8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event report) October 27, 2017

Severn Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	0-49731	52-1726127
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

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)

(Former name or former address, if change since last report)

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

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Emerging growth company ☐

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

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On October 27, 2017 Severn Bancorp, Inc. issued a press release announcing financial results for the quarter ended September 30, 2017.  A copy of this press release is being furnished as Exhibit 99.1 to this report.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits:

99.1 Press Release of Severn Bancorp, Inc., dated October 27, 2017 announcing financial results for the quarter ended September 30, 2017.

Signatures

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

	Severn Bancorp, Inc.
Dated: October 27, 2017	By:	/s/ Alan J. Hyatt
		Alan J. Hyatt, President

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE	Contact:
	Paul Susie
	Chief Financial Officer &
	Executive Vice President
	Email: psusie@severnbank.com
	Phone: 410.260.2000

Severn Bancorp, Inc. Announces Double Digit Percentage Increase in Earnings

Annapolis, MD (October 27, 2017) –Severn Bancorp, Inc., (Nasdaq: SVBI) parent company of Severn Savings Bank, FSB, today announced net income of $1.26 million, or $0.09 per diluted share for the third quarter of 2017. This is an increase of 19% over the third quarter of 2016 results of $1.06 million, or $0.04 per diluted share. Additionally, net income increased 28% when comparing to the prior period where net income was $982 thousand, or $0.07 per diluted share, for the quarter ended June 30, 2017.

For the nine months ended September 30, 2017 net income was $3.17 million compared to $14.4 million for the same period in 2016. Included in the results for the nine months ended September 30, 2016 was the effect of the reversal of the valuation allowance on the net deferred tax asset which occurred in the second quarter of 2016. This resulted in a negative income tax provision of $10.8 million. Excluding the effect of this one-time tax benefit, income before taxes was $5.3 million and $3.6 million for the nine months ended September 30, 2017 and 2016, respectively, representing a 47% increase.

Total assets were $801.3 million as of September 30, 2017, which was a $13.8 million increase from $787.5 million as of December 31, 2016.  Deposits increased by $21.5 million as of September 30, 2017 compared to December 31, 2016.

Asset quality has improved during the nine months ended September 30, 2017. Total non-performing assets were $7.5 million as of September 30, 2017 versus $10.8 million as of December 31, 2016, which represents a 31% decrease. Total non-accrual loans to total loans decreased from 1.6% as of December 31, 2016 to 1.0% as of September 30, 2017.

“We are pleased with the growth in our earnings”, stated Alan J. Hyatt, President and Chief Executive Officer. Mr. Hyatt continued, “Our cost of funds continues to decrease as we repay or refinance long outstanding Federal Home Loan Bank borrowings. Replacing these borrowings with lower cost funding has allowed us to significantly improve our net interest margin. Commercial lending and deposit activity has been robust for the first three quarters of this year.  We are building strong banking relationships that are beneficial to the company and our customers. We are definitely in growth mode and very optimistic about our outlook.”

About Severn Savings Bank: Founded in 1946, Severn 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 has assets of $797.7 million and five branches located in Annapolis, Edgewater, Glen Burnie, and Severna Park, Maryland. The bank specializes in exceptional customer service and holds itself and its employees to a high standard of community contribution. Severn is on the Web at www.severnbank.com.

# # #

Forward Looking Statements

In addition to the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties that may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. The forward-looking statements contained herein include, but are not limited to, those with respect to management’s determination of the amount of loan loss reserve and statements about the economy. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “could,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements. Severn’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 Severn’s general market area, federal and state regulation, competition and other factors detailed from time to time in Severn’s filings with the Securities and Exchange Commission (the “SEC”), including “Item 1A. Risk Factors” contained in Severn’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Severn Bancorp, Inc.

Consolidated Income Statement

(dollars in thousands, except per share data)

(Unaudited)

Quarterly income statement results:	Three Months Ended September 30,
	2017		2016		$ Change			% Change
Interest Income
Interest on loans	$	7,742	$	7,479	$	263			3.52	%
Interest on securities		330		280		50			17.97	%
Other interest income		167		83		84			101.29	%
Total interest income		8,239		7,842		397			5.07	%
Interest Expense
Interest on deposits		1,011		1,019		(8	)		-0.72	%
Interest on long term borrowings		897		1,106		(209	)		-18.89	%
Total interest expense		1,908		2,125		217			-10.18	%
Net interest income		6,331		5,717		614			10.74	%
Provision for (reversal of) loan losses		-		50		(50	)		-100.00	%
Net interest income after provision for loan losses		6,331		5,667		664			11.72	%
Other Income
Mortgage-banking revenue		334		1,042		(708	)		-68.01	%
Real Estate Commissions		311		455		(144	)		-31.67	%
Real Estate Management Income		197		214		(17	)		-7.95	%
All other income		557		185		372			200.87	%
Net other income		1,399		1,896		(497	)		-26.27	%
Net interest income after provision for loan losses plus other income		7,730		7,563		167			2.19	%
Non-Interest Expenses
Compensation and related expenses		3,288		4,028		(740	)		-18.38	%
Net Occupancy & Depreciation		354		486		(132	)		-27.12	%
Net Costs of Foreclosed Real Estate		126		41		85			206.69	%
Other		1,753		1,575		178			11.27	%
Total non-interest expenses		5,521		6,130		(609	)		-9.95	%
Income before income tax provision		2,209		1,433		776			54.13	%
Income tax provision		950		378		572			151.36	%
Net income	$	1,259	$	1,055	$	204			19.29	%
Net income available to common shareholders	$	1,121	$	539	$	582			107.98	%

Severn Bancorp, Inc.

Consolidated Income Statement

(dollars in thousands, except per share data)

(Unaudited)

Year-to-Date income statement results:	Nine Months Ended September 30,
	2017			2016			$ Change			% Change
Interest Income
Interest on loans	$	22,267		$	21,847		$	420			1.92	%
Interest on securities		927			890			37			4.21	%
Other interest income		498			251			247			98.23	%
Total interest income		23,692			22,988			704			3.06	%
Interest Expense
Interest on deposits		2,924			3,002			(78	)		-2.59	%
Interest on long term borrowings		2,844			3,493			(649	)		-18.58	%
Total interest expense		5,768			6,495			(727	)		-11.19	%
Net interest income		17,924			16,493			1,431			8.68	%
Provision for (reversal of) loan losses		(650	)		150			(800	)		-533.33	%
Net interest income after provision for loan losses		18,574			16,343			2,231			13.65	%
Other Income
Mortgage-banking revenue		1,150			2,693			(1,543	)		-57.31	%
Real Estate Commissions		959			1,246			(287	)		-23.07	%
Real Estate Management Income		513			564			(51	)		-8.97	%
All other income		1,140			1,076			64			5.92	%
Net other income		3,762			5,579			(1,817	)		-32.58	%
Net interest income after provision for loan losses plus other income		22,336			21,922			414			1.89	%
Non-Interest Expenses
Compensation and related expenses		10,719			11,478			(759	)		-6.61	%
Net Occupancy & Depreciation		1,015			1,387			(372	)		-26.84	%
Net Costs of Foreclosed Real Estate		166			184			(18	)		-10.01	%
Other		5,120			5,252			(132	)		-2.51	%
Total non-interest expenses		17,020			18,301			(1,281	)		-7.00	%
Income before income tax provision		5,316			3,621			1,695			46.80	%
Income tax provision		2,150			(10,816	)		12,966			-119.88	%
Net income	$	3,166		$	14,437		$	(11,271	)		-78.07	%
Net income available to common shareholders	$	2,753		$	12,864		$	(10,111	)		-78.60	%

Severn Bancorp, Inc.

Consolidated Balance Sheet

(dollars in thousands, except per share data)

(Unaudited)

	September 30, 2017			December 31, 2016			$ Change			% Change
Balance Sheet Data:
ASSETS
Cash	$	1,654		$	39,396		$	(37,742	)		-95.80	%
Federal funds and Interest bearing deposits in other banks		39,981			27,718			12,263			44.24	%
Investment securities available for sale		3,129			-			3,129			100.00	%
Investment securities held to maturity		58,764			62,757			(3,993	)		-6.36	%
Loans held for sale		4,871			10,307			(5,436	)		-52.74	%
Loans receivable		650,964			610,278			40,686			6.67	%
Loan valuation allowance		(7,936	)		(8,969	)		1,033			-11.52	%
Accrued interest receivable		2,503			2,249			254			11.30	%
Foreclosed real estate, net		1,104			973			131			13.47	%
Premises and equipment, net		23,398			24,030			(632	)		-2.63	%
Restricted stock investments		4,699			5,103			(404	)		-7.92	%
Bank owned life insurance		5,023			-			5,023			100.00	%
Deferred income taxes		8,002			10,081			(2,079	)		-20.62	%
Prepaid expenses and other assets		5,174			3,562			1,612			45.26	%
	$	801,330		$	787,485		$	13,845			1.76	%
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	$	593,492		$	571,946		$	21,546			3.77	%
Borrowings		93,450			103,500			(10,050	)		-9.71	%
Subordinated Debentures		20,619			20,619			-			0.00	%
Accounts payable and accrued expenses		1,759			3,490			(1,731	)		-49.59	%
Total Liabilities		709,320			699,555			9,765			1.40	%
Preferred stock		4			4			0			9.38	%
Common stock		122			121			1			1.23	%
Additional paid-in capital		65,290			63,960			1,330			2.08	%
Retained earnings		26,598			23,845			2,753			11.54	%
Accumulated comprehensive income (loss)		(4	)		-			(4	)		100.00	%
Total Stockholders' Equity		92,010			87,930			4,080			4.64	%
	$	801,330		$	787,485		$	13,845			1.76	%

Severn Bancorp, Inc.

Selected Financial Data

(dollars in thousands, except per share data)

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2017			2016			2017			2016
Per Share Data:											.
Basic earnings per share	$	0.23		$	1.14		$	0.09		$	0.04
Diluted earnings per share	$	0.22		$	1.13		$	0.09		$	0.04
Average basic shares outstanding		12,140,689			11,324,660			12,172,586			12,104,379
Average diluted shares outstanding		12,248,214			11,375,853			12,323,572			12,183,739
Performance Ratios:
Return on average assets		0.53	%		2.48	%		0.63	%		0.54	%
Return on average equity		4.80	%		21.05	%		5.69	%		4.29	%
Net interest margin		3.25	%		3.07	%		3.38	%		3.19	%
Efficiency Ratio		77.72	%		82.08	%		69.80	%		79.98	%

	September 30, 2017			December 31, 2016
Asset Quality Data:
Non-accrual loans	$	6,377		$	9,852
Foreclosed real estate		1,104			973
Total non-performing assets		7,481			10,825
Total non-accrual loans to total loans		1.0	%		1.6	%
Total non-accrual loans to total assets		0.8	%		1.3	%
Allowance for loan losses		7,936			8,969
Allowance for loan losses to total loans		1.2	%		1.5	%
Allowance for loan losses to total non-accrual loans		124.4	%		91.0	%
Total non-performing assets to total assets		0.9	%		1.4	%
Non-accrual troubled debt restructurings (included above)		2,375			2,392
Performing troubled debt restructurings		15,416			18,066
Loan to deposit ratio		109.7	%		106.7	%

* The efficiency ratio is general and administrative expenses as a percentage of net interest income plus non-interest income