ANNAPOLIS, Md. – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank), reported net income of $1.9 million for the third quarter ended September 30, 2020 and $4.2 million for the nine months ended September 30, 2020 compared to $2.4 million and $7.2 million for the same periods in 2019. Earnings per share on a fully diluted basis were $0.15 for the third quarter and $0.33 per share for the first nine months of 2020, down from $0.19 and $0.56 per share, respectively, from the third quarter and first nine months of 2019.
Response to COVID-19
The Company continues to monitor the impact of the COVID-19 pandemic. Its goal is to keep employees and customers safe. To that end, some employees are working remotely and those who are on-site are practicing appropriate social distancing, wearing masks, and following other protocols that are designed to avoid COVID-19 exposure while keeping customers and employees safe.
The Company is closely monitoring the effects of the pandemic on our loan and deposit customers. Our management team is focused on assessing the risks in our loan portfolio and working with customers to minimize losses. We have implemented loan programs to allow customers who were required to close or reduce their business operations to temporarily defer loan principal and interest payments. The Company is also participating in the SBA Paycheck Protection Program (PPP) to help disburse loans to our business customers to provide them with additional working capital. Additionally, through the first nine months of 2020 the Company performed 141 short-term COVID-19 related modifications of loans totaling $98.6 million. Subsequent to modification, 43 loans totaling $27.4 million have resumed making regular payments.
“The Company had a respectable third quarter. The continued high volume of residential mortgage originations and the growth of commercial relationships has contributed to earnings. The Bank continues to be a strong resource to the local business community, while originating a record amount of residential mortgages in this low interest rate environment,” said Alan J. Hyatt, President and Chief Executive Officer. “It remains difficult to say how the economy will be impacted in the future by this pandemic, and we will continue to be vigilant,” Mr. Hyatt said.
Net interest income was $6.5 million for the third quarter ended September 30, 2020 and $19.9 million for the nine months ended September 30, 2020 compared to $7.6 million and $23.6 million for the same periods in 2019. The decreases in interest income was driven by lower volumes of earning assets, particularly from significantly lower interest rates earned on medical-use cannabis related deposits that were invested in fed funds or interest bearing deposits with other banks and earned higher interest income during 2019. Also, loan interest income decreased from lower average loan volumes as well as lower yielding PPP loans, which was slightly offset by a reduction in interest expense from lower deposit rates and less reliance on borrowings.
Provision expense was $100 thousand for the third quarter ended September 30, 2020 and $850 thousand for the nine months ended September 30, 2020 compared to a negative provision of $500 thousand for the same periods in 2019. The ratio of the allowance for loan losses to gross loans was 1.31% at September 30, 2020. Excluding PPP loans, the ratio of the allowance for loan losses to gross loans was 1.41% at September 30, 2020, higher than both the 1.33% at June 30, 2020 and the 1.11% at December 31, 2019. The primary drivers of the increased percentage of the allowance to total loans, excluding PPP loans, were increases in qualitative factors from the impact of the COVID-19 pandemic, decrease in loan volume from payoffs, and net recoveries during the quarter.
Noninterest income was $4.7 million for the third quarter ended September 30, 2020 and $11.0 million for the nine months ended September 30, 2020 compared to $2.8 million and $7.7 million for the same periods in 2019. Growth in mortgage banking production continued to contribute significantly to the increases in noninterest income.
Noninterest expense was $8.4 million for the third quarter ended September 30, 2020 and $24.1 million for the nine months ended September 30, 2020 compared to $7.7 million and $21.9 million for the same periods in 2019. There were higher commissions paid to mortgage loan officers from increased production and higher occupancy and staffing costs as a result of one full year of a new branch in Crofton being open.
Total assets increased $112 million to $939 million at September 30, 2020 from $827 million at December 31, 2019. The increase in assets was primarily in federal funds and interest bearing deposits in other banks as well as loans receivable from PPP originations. Deposits also increased by $122 million from December 31, 2019. 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 as well as PPP loans to customers who had not yet withdrawn the funds. Management is aware of the short term nature of certain medical-use cannabis related deposits and offset those funds by maintaining short term liquidly to meet any deposit outflows.
About Severn Bank
Founded 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 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. 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, 2019.