A Letter to Our Customers

Dear Severn Bank Customer,

Severn Bancorp, Inc., the parent company of Severn Bank, has entered into a merger agreement with Shore Bancshares, Inc. headquartered in Easton, Maryland, and the parent company of Shore United Bank. This will bring together Severn Bank and Shore United Bank.

We will have an expanded community banking franchise, growing assets from $1 billion to $3 billion. We anticipate closing the transaction in the fall of 2021.

In addition to Severn’s 7 branches in Anne Arundel County, we will have an additional 22 branches throughout the Eastern Shore of Maryland, Delaware, the Eastern Shore of Virginia, Baltimore County, and Howard County. The combined financial strength and size of the merged banks will enhance the experience of our collective customers, and the combined organization will be a formidable community bank dedicated to the neighborhoods we serve. We believe you will benefit greatly by receiving community banking services at a larger scale.

After carefully considering our options, Severn concluded that partnering with Shore United would be the best bank to combine with for our customers. Their culture and commitment to community aligns very well to that of Severn Bank. We are confident that Shore United Bank will help us continue the legacy of exceptional personal service with a commitment to supporting and giving back to our community.

There will be information to share over the coming months, and please know that while Severn Bank will soon be known as Shore United Bank, the customer service you have come to expect will not change. Severn representatives will be communicating with you, updates will be posted on our website severnbank.com, and no disruptions will be made to your banking services.

Very truly yours,

SEVERN BANK

Alan Hyatt Signature
Alan J. Hyatt, President

This letter does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval with respect to the proposed transaction.

Shore Bancshares, Inc. and Severn Bancorp, Inc. Announce Execution of Merger Agreement Creates 3rd Largest Bank Headquartered in Maryland

EASTON, Md. and ANNAPOLIS, Md. – Shore Bancshares, Inc. (NASDAQ: SHBI) (“Shore”), the holding company of Shore United Bank, and Severn Bancorp, Inc. (NASDAQ: SVBI) (“Severn”), the holding company of Severn Savings Bank, FSB, today announced they have entered into a definitive agreement under which Severn will merge with and into Shore in a stock and cash transaction valued at approximately $146 million (including common stock and stock options), or $11.30 per share of Severn common stock, based on a closing price for Shore’s common stock of $15.64 as of March 2, 2021 and $1.59 per share in cash. Shore expects the transaction to be over 30% accretive to EPS in 2022, based on anticipated cost savings of approximately 35%.

Severn is headquartered in Annapolis, Maryland with $952.6 million in total assets, $679.2 million in gross loans and $806.5 million in total deposits as of December 31, 2020. Severn operates seven banking offices located in Anne Arundel County, Maryland. The transaction will increase Shore’s total assets to approximately $2.9 billion on a pro forma basis as of December 31, 2020.

Lloyd L. “Scott” Beatty, President and Chief Executive Officer of Shore, commented, “The addition of Severn to our organization is very exciting. We will now have a presence in Anne Arundel County which is a wonderful market and fills in a gap in our footprint. The merger also brings new products and talent to our organization.”

“It is an opportunity for Severn to join forces with a larger organization and remain committed to community banking,” said Alan Hyatt, President and Chief Executive Officer of Severn. “We look forward to the opportunities and benefits this combination will bring to our shareholders, in terms of prospects for future earnings growth, immediate dividend pick-up and diversification, as well as to clients, employees and the many communities we serve.”

Transaction Details
Under the terms of the definitive agreement, which was unanimously approved by the Board of Directors of both companies, holders of Severn common stock will have the right to receive 0.6207 shares of Shore common stock and $1.59 in cash for each share of Severn common stock they own. Since the exchange ratio will be fixed at 0.6207, the common stock value of the consideration will float with Shore’s stock price. The cash portion of the consideration will be fixed at $1.59 per share.

Existing Shore shareholders will own approximately 59.6% of the outstanding shares of the combined company and Severn shareholders are expected to own approximately 40.4%. Shore will appoint four Severn directors to the Shore Board, including Mr. Hyatt. Mr. Beatty will continue as Chief Executive Officer of the combined company and Mr. Hyatt will serve as Chairman of the Board of Directors.

The transaction is expected to close in the third quarter of 2021, subject to satisfaction of customary closing conditions, including regulatory approvals and shareholder approval from Shore and Severn shareholders. Severn directors, executive officers and certain shareholders have entered into agreements with Shore pursuant to which they have committed to vote their shares of Severn common stock in favor of the merger of Severn with and into Shore. Shore directors and executive officers have entered into agreements with Severn pursuant to which they have committed to vote their shares of Shore common stock in favor of the issuance of shares of Shore to Severn shareholders in the merger. For additional information about the proposed merger of Severn with and into Shore, shareholders are encouraged to carefully read the definitive agreement that will be filed with the Securities and Exchange Commission (“SEC”) today.

Janney Montgomery Scott LLC acted as financial advisor to Shore in the transaction and delivered a fairness opinion to the Board of Directors of Shore. Holland & Knight LLP served as legal counsel to Shore. Piper Sandler & Co. acted as financial advisor to Severn and delivered a fairness opinion to the Board of Directors of Severn. Luse Gorman, PC served as legal counsel to Severn.

A presentation regarding the merger announcement will be filed with the SEC and made available at the SEC’s website, www.sec.gov, or by accessing Shore’s website at www.shorebancshares.com under the “Investor Relations” link and then under the heading “Documents.”

About Shore Bancshares, Inc.
Shore Bancshares, Inc. is the largest independent financial holding company headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank. The Bank operates 22 full-service branches in Baltimore County, Howard County, Kent County, Queen Anne’s County, Talbot County, Caroline County, Dorchester County and Wicomico County in Maryland, Kent County, Delaware and Accomack County, Virginia. The Company engages in trust and wealth management services through Wye Financial Partners, a division of Shore United Bank.

About Severn Bancorp, Inc.
Severn Bancorp, Inc. is a savings and loan holding company chartered as a corporation in the state of Maryland in 1990. It conducts business primarily through three subsidiaries, Severn Savings Bank, FSB, Mid-Maryland Title Company, Inc. and SBI Mortgage Company. Founded in 1946, Severn Savings 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 has seven branches located in Annapolis, Crofton, Edgewater, Glen Burnie, Lothian/Wayson’s Corner, and Severna Park.

FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and the future performance of Shore and Severn. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “could,” “may,” “should,” “will” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on Shore’s and Severn’s current expectations and assumptions regarding Shore’s and Severn’s businesses, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Any number of risks, uncertainties or other factors such as the COVID 19 pandemic could affect Shore’s or Severn’s future financial results and performance and could cause actual results or performance to differ materially from anticipated results or performance. Such risks and uncertainties include, among others: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive agreement and plan of merger between Shore and Severn; the outcome of any legal proceedings that may be instituted against Shore or Severn; delays in completing the transaction; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) or shareholder approvals, or to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Shore and Severn do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; the ability to complete the transaction and integration of Shore and Severn successfully; and the dilution caused by Shore’s issuance of additional shares of its capital stock in connection with the transaction. Except to the extent required by applicable law or regulation, each of Shore and Severn disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Further information regarding Shore, Severn and factors which could affect the forward-looking statements contained herein can be found in Shore’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, its Quarterly Reports on Form 10-Q for the periods ended March 31, 2020, June 30, 2020 and September 30, 2020, and its other filings with the SEC, and in Severn’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, its Quarterly Reports on Form 10-Q for the periods ended March 31, 2020, June 30, 2020 and September 30, 2020, and its other filings with the SEC. SEC filings are available free of charge on the SEC’s website at www.sec.gov.

Annualized, pro forma, projected and estimated numbers in this document are used for illustrative purposes only, are not forecasts and may not reflect actual results.

Additional Information About the Merger and Where to Find It
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval with respect to the proposed transaction.

In connection with the proposed merger transaction, a registration statement on Form S-4 will be filed with the SEC that will include a joint proxy statement of Severn and Shore and a prospectus of Shore, which will be distributed to the shareholders of Severn and Shore in connection with their votes on the merger of Severn with and into Shore and the issuance of Shore common stock in the transaction. INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS WHEN THEY BECOME AVAILABLE (AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE INTO THE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER AND RELATED MATTERS. Investors and security holders will be able to obtain these documents, and any other documents Shore and Severn have filed with the SEC, free of charge at the SEC’s website, www.sec.gov, or by accessing Shore’s website at www.shorebancshares.com under the “Investor Relations” link and then under the heading “Documents,” or by accessing Severn’s website at www.severnbank.com under the “Severn Bank Investors Relation” link and then under the heading “SEC Filings” and “Documents.” In addition, documents filed with the SEC by Shore or Severn will be available free of charge by (1) writing Shore at 18 East Dover Street, Easton, MD 21601, Attention: Edward C. Allen, or (2) writing Severn at 200 Westgate Circle, Suite 200, Annapolis, MD 21404, Attention: Vance Adkins.

Participants in the Solicitation
The directors, executive officers and certain other members of management and employees of Shore may be deemed to be participants in the solicitation of proxies from the shareholders of Shore in connection with the proposed transaction. Information about Shore’s directors and executive officers is included in the proxy statement for its 2020 annual meeting of Shore’s shareholders, which was filed with the SEC on March 13, 2020.

The directors, executive officers and certain other members of management and employees of Severn may also be deemed to be participants in the solicitation of proxies in connection with the proposed transaction from the shareholders of Severn. Information about the directors and executive officers of Severn is included in the proxy statement for its 2020 annual meeting of Severn shareholders, which was filed with the SEC on April 10, 2020.

Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described above.

SOURCE Shore Bancshares, Inc.; Severn Bancorp, Inc.

Severn Bancorp, Inc. Announces Dividend

ANNAPOLIS, Md. – Severn Bancorp, Inc. (NASDAQ: SVBI), the parent company of Severn Bank announced that the Board of Directors declared a 25% increase in the quarterly cash dividend to its shareholders. The cash dividend of five cents ($0.05) per share of common stock will be payable on March 15, 2021 to shareholders of record at the close of business on March 8, 2021.

Alan J. Hyatt, President and Chief Executive Officer said: “We are pleased to increase our dividend to our shareholders. This has been a challenging time for the economy, and Severn Bank has met the challenges. We continue to support our community through the second round of the PPP program for local businesses and we continue to offer a full range of banking services to our customers. Our priority continues to be delivering shareholder value and positioning this company for continued success.”

About Severn 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 seven branches located in Annapolis, Crofton, Edgewater, Glen Burnie, Lothian/Wayson’s Corner, and Severna Park. 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, 2019.

SOURCE Severn Bancorp, Inc.

Severn Bancorp, Inc. Announces Fourth Quarter Earnings

Severn Bancorp, Inc. (the Company) (NASDAQ: SVBI), the parent company of Severn Bank (the Bank), reported net income of $2.5 million for the fourth quarter ended December 31, 2020 and $6.7 million for the year ended December 31, 2020 compared to $1.2 million and $8.3 million for the same periods in 2019. Earnings per share on a fully diluted basis were $0.20 for the fourth quarter and $0.52 per share for the year ended 2020, down from $0.09 and $0.64 per share, respectively, from the fourth quarter and year ended 2019.

Response to COVID-19
The Company continues to monitor the impact of the COVID-19 pandemic and is attempting to keep employees and customers safe through remote working, social distancing, wearing masks, appointment-only branch banking, and following other protocols that are designed to avoid COVID-19 exposure.

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. The Company also continued to participate in the SBA Paycheck Protection Program (PPP) to help disburse loans to our business customers to provide them with additional working capital.

“The Company had a successful fourth quarter, our best quarter of 2020. The continued high volume of residential mortgage originations and growth of commercial relationships and new personal accounts has contributed well to earnings. The Bank continues to be a strong resource to the local business community, while originating a record amount of residential mortgages,” said Alan J. Hyatt, President and Chief Executive Officer. “Even at a time of economic uncertainty, Severn Bank emerged strong and well poised to weather any upcoming economic challenges,” Mr. Hyatt said.

Income Statement
Net interest income was $7.6 million for the fourth quarter ended December 31, 2020 and $27.5 million for the year ended December 31, 2020 compared to $6.9 million and $30.5 million for the same periods in 2019. The year over year 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 $50 thousand for the fourth quarter ended December 31, 2020 and $900 thousand for the year ended December 31, 2020 compared to no provision and a negative provision of $500 thousand for the same periods in 2019. The ratio of the allowance for loan losses to gross loans was 1.35% at December 31, 2020. Excluding PPP loans, the ratio of the allowance for loan losses to gross loans was 1.42% at December 31, 2020, higher than the 1.11% level at December 31, 2019. The primary drivers of the increased percentage of the allowance to total loans were increases in qualitative factors from the impact of the COVID-19 pandemic and net recoveries during the year.

Noninterest income was $4.8 million for the fourth quarter ended December 31, 2020 and $15.8 million for the year ended December 31, 2020 compared to $2.6 million and $10.3 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 $9.0 million for the fourth quarter ended December 31, 2020 and $33.1 million for the year ended December 31, 2020 compared to $7.7 million and $29.7 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 a new branch in Crofton being opened during the 4th quarter of 2019.

Balance Sheet
Total assets increased $127 million to $953 million at December 31, 2020 from $826 million at December 31, 2019. The increase in assets was primarily in federal funds and interest bearing deposits in other banks as well an increased bond portfolio and higher loans held for sale. Deposits also increased by $145 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. 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.

Severn Bancorp, Inc. Announces Dividend

ANNAPOLIS, Md. – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank) announced that the Board of Directors approved a cash dividend to its shareholders. The cash dividend of four cents ($0.04) per share of common stock will be payable on December 15, 2020 to shareholders of record at the close of business on December 8, 2020.

Alan J. Hyatt, President and Chief Executive Officer said, “We are pleased to announce our fourth quarterly dividend at the close of a year unlike any other. We not only survived a roller-coaster market, but also an economic challenge requiring quick pivoting and constant thoughtful action. We have also continuously increased both personal and business accounts while generating substantial residential mortgage originations to keep Severn Bank strong, and reached out to our community to remain relevant and distinctive. Our priority continues to be delivering shareholder value and positioning the company for continued success and strength.”

About Severn 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 seven branches located in Annapolis, Crofton, Edgewater, Glen Burnie, Lothian/Wayson’s Corner, and Severna Park. 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, 2019.

Severn Bancorp, Inc. Announces Third Quarter Earnings

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.

Income Statement
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.

Balance Sheet
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.

Severn Bancorp, Inc. Announces Dividend

ANNAPOLIS, Md. – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank) announced that the Board of Directors approved a cash dividend to its shareholders. The cash dividend, of four cents ($0.04) per share of common stock, will be payable on September 15, 2020 to shareholders of record at the close of business on September 8, 2020.

Alan J. Hyatt, President and Chief Executive Officer said, “The Company remains profitable and looks forward to continuing success as Severn Bank remains committed to serving the Anne Arundel County market with full community banking services. Residential and commercial lending demand remains strong.”

About Severn 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 seven branches located in Annapolis, Crofton, Edgewater, Glen Burnie, Lothian/Wayson’s Corner, and Severna Park. 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, 2019.

Severn Bancorp, Inc. Announces Second Quarter Earnings

ANNAPOLIS, Md., July 24, 2020 – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank), reported net income of $1.7 million for the second quarter ended June 30, 2020 and $2.3 million for the six months ended June 30, 2020 compared to $2.2 million and $4.8 million for the same periods in 2019. Earnings per share on a fully diluted basis were $0.14 for the second quarter and $0.18 per share for the first six months of 2020, down from $0.17 and $0.37 per share, respectively, from the second quarter and first six 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 and other protocols that are designed to avoid COVID-19.

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. To date, the Company has funded 428 PPP loans totaling in excess of $47 million, and is working diligently with the SBA to qualify customers to receive PPP loans while they are still available. Through the first six months of 2020 the Company performed 123 short-term COVID-19 related modifications of loans totaling $96.6 million.

The Company enjoyed a good second quarter, as its cost of funds continues to decline and the Company continues to originate a record volume of residential mortgages. “While it remains difficult to know what the future will bring in light of the severe economic impacts occasioned by this pandemic, business continues to be strong,” said Alan J. Hyatt, President and Chief Executive Officer. “The Company remains well capitalized and it continues to offer a full range of services to our customers and our community.” Mr. Hyatt said that “while the portfolio is holding up well, as a measure of conservation, loan loss reserves have been increased to 1.33% of gross loans [net of PPP loans], and will continue to be carefully monitored.”

The Company has also taken measures to protect the health and safety of its customers and employees by encouraging remote work arrangements to the extent possible, adjusting banking center hours, wearing masks, and implementing operational measures to promote social distancing. Management is closely monitoring credit metrics and performing stress testing on the Bank’s loan portfolio. Additional resources have been shifted to credit administration to closely analyze higher risk segments within the loan portfolio, monitor and track loan payment deferrals and customer liquidity, and provide timely reporting to management and the board of directors. Based on the Company’s capital and liquidity levels, conservative underwriting policies, loan concentration diversification, and geographical marketplace, management expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized.

Income Statement
Net interest income was $6.6 million for the second quarter ended June 30, 2020 and $13.4 million for the six months ended June 30, 2020 compared to $7.8 million and $15.9 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 zero for the second quarter ended June 30, 2020 and $750 thousand for the six months ended June 30, 2020 compared to zero for the same periods in 2019. The ratio of the allowance for loan losses to gross loans was 1.24% at June 30, 2020. Excluding PPP loans, the ratio of the allowance for loan losses to gross loans was 1.33% at June 30, 2020, higher than both the 1.25% at March 31, 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 as well as a decrease in loan volume.

Noninterest income was $3.2 million for the second quarter ended June 30, 2020 and $6.3 million for the six months ended June 30, 2020 compared to $2.6 million and $4.9 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 $7.5 million for the second quarter ended June 30, 2020 and $15.7 million for the six months ended June 30, 2020 compared to $7.5 million and $14.3 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 opening a new branch in Crofton during the third quarter of 2019. In addition, there were nonrecurring noninterest expenses including: legal and professional fees of $325 thousand, loss on sale of OREO property of $74 thousand, and write-off of leasehold improvements related to a lease termination of $76 thousand.

Balance Sheet
Total assets increased nearly $100 million to $924 million at June 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 $88 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.

Severn Bancorp, Inc. Announces Dividend

ANNAPOLIS, Md., May 27, 2020 – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank) today announced that the Board of Directors approved a cash dividend to its shareholders. The cash dividend of four cents ($0.04) per share of common stock, will be payable on June 19, 2020 to shareholders of record at the close of business on June 8, 2020.

Alan J. Hyatt, President and Chief Executive Officer said, “While recent economic times have been challenging, the Company remains optimistic for the future and continues to support our shareholders with this dividend. Severn Bank has grown banking relationships through the Paycheck Protection Program, which has been a big help to small business. The renewed recognition that community banks play a significant role in the success of local businesses they serve has not gone unnoticed during these past few months. Severn Bank remains committed to supporting Anne Arundel County residents and businesses.”

About Severn 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 seven branches located in Annapolis, Crofton, Edgewater, Glen Burnie, Lothian/Wayson’s Corner, and Severna Park. 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, 2019.

Severn Bancorp, Inc. Announces First Quarter Earnings – Strong Noninterest Income Growth

ANNAPOLIS, Md.April 27, 2020 – Severn Bancorp, Inc. (the Company), the parent company of Severn Bank (the Bank), reported net income available to common shareholders for the first quarter ended March 31, 2020 of $565 thousand versus $2.6 million for the first quarter of 2019. Earnings per share on a fully diluted basis were $0.04 versus $0.20 for the quarters ended March 31, 2020 and 2019, respectively.

Response to COVID-19
The COVID-19 pandemic has already impacted the local economy in the Annapolis and greater Anne Arundel County area. Federal, state, and local stay-at-home orders were enacted in our markets in March 2020 causing many businesses to close and workers to be furloughed or lose jobs. Essential purpose entities such as medical professionals, food and agricultural businesses, and transportation and logistical businesses were exempted from the closures; however, unemployment rates are increasing in our markets.

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. To date, the Company has processed 185 applications, almost 100% of the applications submitted, totaling approximately $36 million, and is working diligently with the SBA to qualify customers to receive PPP loans. Many employees worked 20 hours straight up until the very last viable applicant was submitted as the SBA portal closed.

“We have provided Payroll Protection Program loans to our local business community as aggressively as possible,” said Alan J. Hyatt, President and Chief Executive Officer, “knowing these loans provide lifelines to businesses and their employees. This Company remains committed to the local economy during these challenging times. We respect and admire the commitment others are making in the fight against COVID-19, including first responders, health care workers, and those providing other essential services. We are also grateful to Governor Hogan for the outstanding leadership he is providing in the State of Maryland.”

The Company has also taken measures to protect the health and safety of its customers and employees by encouraging remote work arrangements to the extent possible, adjusting banking center hours, and implementing operational measures to promote social distancing. Management is closely monitoring credit metrics and performing stress testing on the Bank’s loan portfolio. Additional resources have been shifted to credit administration to closely analyze higher risk segments within the loan portfolio, monitor and track loan payment deferrals and customer liquidity, and provide timely reporting to management and the board of directors. Based on the Company’s capital and liquidity levels, conservative underwriting policies, loan concentration diversification, and geographical marketplace, management expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized.

“These are difficult times, and our Company is holding up well,” said Hyatt.

Income Statement
Net interest income in the first quarter 2020 decreased $1.3 million or 16% to $6.8 million compared to the first quarter of 2019. Less first quarter interest income was generated from lower volumes of earning assets, particularly from significantly lower medical-use cannabis related deposits that earned overnight interest income during the first quarter of 2019. Also, loan interest income decreased from lower loan volumes, which was slightly offset by a reduction in interest expense from less reliance on borrowings.

Provision expense in the first quarter 2020 was $750 thousand compared to zero for the first quarter of 2019. In anticipation of the potential negative effects of the COVID-19 pandemic on our loan portfolio, adjustments were made to the allowance for loan losses increasing factors related to economic conditions, lending policies and procedures, and industry conditions.

Noninterest income in the first quarter 2020 increased $765 thousand or 34% to $3.0 million from the first quarter of 2019. Growth in mortgage banking production contributed significantly to the increases in noninterest income.

Noninterest expense in the first quarter 2020 increased $1.5 million or 22% to $8.3 million from the first quarter of 2019. Nonrecurring noninterest expenses increased due to several factors, including: legal and professional fees of $280 thousand, loss on sale of OREO property of $74 thousand, and write-off of leasehold improvements related to a lease termination during the quarter of $76 thousand. In addition, there were higher commissions paid to mortgage loan officers from increased production and higher occupancy and staffing costs as a result of opening a new branch in Crofton during the third quarter of 2019.

Balance Sheet
Total assets increased more than $30 million to $857 million at March 31, 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 held for sale from high production during the quarter. Deposits also increased by $29 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. 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 AnnapolisEdgewaterSeverna ParkLothian/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.