | 14,813 | ||||||||||||
Allowance
to total loans
|
3.9 | % | 1.6 | % | ||||||||||||
Allowance
for loan losses to total non-performing loans,
|
||||||||||||||||
including
loans contractually past due 90 days or more
|
49.4 | % | 27.0 | % | ||||||||||||
Total
non-accrual and accruing loans greater than
|
||||||||||||||||
90
days past due to total assets
|
6.9 | % | 5.5 | % | ||||||||||||
Total
non-performing assets to total assets
|
8.7 | % | 6.2 | % |
Impaired
loans at December 31, 2008
|
$ | 69,836 | ||
Added
to impaired loans
|
102,507 | |||
Gross
loans transferred to foreclosed real estate
|
(23,464 | ) | ||
Paid
off prior to foreclosure
|
(20,346 | ) | ||
Impaired
loans at September 30, 2009
|
$ | 128,533 |
Foreclosed
real estate at December 31, 2008
|
$ | 6,317 | ||
Transferred
from loans, net of charge-offs of $3,815
|
19,649 | |||
Property
improvements
|
213 | |||
Property
sold
|
(6,044 | ) | ||
Additional
allowances
|
(2,258 | ) | ||
Foreclosed
real estate at September 30, 2009
|
$ | 17,877 |
Principal
Amount
|
Rate
|
Maturity
|
|
$ 10,000
|
3.083%
|
2009
|
|
10,000
|
5.000%
|
2010
|
|
-
|
-
|
2011
|
|
-
|
-
|
2012
|
|
-
|
-
|
2013
|
|
115,000
|
2.579%
to 4.340%
|
Thereafter
|
|
$
135,000
|
Nine
Months Ended September 30, 2009
|
Nine
Months Ended September 30, 2008
|
|||||||||||
Average
Volume
|
Interest
|
Yield/Cost
|
Average
Volume
|
Interest
|
Yield/Cost
|
|||||||
(dollars
in thousands)
|
||||||||||||
ASSETS
|
||||||||||||
Loans
(1)
|
$888,331
|
$39,760
|
5.97%
|
$891,045
|
$47,271
|
7.07%
|
||||||
Held
to maturity securities(2)
|
3,132
|
65
|
2.77%
|
1,368
|
56
|
5.46%
|
||||||
Other
interest-earning assets (3)
|
31,748
|
11
|
0.05%
|
20,682
|
613
|
3.95%
|
||||||
Total
interest-earning assets
|
923,211
|
39,836
|
5.75%
|
913,095
|
47,940
|
7.00%
|
||||||
Non-interest
earning assets
|
63,301
|
49,567
|
||||||||||
Total
assets
|
$986,512
|
$962,662
|
||||||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||
Savings
and checking deposits
|
$178,616
|
2,749
|
2.05%
|
$119,170
|
1,495
|
1.67%
|
||||||
Certificates
of deposit
|
514,098
|
12,802
|
3.32%
|
550,233
|
18,305
|
4.44%
|
||||||
Borrowings
|
145,249
|
4,833
|
4.44%
|
170,666
|
5,721
|
4.47%
|
||||||
Total
interest-bearing liabilities
|
837,963
|
20,384
|
3.24%
|
840,069
|
25,521
|
4.05%
|
||||||
Non-interest
bearing liabilities
|
29,740
|
25,077
|
||||||||||
Stockholders'
equity
|
118,809
|
97,516
|
||||||||||
Total
liabilities and stockholders’ equity
|
$986,512
|
$962,662
|
||||||||||
Net
interest income and interest rate spread
|
$19,452
|
2.51%
|
$22,419
|
2.95%
|
||||||||
Net
interest margin
|
2.81%
|
3.27%
|
||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
110.17%
|
108.69%
|
(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, 2009
|
|
Standby
letters of credit
|
$11,551
|
|
Home
equity lines of credit
|
19,871
|
|
Unadvanced
construction commitments
|
48,335
|
|
Mortgage
loan commitments
|
9,485
|
|
Lines
of credit
|
27,422
|
|
Loans
sold with limited repurchase
|
||
provisions
|
12,027
|
|
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 12, 2009
|
Alan
J. Hyatt___________________________
|
|
Alan
J. Hyatt, Chairman of the Board, President and Chief Executive
Officer
|
||
(Principal
Executive Officer)
|
||
November 12, 2009
|
Thomas
G. Bevivino______________________
|
|
Thomas
G. Bevivino, Executive Vice President and Chief Financial
Officer
|
||
(Principal
Financial Officer)
|