PR Newswire | Jul 27, 2021 04:06PM EDT

07/27 15:05 CDT

Severn Bancorp, Inc. Announces Second Quarter Earnings ANNAPOLIS, Md., July 27, 2021

ANNAPOLIS, Md., July 27, 2021 /PRNewswire/ -- Severn Bancorp, Inc. (the Company) (NASDAQ: SVBI), the parent company of Severn Bank (the Bank), reported net income of $1.7 million for the second quarter ended June 30, 2021 and $5.6 million for the six months ended June 30, 2021 compared to $1.7 million and $2.3 million for the same periods in 2020. Earnings per share on a fully diluted basis were $0.13 for the second quarter and $0.44 for the first six months of 2021 compared to $0.14 and $0.18, respectively, from the second quarter and first six months of 2020.

Reaction to COVID-19The Company continues to be vigilant regarding COVID-19. While branches and offices remain fully open at this time, remote working arrangements and social distancing remain in place. The Company is aware of the recent surge in COVID-19 infections arising out of the so-called Delta variant and is prepared to restore other protocols, as may prove to be necessary.

"The Company has experienced a significant amount of loan payoffs and maintains an extraordinarily high degree of liquidity," said Alan J. Hyatt, President and Chief Executive Officer. "Despite substantial loan originations, loan payoffs have resulted in negative loan growth. In this low interest rate environment very little can be earned on liquidity, so as a result, earnings were less than desired in the second quarter. The Bank's loan pipeline remains robust, and if there is a slowing of loan payoffs positive loan growth should take place going forward."

"Residential mortgage originations remain steady, with low rates continuing to fuel that activity, resulting in fee income to the Bank," said Mr. Hyatt.

"The pending merger between the Company and Shore Bancshares, Inc. continues to move forward with closing anticipated later this year," Mr. Hyatt stated.

Income StatementNet interest income was $7.0 million for the second quarter ended June 30, 2021 and $14.7 million for the six months ended June 30, 2021 compared to $6.6 million and $13.4 million for the same periods in 2020. The increases in interest income was driven by higher volumes of earning assets, including a significantly higher volume of medical-use cannabis related deposits that were invested in the securities portfolio as well as held in fed funds and interest bearing deposits with other banks. Also, a reduction in interest expense from lower deposit rates and less reliance on borrowings contributed to the increased net interest income. These benefits were slightly offset by lower loan interest income from lower average loan volumes as well as lower yielding SBA Paycheck Protection Program ("PPP") loans.

The Company recorded a reversal of provision of $(325) thousand for the second quarter ended June 30, 2021 and $(1.1) million for the six months ended June 30, 2021. The ratio of the allowance for loan losses to gross loans was 1.28% at June 30, 2021 compared to 1.35% at December 31, 2020 and 1.24% at June 30, 2020. Excluding PPP loans, the ratio of the allowance for loan losses to gross loans was 1.37% at June 30, 2021 compared to 1.42% at December 31, 2020 and 1.33% at June 30, 2020. The reversal of provisions in the first and second quarters of 2021 and the decline in the balance of the allowance for loan losses as compared to year end 2020 was attributable to a decline in total loans, net of PPP loans, which are excluded from the allowance due to their underlying guarantees.

Noninterest income was $3.8 million for the second quarter ended June 30, 2021 and $9.5 million for the six months ended June 30, 2021 compared to $3.2 million and $6.3 million for the same periods in 2020. Growth in mortgage banking production continued to contribute significantly to the increases in noninterest income.

Noninterest expense was $8.7 million for the second quarter ended June 30, 2021 and $17.5 million for the six months ended June 30, 2021 compared to $7.5 million and $15.7 million for the same periods in 2020. The largest increase was attributable to higher commissions paid to mortgage loan officers from increased production as well as $330 thousand of merger related expenses through the first six months of the year.

Balance SheetTotal assets increased $193 million to $1.1 billion at June 30, 2021 from $953 million at December 31, 2020. The increase in assets was primarily in federal funds and interest bearing deposits in other banks as well as an increased bond portfolio. Deposits also increased by $189 million from December 31, 2020. The increase in deposits was primarily the result of short term, medical-use cannabis related funds that account holders maintain at the Bank prior to pursuing other longer term investment opportunities. Management is aware of the short term nature of certain medical-use cannabis related deposits and offsets those funds by maintaining short term liquidity to meet any deposit outflows.

About Severn BankFounded in 1946, Severn Bank is a full-service community bank offering a wide array of personal and commercial banking products as well as residential and commercial mortgage lending. It offers seven branches located in Annapolis, Edgewater, Severna Park, Lothian/Wayson's Corner, Crofton, and Glen Burnie, Maryland. The Bank specializes in exceptional customer service and holds itself and its employees to a high standard of community contribution. Severn Bank is on the Web at www.severnbank.com.

Forward Looking StatementsIn addition to the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties that may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. The forward-looking statements contained herein include, but are not limited to, those with respect to management's determination of the amount of loan loss reserve and statements about the economy. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "will," "would," "could," "should," "guidance," "potential," "continue," "project," "forecast," "confident," and similar expressions are typically used to identify forward-looking statements. The Company's operations and actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences include, but are not limited to, changes in the economy and interest rates both in the nation and in the Company's general market area, federal and state regulation, competition, the rapidly changing uncertainties related to the Covid-19 pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance, and other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission (the "SEC"), including "Item 1A. Risk Factors" contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Severn Bancorp, Inc.

Consolidated Balance Sheets

(dollars in thousands)

(Unaudited)

June 30, 2021 December 31, 2020 $ Change % Change

Balance SheetData:

ASSETS

Cash $ 4,057 $ 4,819 $ -16% (762)

Federal funds and interest bearing 305,746 151,790 153,956 101% deposits in other banks

Certificates of deposit 844 3,580 (2,736) -76% held as investment

Investment securities available for 21,278 65,098 (43,820) -67% sale, at fair value

Investment securities 135,765 15,943 119,822 752% held to maturity

Loans held for sale, at 32,869 36,299 (3,430) -9% fair value

Loans 613,329 642,882 (29,553) -5% receivable

Allowance for (7,878) (8,670) 792 -9% loan losses

Accrued interest 2,336 2,576 (240) -9% receivable

Foreclosed real estate, 1,010 1,010 0 0% net

Premises and equipment, 20,278 20,940 (662) -3% net

Restricted stock 970 1,236 (266) -22% investments

Bank owned life 5,583 5,517 66 1% insurance

Deferred income taxes, 112 1,145 (1,033) -90% net

Prepaid expenses and 8,930 8,388 542 6% other assets

Total Assets $ 1,145,229 $ 952,553 $ 192,676 20%

LIABILITIESANDSTOCKHOLDERSEQUITY

Deposits $ 995,722 $ 806,456 $ 189,266 23%

Borrowings 10,000 10,000 - 0%

Subordinated 20,619 20,619 - 0% debentures

Accounts payable and 4,725 5,831 (1,106) -19% accrued expenses

Total 1,031,066 842,906 188,160 22% Liabilities

Common stock 129 128 1 0%

Additional paid-in 66,392 66,251 141 0% capital

Retained 47,561 43,216 4,345 10% earnings

Accumulated comprehensive 81 52 29 56% income

Total Stockholders' 114,163 109,647 4,516 4% Equity

Total Liabilities and $ 1,145,229 $ 952,553 $ 192,676 20% Stockholders' Equity

Severn Bancorp, Inc.

Consolidated Income Statements

(dollars in thousands)

(Unaudited)

Quarterly incomestatement Three Months Ended June 30,results:

2021 2020 $ Change % Change

Interest Income

Interest on $ 7,378 $ 8,078 $ (700) -9% loans

Interest on 426 216 210 97% securities

Other interest 79 67 12 18% income

Total interest 7,883 8,361 (478) -6% income

Interest Expense

Interest on 707 1,383 (676) -49% deposits

Interest on long 166 333 (167) -50% term borrowings

Total interest 873 1,716 (843) -49% expense

Net interest 7,010 6,645 365 5% income

Provision for (reversal of) (325) - (325) -100% loan losses

Net interest income after provision for 7,335 6,645 690 10% (reversal of) loan losses

NoninterestIncome

Mortgage-banking 2,300 1,990 310 16% revenue

Real Estate 7 130 (123) -95% Commissions

Real Estate Management - 155 (155) -100% Income

Other noninterest 1,449 962 487 51% income

Total noninterest 3,756 3,237 519 16% income

Net interest income plus noninterest income after 11,091 9,882 1,209 12% provision for (reversal of) loan losses

NoninterestExpense

Compensation and 5,829 5,171 658 13% related expenses

Net Occupancy & 486 445 41 9% Depreciation

Net Costs of Foreclosed Real 44 16 28 175% Estate

Other 2,313 1,855 458 25%

Total noninterest 8,672 7,487 1,185 16% expense

Income before income tax 2,419 2,395 24 1% provision

Income tax 699 658 41 6% provision

Net income $ 1,719 $ 1,737 $ (18) -1%

Severn Bancorp, Inc.

Consolidated Income Statements

(dollars in thousands)

(Unaudited)

Year-to-Dateincome statement Six Months Ended June 30,results:

2021 2020 $ Change % Change

Interest Income

Interest on $ 15,622 $ 16,416 $ (794) -5% loans

Interest on 718 435 283 65% securities

Other interest 152 426 (274) -64% income

Total interest 16,492 17,277 (785) -5% income

Interest Expense

Interest on 1,491 3,180 (1,689) -53% deposits

Interest on long 333 697 (364) -52% term borrowings

Total interest 1,824 3,877 (2,053) -53% expense

Net interest 14,668 13,400 1,268 9% income

Provision for (reversal of) (1,075) 750 (1,825) -243% loan losses

Net interest income after provision for 15,743 12,650 3,093 24% (reversal of) loan losses

NoninterestIncome

Mortgage-banking 6,696 3,624 3,072 85% revenue

Real Estate 168 440 (272) -62% Commissions

Real Estate Management - 320 (320) -100% Income

Other noninterest 2,651 1,878 773 41% income

Total noninterest 9,515 6,262 3,253 52% income

Net interest income plus noninterest income after 25,258 18,912 6,346 34% provision for (reversal of) loan losses

NoninterestExpense

Compensation and 12,051 10,632 1,419 13% related expenses

Net Occupancy & 957 963 (6) -1% Depreciation

Net Costs of Foreclosed Real 46 90 (44) -49% Estate

Other 4,424 4,054 370 9%

Total noninterest 17,478 15,739 1,739 11% expense

Income before income tax 7,780 3,173 4,607 145% provision

Income tax 2,149 871 1,278 147% provision

Net income $ 5,631 $ 2,302 $ 3,329 145%

Severn Bancorp, Inc.

Selected Financial Data

(dollars in thousands, except per share data)

(Unaudited)

Six Months Ended June 30, Three Months Ended June 30,

2021 2020 2021 2020

Per Share Data: .

Basic earnings $ 0.44 $ 0.18 $ 0.13 $ 0.14 per share

Diluted earnings $ 0.44 $ 0.18 $ 0.13 $ 0.14 per share

Average basic shares 12,852,741 12,812,808 12,858,076 12,812,976 outstanding

Average diluted shares 12,923,184 12,834,348 12,944,644 12,818,556 outstanding

PerformanceRatios:

Return on 1.07% 0.54% 0.64% 0.81% average assets

Return on 10.23% 4.30% 6.16% 6.51% average equity

Net interest 2.89% 3.30% 3.06% 3.22% margin

Efficiency 72.09% 79.59% 80.14% 75.60% ratio*

June 30, 2021 December 31, 2020

Asset QualityData:

Non-accrual $ 1,234 $ 4,380 loans

Foreclosed real $ 1,010 $ 1,010 estate

Total non-performing $ 2,244 $ 5,390 assets

Total non-accrual 0.20% 0.68% loans to total loans

Total non-accrual 0.11% 0.46% loans to total assets

Allowance for $ 7,878 $ 8,670 loan losses

Allowance for loan losses to 1.28% 1.35% total loans

Allowance for loan losses to 1.37% 1.42% loans, net of PPP loans

Allowance for loan losses to total

non-accrual 638.4% 197.9% loans

Total non-performing 0.20% 0.57% assets to total assets

Non-accrual troubled debt $ 155 $ 163 restructurings (included above)

Performing troubled debt $ 5,839 $ 6,589 restructurings

Loan to deposit 61.6% 79.7% ratio

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

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SOURCE Severn Bancorp, Inc.