Back to GetFilings.com




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

For Annual and Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
x   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003.
or
o   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
(I.R.S. Employer Identification Number)
of incorporation or organization)
 
 
 
1919 A West Street, Annapolis, Maryland
21401
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (410) 268-4554
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act
 
Common Stock, par value $.01 per share
(Title of Class)

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 x  No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes oNo x

 The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common stock on June 30, 2003 was $44,732,373 ($22.95 per share based on shares of common stock outstanding).
 
As of March 2, 2004, there were issued and outstanding 4,159,092 shares of the registrant’s common stock.

Documents Incorporated by Reference:
         Portions of the definitive Proxy Statement (Part III).



     

Table of Contents

Section
 
Page No.
PART I
 
1
 
 
 
Item 1.
Business
1
Item 2.
Properties
30
Item 3.
Legal Proceedings
30
Item 4.
Submission of Matters to a Vote of Security Holders
30
 
 
 
PART II
 
30
 
 
 
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
30
Item 6.
Selected Financial Data
31
Item 7.
Management’s Discussion and Analysis of Financial Condition
 
 
and Results of Operations
35
Item 7.A.
Quantitative and Qualitative Disclosures About Market Risk
42
Item 8.
Financial Statements and Supplementary Data
43
Item 9.
Changes in and Disagreements with Accountants on
 
 
Accounting and Financial Disclosures
43
Item 9A.
Controls and Procedures
44
 
 
 
PART III
 
44
 
 
 
Item 10.
Directors and Executive Officers of the Registrant
44
Item 11.
Executive Compensation
45
Item 12.
Security Ownership of Certain Beneficial Owners and Management
45
Item 13.
Certain Relationships and Related Transactions
45
 
 
45
Item 14.
Principal Accountant Fees and Services
45
 
 
 
PART IV
 
45
 
 
 
Item 15.
Exhibits, Financial Statements, Schedules and Reports on Form 8-K
46
 
Signatures
46
 
 
 
 
i

 
 
     
 
 
Severn Bancorp
Financial Highlights
 
 At the period ended:  
December 31,
  
     
2003 
    
2002 
    
2001 
    
2000 
    
1999 
  
   

 (dollars in thousands, except per share information)

  
Balance Sheet Data:
    
 
    
 
    
 
    
 
    
 
  
Total assets
  
$
540,471
 
$
458,415
 
$
366,890
 
$
293,230
 
$
233,724
 
Total loans, net
    
506,026
   
418,825
   
342,641
   
274,652
   
214,066
 
Total nonperforming assets
   
469
   
1,982
   
2,413
   
1,490
   
1,597
 
Deposits
    
419,726
   
377,925
   
286,918
   
229,312
   
186,204
 
Short-term borrowings
    
6,000
   
-
   
17,000
   
18,000
   
2,000
 
Notes payable
    
59,000
   
34,000
   
25,000
   
16,000
   
22,000
 
Total liabilities
    
487,501
   
415,233
   
332,059
   
268,009
   
211,743
 
Minority Interest – Preferred Securities of Subsidiary
    
4,000
    
4,000
    
4,000
    
3,892
    
3,892
  
Stockholders' equity
    
48,970
   
39,181
   
30,831
   
21,329
   
18,089
 
Book value per share
   
11.77
   
9.46
   
7.60
   
6.58
   
5.59
 
 
 
For the period ended:
  

 December 31,

  
     
2003 
    
2002 
    
2001 
    
2000 
    
1999  
  
Operations Data:
    
 
    
 
    
 
    
 
    
 
  
Net interest income
  
$
24,746
 
$
19,603
 
$
13,395
 
$
10,884
 
$
9,524
 
Net interest income after provision for loan losses
    
23,846
   
18,933
   
12,687
   
10,293
   
9,020
 
Noninterest income
    
4,674
   
4,133
   
2,570
   
1,439
   
1,586
 
Noninterest expense
    
9,616
    
8,447
   
6,588
   
5,348
   
5,477
 
Net income
    
11,329
   
8,948
   
5,256
   
3,945
   
3,127
 
Basic earnings per share *
    
2.68
   
2.13
   
1.38
   
1.15
   
0.90
 
Diluted earnings per share *
    
2.67
   
2.13
   
1.37
   
1.12
   
0.84
 
Common Stock Cash dividends declared per share*
    
0.34
   
0.24
    
0.19
   
0.17
   
0.15
 
Common Stock dividends declared per share to
    
 
    
 
    
 
    
 
    
 
  
diluted earnings per share *
    
12.73
%
  
11.27
%
  
13.87
%
  
15.18
%
  
17.86
%
Weighted number of shares outstanding basic *
    
4,146,566
   
4,092,188
   
3,647,451
   
3,237,888
   
3,230,940
 
Weighted number of shares outstanding diluted *
    
4,157,302
   
4,103,223
   
3,683,346
   
3,330,915
   
3,450,831
 
 
    
 
    
 
    
 
    
 
    
 
  
 
    
 
    
 
    
 
    
 
    
 
  
Performance Ratios:
    
 
    
 
    
 
    
 
    
 
  
Return on average assets
    
2.23
%
  
2.14
%
  
1.55
%
  
1.47
%
  
1.38
%
Return on average equity
    
25.22
%
  
25.58
%
  
20.22
%
  
20.04
%
  
18.31
%
Interest rate spread
    
4.77
%
  
4.59
%
  
3.65
%
  
3.75
%
  
3.94
%
Net interest margin
    
4.99
%
  
4.86
%
  
4.05
%
  
4.17
%
  
4.34
%
Noninterest expense to average assets
    
1.76
%
  
2.02
%
  
1.95
%
  
2.00
%
  
2.43
%
Efficiency ratio
    
30.33
%
  
35.59
%
  
41.27
%
  
43.40
%
  
49.30
%
 
    
 
    
 
    
 
    
 
    
 
  
* Retroactively adjusted to reflect three-for-one stock split declared February 19, 2002 and effective for shares outstanding
as of March 1, 2002.
    
 
    
 
    
 
    
 
    
 
  
 
ii

 
 
     
 
 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Severn Bancorp, Inc. ( “Bancorp”) may from time to time make written or oral “forward-looking statements”, including statements contained in Bancorp’s filings with the Securities and Exchange Commission (including this annual report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by Bancorp, which are made in good faith by Bancorp pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Bancorp 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 in the nation and Bancorp’s general market area. 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 allowance; the effect of changes in interest rates; and changes in deposit insurance premiums.
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
iii

 

     
 
PART I

Item 1. Business
General

Severn Bancorp, Inc. is a savings and loan holding company that was incorporated in Maryland in August 1990. It conducts business through three subsidiaries: Severn Savings Bank, FSB (the “Bank”), its principal subsidiary; Louis Hyatt, Inc., (“Hyatt Real Estate”), a real estate brokerage and property management company, which it acquired in June 2001; and SBI Mortgage Company (“SBI”), which engages in the origination of mortgages not suitable to the Bank, such as mortgages to borrowers with credit backgrounds that the Bank does not find suitable, and continues to hold some of those mortgages. SBI owns investment real estate through subsidiary limited liability companies, and plans to continue the acquisition and holding of investment real estate.

The Bank’s primary lending market is Anne Arundel County, Maryland, where it also offers savings products through its two branches. To a lesser extent, it also lends to borrowers located in other parts of Maryland and in Delaware and Northern Virginia.

As of December 31, 2003, Bancorp had total assets of $540,471,233 total deposits of $419,726,185, and stockholders’ equity of $48,970,153, for the year ended December 31, 2003 net income was $11,329,138, of which $11,306,608 was net income of the Bank.

Bancorp’s internet address is www.severnbank.com. We make available free of charge on www.severnbank.com our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests should be directed to:

S. Scott Kirkley
Senior Vice President
Severn Bancorp, Inc.
1919A West Street
Annapolis, Maryland 21401

The information on the website listed above, is not and should not be considered part of this annual report on Form 10-K and is not incorporated by reference in this document. This website is and is only intended to be an inactive textual reference.

Business of the Bank

Severn Savings Bank, FSB (the “Bank”) was organized in 1946 in Baltimore, Maryland as Pompei Permanent Building and Loan Association. It relocated to Annapolis, Maryland in 1980 and its name was changed to Severn Savings Association. Subsequently, the Bank obtained a federal charter and changed its name to Severn Savings Bank, FSB. The Bank operates two full-service branch offices, one administrative office and one accounting and servicing office. The Bank operates as a federally charted savings bank whose principal business is attracting deposits from the general public and investing those funds in mortgage loans. The Bank also uses advances, or loans from the Federal Home Loan Bank of Atlanta, to fund its mortgage activities. The Bank’s revenues are derived principally from interest earned on mortgage loans, fees charged in connection with the loa ns and banking services, and gains realized from the sale of mortgage loans. The Bank’s primary sources of funds are deposits, advances from the Federal Home Loan Bank of Atlanta, principal amortization and prepayment of its loans. The principal executive offices of the Bank are maintained at 1919 A West Street, Annapolis Maryland, 21401. Its telephone number is 410-268-4554 and its e-mail address is mailman@severnbank.com.
 
 
 
  1  
 
 
In addition to its deposit and lending activities, the Bank offers title insurance and real estate settlement services through its wholly owned subsidiary, Homeowner’s Title and Escrow Corporation (“Homeowner’s”).

The Bank also owns all of the common stock of Severn Preferred Capital Corporation (“Severn Capital”), which was formed in 1997. Severn Capital is a real estate investment trust that issued and has outstanding 200,002 shares of Series A Preferred Stock. This preferred stock has an aggregate outstanding balance of $4,000,040, which qualifies as regulatory capital of the Bank. The Series A Preferred Stock pays a 9% annual non-cumulative dividend and is callable at par, by the Bank, at any time.

The Thrift Industry

Thrift institutions are financial intermediaries which historically have accepted savings deposits from the general public and, to a lesser extent, borrowed funds from outside sources and invested those deposits and funds primarily in loans secured by first mortgage liens on residential and other types of real estate. Such institutions may also invest their funds in various types of short- and long-term securities. The deposits of thrift institutions are insured by the SAIF as administered by the FDIC, and these institutions are subject to extensive regulations. These regula­tions govern, among other things, the lending and other investment powers of thrift institutions, including the terms of mortgage instruments these institutions are permitted to utilize, the types of deposits they are permitted to accept, and reserve require­ments.

The operations of thrift institutions, including those of the Bank, are significantly affected by general economic conditions and by related monetary and fiscal policies of the federal government and regulations and policies of financial institution regulatory authorities, including the Board of Governors of the Federal Reserve System and the OTS. Lending activities are influenced by a number of factors including the demand for housing, conditions in the construction industry, and availability of funds. Sources of funds for lending activities include savings deposits, loan principal payments, proceeds from sales of loans, and borrowings from the Federal Home Loan Bank and other sources. Savings flows at thrift institutions such as the Bank are influenced by a number of factors including interest rates on competing investments and levels of personal income.< /DIV>

Earnings

The Bank’s earnings depend primarily on the difference between income from interest-earning assets such as loans and investments, and interest paid on interest-bearing liabilities such as deposits and borrowings. The Bank typically engages in long-term mortgage lending at fixed rates of interest, generally for periods of up to 30 years, whil