MARYLAND
|
52-1726127
|
(State
or other jurisdiction
|
(I.R.S.
Employer Identification Number)
|
of
incorporation or organization)
|
|
200
Westgate Circle, Suite 200, Annapolis,
Maryland
|
21401
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
Common
Stock, par value $.01 per share
|
The
Nasdaq Stock Market, LLC
|
Section
|
Page
No.
|
|
PART
I
|
1
|
|
Item
1
|
Business
|
1
|
Item
1A
|
Risk
Factors
|
31
|
Item
1B
|
Unresolved
Staff Comments
|
35
|
Item
2
|
Properties
|
35
|
Item
3
|
Legal
Proceedings
|
35
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
35
|
Executive
Officers of the Registrant That Are Not Directors
|
35
|
|
PART
II
|
36
|
|
Item
5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
36
|
Item
6
|
Selected
Financial Data
|
38
|
Item
7
|
Management’s
Discussion and Analysis of Financial Condition and
Results of Operations
|
42 |
Item
7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
48
|
Item
8
|
Financial
Statements and Supplementary Data
|
49
|
Item
9
|
Changes
in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
49 |
Item
9A
|
Controls
and Procedures
|
50
|
Item
9B
|
Other
Information
|
54
|
PART
III
|
54
|
|
Item
10
|
Directors
and Executive Officers of the Registrant and Corporate
Governance
|
54
|
Item
11
|
Executive
Compensation
|
54
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
55
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
55
|
Item
14
|
Principal
Accountant Fees and Services
|
55
|
PART
IV
|
56
|
|
Item
15
|
Exhibits
and Financial Statement Schedules
|
56
|
SIGNATURES
|
57
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
(dollars
in thousands)
|
||||||||||||||
Residential
mortgage
|
$249,448
|
26.15%
|
$219,988
|
23.71%
|
$215,767
|
27.30%
|
$187,498
|
30.83%
|
$142,342
|
28.87%
|
||||
Construction,
land acquisition and
|
||||||||||||||
development
|
339,122
|
35.55%
|
390,376
|
42.07%
|
343,101
|
43.42%
|
240,757
|
39.58%
|
191,196
|
38.77%
|
||||
Land
|
90,747
|
9.51%
|
77,319
|
8.33%
|
33,419
|
4.23%
|
25,820
|
4.25%
|
20,109
|
4.08%
|
||||
Lines
of credit
|
40,733
|
4.27%
|
35,491
|
3.82%
|
29,096
|
3.68%
|
19,581
|
3.22%
|
12,472
|
2.53%
|
||||
Commercial
real estate
|
193,299
|
20.26%
|
163,449
|
17.61%
|
127,768
|
16.17%
|
106,823
|
17.56%
|
90,862
|
18.43%
|
||||
Commercial
non-real estate
|
3,348
|
0.35%
|
3,412
|
0.37%
|
3,859
|
0.49%
|
3,813
|
0.63%
|
3,445
|
0.70%
|
||||
Home
equity
|
32,758
|
3.44%
|
32,974
|
3.55%
|
28,101
|
3.56%
|
18,391
|
3.02%
|
11,197
|
2.27%
|
||||
Consumer
|
1,537
|
0.16%
|
1,768
|
0.19%
|
2,489
|
0.31%
|
2,364
|
0.39%
|
3,979
|
0.81%
|
||||
Loans
held for sale
|
2,970
|
0.31%
|
3,216
|
0.35%
|
6,654
|
0.84%
|
3,175
|
0.52%
|
17,481
|
3.54%
|
||||
|
|
|
|
|
||||||||||
Total
gross loans
|
953,962
|
100.00%
|
927,993
|
100.00%
|
790,254
|
100.00%
|
608,222
|
100.00%
|
493,083
|
100.00%
|
||||
Deferred
loan origination fees and costs, net
|
(4,712)
|
(4,916)
|
(4,157)
|
(3,344)
|
(2,674)
|
|||||||||
Loans
in process
|
(104,747)
|
(136,239)
|
(123,195)
|
(94,020)
|
(67,593)
|
|||||||||
Allowance
for loan losses
|
(9,026)
|
(7,505)
|
(5,935)
|
(4,832)
|
(3,991)
|
|||||||||
Total
loans net
|
$835,477
|
$779,333
|
$656,967
|
$506,026
|
$418,825
|
For
the Years ended December 31,
|
||||||||||
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
(dollars
in thousands)
|
|||||||||
Held
for Sale:
|
||||||||||
Beginning
balance
|
$
|
3,216
|
$
|
6,654
|
$
|
3,175
|
||||
Originations
|
31,322
|
73,766
|
74,352
|
|||||||
Net
sales
|
(31,568
|
)
|
(77,204
|
)
|
(70,873
|
)
|
||||
Ending
balance
|
$
|
2,970
|
$
|
3,216
|
$
|
6,654
|
||||
Held
for investment:
|
||||||||||
Beginning
balance
|
$
|
924,777
|
$
|
783,600
|
$
|
605,047
|
||||
Originations
and purchases
|
260,715
|
252,525
|
262,278
|
|||||||
Repayments/payoffs
|
(234,500
|
)
|
(111,348
|
)
|
(83,725
|
)
|
||||
Ending
balance
|
$
|
950,922
|
$
|
924,777
|
$
|
783,600
|
Coupon
range
|
Percentage
of Portfolio
|
||
Less
than 5.00%
|
43.3
|
%
|
|
5.01
- 6.00%
|
0.0
|
%
|
|
6.01
- 7.00%
|
4.0
|
%
|
|
7.01
- 8.00%
|
4.1
|
%
|
|
Over
8.00%
|
48.6
|
%
|
|
100.0
|
%
|
Due
|
|
Due
after
|
|
|
|
|
|
||||||
|
|
Within
|
|
1
through
|
|
Due
after
|
|
|
|
||||
|
|
one
year
|
|
5
years
|
|
5
years
|
|
Total
|
|||||
(dollars
in thousands)
|
|||||||||||||
One
to four family residential
|
$
|
39,120
|
$
|
60,843
|
$
|
207,229
|
$
|
307,192
|
|||||
Multifamily
|
-
|
3,041
|
2,358
|
5,399
|
|||||||||
Commercial
and industrial real estate
|
7,577
|
59,874
|
128,265
|
195,716
|
|||||||||
Construction
and land acquisition
|
|||||||||||||
and
development loans
|
283,871
|
55,251
|
-
|
339,122
|
|||||||||
Land
|
32,108
|
56,451
|
8,080
|
96,639
|
|||||||||
Commercial,
non-real estate
|
4,705
|
1,654
|
1,998
|
8,357
|
|||||||||
Consumer
|
219
|
1,039
|
279
|
1,537
|
|||||||||
Total
|
$
|
367,600
|
$
|
238,153
|
$
|
348,209
|
$
|
953,962
|
Fixed
|
|
Floating
|
|
Total
|
||||||
(dollars
in thousands)
|
||||||||||
One
to four family residential
|
$
|
131,387
|
$
|
136,686
|
$
|
268,073
|
||||
Multifamily
|
2,425
|
2,974
|
5,399
|
|||||||
Commercial
and industrial real estate
|
75,961
|
112,178
|
188,139
|
|||||||
Construction
and land acquisition
|
||||||||||
and
development loans
|
12,320
|
42,930
|
55,250
|
|||||||
Land
|
39,217
|
25,313
|
64,530
|
|||||||
Commercial,
non-real estate
|
1,845
|
1,807
|
3,652
|
|||||||
Consumer
|
1,319
|
-
|
1,319
|
|||||||
Total
|
$
|
264,474
|
$
|
321,888
|
$
|
586,362
|
At
December 31,
|
||||||||||||||||
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
||||||||
(dollars
in thousands)
|
||||||||||||||||
Loans
accounted for on a non-accrual basis:
|
||||||||||||||||
Mortgage
loans:
|
||||||||||||||||
One-to-four
family real estate
|
$
|
3,487
|
$
|
1,693
|
$
|
915
|
$
|
378
|
$
|
1,366
|
||||||
Home
equity lines of credit
|
-
|
-
|
-
|
50
|
-
|
|||||||||||
Commercial
|
98
|
-
|
-
|
-
|
253
|
|||||||||||
Land
|
2,342
|
-
|
24
|
24
|
139
|
|||||||||||
Non-mortgage
loans:
|
||||||||||||||||
Consumer
|
-
|
-
|
-
|
17
|
-
|
|||||||||||
Commercial
loans
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
Total
non-accrual loans
|
$
|
5,927
|
$
|
1,693
|
$
|
939
|
$
|
469
|
$
|
1,758
|
||||||
Accruing
loans greater than 90 days past due
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Foreclosed
real-estate
|
$
|
970
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
224
|
||||||
Total
non-performing assets
|
$
|
6,897
|
$
|
1,693
|
$
|
939
|
$
|
469
|
$
|
1,982
|
||||||
Total
non-accrual loans to net loans
|
0.7
|
%
|
0.2
|
%
|
0.1
|
%
|
0.1
|
%
|
0.4
|
%
|
||||||
Allowance
for loan losses to total non-performing loans,
|
||||||||||||||||
including
loans contractually past due 90 days or more
|
152.3
|
%
|
443.3
|
%
|
632.1
|
%
|
1030.5
|
%
|
227.0
|
%
|
||||||
Total
non-accrual and accruing loans greater than
|
||||||||||||||||
90
days past due to total assets
|
0.7
|
%
|
0.2
|
%
|
0.1
|
%
|
0.1
|
%
|
0.4
|
%
|
||||||
Total
non-performing assets to total assets
|
0.8
|
%
|
0.2
|
%
|
0.1
|
%
|
0.1
|
%
|
0.4
|
%
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||||||
Percentage
of
|
Percentage
of
|
Percentage
of
|
Percentage
of
|
Percentage
of
|
|||||||||||||||
Loans
in each
|
Loans
in each
|
Loans
in each
|
Loans
in each
|
Loans
in each
|
|||||||||||||||
Allowance
|
Category
to
|
Allowance
|
Category
to
|
Allowance
|
Category
to
|
Allowance
|
Category
to
|
Allowance
|
Category
to
|
||||||||||
Amount
|
Total
Loans
|
Amount
|
Total
Loans
|
Amount
|
Total
Loans
|
Amount
|
Total
Loans
|
Amount
|
Total
Loans
|
||||||||||
(dollars
in thousands)
|
|||||||||||||||||||
Residential,
one to four family
|
$2,202
|
32.41%
|
$1,706
|
29.74%
|
$2,000
|
30.20%
|
$1,938
|
36.20%
|
$1,542
|
36.58%
|
|||||||||
Multifamily
|
33
|
0.57%
|
67
|
0.49%
|
20
|
0.34%
|
21
|
0.14%
|
21
|
0.27%
|
|||||||||
Commercial
and industrial real estate
|
2,512
|
20.45%
|
1,965
|
17.73%
|
1,009
|
16.17%
|
1.154
|
18.48%
|
881
|
19.33%
|
|||||||||
Construction
and land acquisition and
|
|
||||||||||||||||||
development
loans
|
2,253
|
35.44%
|
2,684
|
42.07%
|
2,577
|
43.42%
|
1,173
|
39.58%
|
1,202
|
38.77%
|
|||||||||
Land
|
1,731
|
10.10%
|
882
|
8.78%
|
251
|
8.54%
|
476
|
4.25%
|
300
|
4.08%
|
|||||||||
Business,
commercial
|
288
|
0.87%
|
193
|
1.00%
|
70
|
1.18%
|
59
|
1.16%
|
33
|
0.79%
|
|||||||||
Other
|
7
|
0.16%
|
8
|
0.19%
|
8
|
0.15%
|
11
|
0.19%
|
12
|
0.18%
|
|||||||||
Total
|
$9,026
|
100.00%
|
$7,505
|
100.00%
|
$5,935
|
100.00%
|
$4,832
|
100.00%
|
$3,991
|
100.00%
|
At
or for the Year Ended
|
||||||||||||||||
December
31
|
||||||||||||||||
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
||||||||
(dollars
in thousands)
|
||||||||||||||||
Average
loans outstanding, net
|
$
|
819,038
|
$
|
738,028
|
$
|
600,030
|
$
|
466,512
|
$
|
384,537
|
||||||
Total
gross loans outstanding at end of period
|
$
|
953,962
|
$
|
927,993
|
$
|
790,254
|
$
|
608,222
|
$
|
493,083
|
||||||
Total
net loans outstanding at end of period
|
$
|
835,477
|
$
|
779,333
|
$
|
656,967
|
$
|
506,026
|
$
|
418,825
|
||||||
Allowance
balance at beginning of period
|
$
|
7,505
|
$
|
5,935
|
$
|
4,832
|
$
|
3,991
|
$
|
3,353
|
||||||
Provision
for loan losses
|
1,561
|
1,570
|
1,200
|
900
|
670
|
|||||||||||
Actual
charge-offs
|
||||||||||||||||
1-4
family residential real estate
|
-
|
-
|
97
|
25
|
-
|
|||||||||||
Other
|
40
|
-
|
-
|
34
|
32
|
|||||||||||
Total
charge-offs
|
40
|
-
|
97
|
59
|
32
|
|||||||||||
Recoveries
|
||||||||||||||||
Total
recoveries
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
Net
charge offs
|
-
|
-
|
97
|
59
|
32
|
|||||||||||
Allowance
balance at end of period
|
$
|
9,026
|
$
|
7,505
|
$
|
5,935
|
$
|
4,832
|
$
|
3,991
|
||||||
Net
charge offs as a percent of average loans
|
0.00
|
%
|
0.00
|
%
|
0.02
|
%
|
0.01
|
%
|
0.01
|
%
|
||||||
Allowance
for loan losses to total gross loans at end of period
|
0.95
|
%
|
0.81
|
%
|
0.75
|
%
|
0.79
|
%
|
0.81
|
%
|
||||||
Allowance
for loan losses to net loans at end of period
|
1.08
|
%
|
0.96
|
%
|
0.90
|
%
|
0.95
|
%
|
0.95
|
%
|
At
December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
(dollars
in thousands)
|
||||||||||
FHLB
Notes
|
$
|
5,000
|
$
|
5,000
|
$
|
5,000
|
||||
Mortgage-backed
securities
|
2,271
|
3,290
|
4,955
|
|||||||
Total
Investment Securities Held to Maturity
|
$
|
7,271
|
$
|
8,290
|
$
|
9,955
|
More
than One to
|
More
than Five to
|
||||||||||||||
One
Year or Less
|
Five
Years
|
Ten
Years
|
More
than Ten Years
|
Total
Investment Securities
|
|||||||||||
Carrying
|
Average
|
|
Carrying
|
Average
|
|
Carrying
|
Average
|
|
Carrying
|
Average
|
|
Carrying
|
Average
|
Fair
|
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
|
Amount
|
Yield
|
Value
|
(dollars
in thousands)
|
|||||||||||||||
FHLB
Notes
|
4,000
|
2.58%
|
-
|
-
|
$1,000
|
5.05%
|
-
|
-
|
$5,000
|
3.07%
|
$4,925
|
||||
Mortgage-backed
securities
|
796
|
4.50%
|
-
|
-
|
-
|
-
|
1,475
|
5.47%
|
2,271
|
5.13%
|
2,192
|
||||
|
|
|
|
|
|||||||||||
Total
|
$4,796
|
2.90%
|
$-
|
-
|
$1,000
|
5.05%
|
$1,475
|
5.47%
|
$7,271
|
3.62%
|
$7,117
|
2006
|
|
2005
|
|
2004
|
||||||
(dollars
in thousands)
|
||||||||||
NOW
accounts
|
$
|
9,314
|
$
|
7,683
|
$
|
4,872
|
||||
Money
market accounts
|
89,120
|
99,911
|
131,014
|
|||||||
Passbooks
|
18,526
|
17,505
|
18,198
|
|||||||
Certificates
of deposit
|
490,865
|
445,592
|
356,447
|
|||||||
Non-interest
bearing accounts
|
18,699
|
24,202
|
16,882
|
|||||||
Total
deposits
|
$
|
626,524
|
$
|
594,893
|
$
|
527,413
|
Jumbo
Certificate
|
||
of
Deposits
|
||
Time
Remaining Until Maturity
|
(dollars
in thousands)
|
|
Less
than three months
|
$52,452
|
|
3
months to 6 months
|
38,567
|
|
6
months to 12 months
|
67,112
|
|
Greater
than 12 months
|
42,464
|
|
Total
|
$200,595
|
Years
ended December 31,
|
||||||||||
2006
|
|
2005
|
|
2004
|
||||||
(dollars
in thousands)
|
||||||||||
Short
term borrowings and notes payable
|
||||||||||
Average
balance outstanding during the period
|
$
|
8,250
|
$
|
25,833
|
$
|
15,567
|
||||
Maximum
amount outstanding at any month-end during
|
||||||||||
the
period
|
26,000
|
41,000
|
41,000
|
|||||||
Weighted
Average interest rate during the period
|
5.31
|
%
|
3.30
|
%
|
1.67
|
%
|
||||
Total
short term borrowings at period end
|
18,000
|
26,000
|
-
|
|||||||
Weighted
average interest rate at period end
|
5.41
|
%
|
3.33
|
%
|
0.00
|
%
|
Actual
|
|
Required
For Capital
Adequacy
Purposes
|
|
Required
To Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
||||||||||||||
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||
(dollars
in thousands)
|
|||||||||||||||||||
December
31, 2006
|
|||||||||||||||||||
Tangible
(1)
|
$
|
99,445
|
11.0
|
%
|
$
|
13,513
|
1.50
|
%
|
N/A
|
N/A
|
|||||||||
Tier
I capital (2)
|
99,445
|
13.1
|
%
|
N/A
|
N/A
|
$
|
45,582
|
6.00
|
%
|
||||||||||
Core
(1)
|
99,445
|
11.0
|
%
|
36,034
|
4.00
|
%
|
45,043
|
5.00
|
%
|
||||||||||
Total
(2)
|
108,452
|
14.3
|
%
|
60,776
|
8.00
|
%
|
75,971
|
10.00
|
%
|
||||||||||
December
31, 2005
|
|||||||||||||||||||
Tangible
(1)
|
$
|
86,354
|
10.3
|
%
|
$
|
12,619
|
1.50
|
%
|
N/A
|
N/A
|
|||||||||
Tier
I capital (2)
|
86,354
|
12.2
|
%
|
N/A
|
N/A
|
$
|
42,395
|
6.00
|
%
|
||||||||||
Core
(1)
|
86,354
|
10.3
|
%
|
33,651
|
4.00
|
%
|
42,064
|
5.00
|
%
|
||||||||||
Total
(2)
|
93,851
|
13.3
|
%
|
56,527
|
8.00
|
%
|
70,659
|
10.00
|
%
|
· |
“well
capitalized”;
|
· |
“adequately
capitalized”;
|
· |
“undercapitalized”;
|
· |
“significantly
undercapitalized”; and
|
· |
“critically
undercapitalized”.
|
· |
initial
notices to customers about their privacy policies, describing the
conditions under which they may disclose nonpublic personal information
to
nonaffiliated third parties and affiliates;
|
· |
annual
notices of their privacy policies to current customers;
and
|
· |
a
reasonable method for customers to “opt out” of disclosures to
nonaffiliated third parties.
|
· |
interprets
section 501(b) of the GLB Act and previously issued interagency customer
information security guidelines that require financial institutions
to
implement information security programs designed to protect their
customer’s information; and
|
· |
describe
the components of a response program and sets a standard for providing
notice to customers affected by unauthorized access to or use of
customer
information that could result in substantial harm or inconvenience
to
those customers, thereby reducing the risk of losses due to fraud
or
identify theft.
|
· |
Among
other security measures, requires financial institutions to notify
law
enforcement authorities and their primary federal regulator when
such
institutions become aware of an incident involving unauthorized access
to
or use of sensitive customer information
|
· |
making
unaffordable loans based on the assets of the borrower rather than
on the
borrower’s ability to repay an obligation (“asset-based lending”)
|
· |
inducing
a borrower to refinance a loan repeatedly in order to charge high
points
and fees each time the loan is refinanced (“loan flipping”)
|
· |
engaging
in fraud or deception to conceal the true nature of the loan obligation
from an unsuspecting or unsophisticated borrower.
|
· |
interest
rates for first lien mortgage loans in excess of 8 percentage points
above
the comparable U.S. Treasury securities,
|
· |
subordinate-lien
loans of 10 percentage points above U.S. Treasury securities;
and
|
· |
fees
such as optimal insurance and similar debt protection costs paid
in
connection with the credit transaction, when combined with points
and fees
if deemed excessive.
|
· |
the
purchase price of each single-family dwelling in the development
does not
exceed $500,000;
|
· |
the
savings association is in compliance with its fully phased-in capital
requirements;
|
· |
the
loans comply with applicable loan-to-value requirements; and
|
· |
the
aggregate amount of loans made under this authority does not exceed
150%
of unimpaired capital and surplus.
|
· |
to
an amount equal to 10% of the association's capital and surplus,
in the
case of covered transactions with any one affiliate; and
|
· |
to
an amount equal to 20% of the association's capital and surplus,
in the
case of covered transactions with all
affiliates.
|
· |
a
loan or extension of credit to an affiliate;
|
· |
a
purchase of investment securities issued by an
affiliate;
|
· |
a
purchase of assets from an affiliate, with some exceptions;
|
· |
the
acceptance of securities issued by an affiliate as collateral for
a loan
or extension of credit to any party; or
|
· |
the
issuance of a guarantee, acceptance or letter of credit on behalf
of an
affiliate.
|
· |
a
savings association may not make a loan or extension of credit to
an
affiliate unless the affiliate is engaged only in activities permissible
for bank holding companies;
|
· |
a
savings association may not purchase or invest in securities of an
affiliate other than shares of a subsidiary;
|
· |
a
savings association and its subsidiaries may not purchase a low-quality
asset from an affiliate;
|
· |
covered
transactions and other specified transactions between a savings
association or its subsidiaries and an affiliate must be on terms
and
conditions that are consistent with safe and sound banking practices;
and
|
· |
with
some exceptions, each loan or extension of credit by a savings association
to an affiliate must be secured by collateral with a market value
ranging
from 100% to 130%, depending on the type of collateral, the amount
of the
loan, or extension of credit.
|
· |
a
financial subsidiary;
|
· |
a
subsidiary controlled by one or more
affiliates;
|
· |
an
ESOP; or
|
· |
a
subsidiary determined by the OTS or the Federal Reserve to be an
affiliate.
|
· |
it
is not eligible for expedited treatment of its other applications
under
OTS regulations;
|
· |
the
total amount of all of capital distributions, including the proposed
capital distribution, for the applicable calendar year exceeds its
net
income for that year to date plus retained net income for the preceding
two years;
|
· |
it
would not be at least adequately capitalized, under the prompt corrective
action regulations of the OTS following the distribution; or
|
· |
the
association's proposed capital distribution would violate a prohibition
contained in any applicable statute, regulation, or agreement between
the
savings association and the OTS, or the FDIC, or violate a condition
imposed on the savings association in an OTS-approved application
or
notice.
|
· |
would
not be well capitalized under the prompt corrective action regulations
of
the OTS following the distribution;
|
· |
the
proposed capital distribution would reduce the amount of or retire
any
part of the savings association's common or preferred stock or retire
any
part of debt instruments like notes or debentures included in capital,
other than regular payments required under a debt instrument approved
by
the OTS; or
|
· |
the
savings association is a subsidiary of a savings and loan holding
company.
|
· |
Establishing
of anti-money laundering programs, including adoption of written
procedures, designation of a compliance officer and auditing of the
program;
|
· |
Establishment
of a program specifying procedures for obtaining identifying information
from customers seeking to open new accounts, including verifying
the
identity of customers within a reasonable period of
time;
|
· |
Establishment
of enhanced due diligence policies, procedures and controls designed
to
detect and report money laundering;
|
· |
Prohibition
on correspondent accounts for foreign shell banks and compliance
with
record keeping obligations with respect to correspondent accounts
of
foreign banks; and
|
· |
Requirements
that bank regulators consider a holding company’s effectiveness in
combating money laundering when ruling on Federal Reserve Act and
Bank
Merger Act applications.
|
· |
1%
of its aggregate outstanding principal amount of its residential
mortgage
loans, home purchase contracts and similar obligations at the beginning
of
each calendar year; or
|
· |
5%
of its FHLB advances or borrowings.
|
· |
the
membership stock requirement, which is the lesser of:
|
· |
the
activity-based stock requirement, which is the aggregate of:
|
· |
a
decrease in deposits;
|
· |
an
increase in loan delinquencies;
|
· |
an
increase in problem assets and
foreclosures;
|
· |
a
decrease in the demand for our products and services;
and
|
· |
a
decrease in the value of collateral for loans, especially real estate,
and
reduction in the customers’ borrowing
power.
|
Period
Ending
|
||||||
Index
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
Severn
Bancorp, Inc.
|
100.00
|
180.88
|
364.92
|
559.00
|
456.67
|
502.73
|
NASDAQ
Composite Index
|
100.00
|
68.76
|
103.67
|
113.16
|
115.57
|
127.58
|
SNL
$500M-$1B Thrift Index
|
100.00
|
140.09
|
199.47
|
220.65
|
209.70
|
256.94
|
2006
Closing
|
2005
Closing
|
|||||||
Stock
Price Range
|
Per
Share
|
|
|
Stock
Price Range
|
Per
Share
|
|||
Quarter
|
Low
|
High
|
Dividend
|
|
Quarter
|
Low
|
High
|
Dividend
|
1st
|
$16.72
|
$19.97
|
$.060
|
1st
|
$17.28
|
$21.02
|
$.055
|
|
2nd
|
17.86
|
20.13
|
.060
|
2nd
|
15.79
|
17.87
|
.055
|
|
3rd
|
18.48
|
19.97
|
.060
|
3rd
|
15.83
|
17.87
|
.055
|
|
4th
|
18.55
|
19.80
|
.060
|
4th
|
16.20
|
17.56
|
.055
|
At
December 31,
|
||||||||||||||||
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
||||||||
(dollars
in thousands, except per share information)
|
||||||||||||||||
Balance
Sheet Data
|
||||||||||||||||
Total
assets
|
$
|
911,916
|
$
|
849,774
|
$
|
703,616
|
$
|
540,471
|
$
|
458,415
|
||||||
Total
loans, net
|
835,477
|
779,333
|
656,967
|
506,026
|
418,825
|
|||||||||||
Investment
securities held to maturity
|
7,271
|
8,290
|
9,955
|
12,721
|
9,661
|
|||||||||||
Non-performing
loans
|
5,927
|
1,693
|
939
|
469
|
1,758
|
|||||||||||
Total
non-performing assets
|
6,897
|
1,693
|
939
|
469
|
1,982
|
|||||||||||
Deposits
|
626,524
|
594,893
|
527,413
|
419,726
|
377,925
|
|||||||||||
Short-term
borrowings
|
18,000
|
26,000
|
-
|
6,000
|
-
|
|||||||||||
Long-term
debt
|
155,000
|
132,000
|
89,000
|
59,000
|
34,000
|
|||||||||||
Total
liabilities
|
825,474
|
777,062
|
639,462
|
487,501
|
415,233
|
|||||||||||
Stockholders’
equity
|
86,442
|
72,712
|
60,154
|
48,970
|
39,181
|
|||||||||||
Book
value per common share *
|
$
|
9.45
|
$
|
7.95
|
$
|
6.57
|
$
|
5.35
|
$
|
4.30
|
||||||
Common
shares outstanding *
|
9,150,850
|
9,150,002
|
9,150,002
|
9,150,002
|
9,113,702
|
|||||||||||
Other
Data:
|
||||||||||||||||
Number
of:
|
||||||||||||||||
Full
service retail banking facilities
|
3
|
3
|
3
|
2
|
2
|
|||||||||||
Full-time
equivalent employees
|
121
|
111
|
105
|
81
|
69
|
|||||||||||
*
Retroactively adjusted to reflect 10% stock dividend declared February
21,
2006 effective for shares outstanding on March 28, 2006 and a two-for-one
stock split declared November 17, 2004 effective for shares outstanding
December 15, 2004.
|
For
the Year Ended December 31,
|
||||||||||||||||
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
(dollars
in thousands, except per share information)
|
||||||||||||||||
Interest
and dividend income
|
$
|
70,175
|
$
|
57,135
|
$
|
44,829
|
$
|
37,087
|
$
|
33,402
|
||||||
Interest
expense
|
32,060
|
21,955
|
14,631
|
12,341
|
13,799
|
|||||||||||
Net
interest income
|
38,115
|
35,180
|
30,198
|
24,746
|
19,603
|
|||||||||||
Provision
for loan losses
|
1,561
|
1,570
|
1,200
|
900
|
670
|
|||||||||||
Net
interest income after provision for loan losses
|
36,554
|
33,610
|
28,998
|
23,846
|
18,933
|
|||||||||||
Non-interest
income
|
3,867
|
2,748
|
3,402
|
4,674
|
4,133
|
|||||||||||
Non-interest
expense
|
14,065
|
12,878
|
11,211
|
9,616
|
8,447
|
|||||||||||
Income
before income tax provision
|
26,356
|
23,480
|
21,189
|
18,904
|
14,619
|
|||||||||||
Provision
for income taxes
|
10,608
|
8,926
|
8,258
|
7,575
|
5,671
|
|||||||||||
Net
income
|
$
|
15,748
|
$
|
14,554
|
$
|
12,931
|
$
|
11,329
|
$
|
8,948
|
||||||
Per
Share Data:
|
||||||||||||||||
Basic
earnings per share *
|
$
|
1.72
|
$
|
1.59
|
$
|
1.42
|
$
|
1.22
|
$
|
0.96
|
||||||
Diluted
earnings per share *
|
$
|
1.72
|
$
|
1.59
|
$
|
1.42
|
$
|
1.22
|
$
|
0.96
|
||||||
Weighted
number of shares outstanding basic *
|
9,150,263
|
9,150,002
|
9,150,002
|
9,122,445
|
9,002,814
|
|||||||||||
Weighted
number of shares outstanding diluted *
|
9,153,687
|
9,150,002
|
9,150,002
|
9,146,064
|
9,027,091
|
|||||||||||
*
Retroactively adjusted to reflect 10% stock dividend declared February
21,
2006 effective for shares outstanding on March 28, 2006 and a two-for-one
stock split declared November 17, 2004 effective for shares outstanding
December 15, 2004.
|
For
the Year Ended December 31,
|
||||||||||||||||
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
Performance
Ratios:
|
||||||||||||||||
Return
on average assets
|
1.77
|
%
|
1.84
|
%
|
2.02
|
%
|
2.23
|
%
|
2.14
|
%
|
||||||
Return
on average equity
|
19.59
|
%
|
21.85
|
%
|
23.56
|
%
|
25.22
|
%
|
25.58
|
%
|
||||||
Dividend
payout ratio
|
13.95
|
%
|
13.84
|
%
|
13.38
|
%
|
12.30
|
%
|
11.46
|
%
|
||||||
Net
interest margin
|
4.50
|
%
|
4.58
|
%
|
4.81
|
%
|
4.99
|
%
|
4.86
|
%
|
||||||
Interest
rate spread
|
4.20
|
%
|
4.32
|
%
|
4.60
|
%
|
4.77
|
%
|
4.59
|
%
|
||||||
Non-interest
expense to average assets
|
1.58
|
%
|
1.63
|
%
|
1.75
|
%
|
1.89
|
%
|
2.02
|
%
|
||||||
Efficiency
ratio
|
33.50
|
%
|
33.95
|
%
|
33.37
|
%
|
32.69
|
%
|
35.59
|
%
|
||||||
Asset
Quality Ratios:
|
||||||||||||||||
Average
equity to average assets
|
9.02
|
%
|
8.42
|
%
|
8.57
|
%
|
8.84
|
%
|
8.38
|
%
|
||||||
Nonperforming
assets to total assets
|
||||||||||||||||
at
end of period
|
0.76
|
%
|
0.20
|
%
|
0.13
|
%
|
0.09
|
%
|
0.43
|
%
|
||||||
Nonperforming
loans to total gross
|
||||||||||||||||
loans
at end of period
|
0.62
|
%
|
0.18
|
%
|
0.12
|
%
|
0.08
|
%
|
0.36
|
%
|
||||||
Allowance
for loan losses to
|
||||||||||||||||
net
loans at end of period
|
1.08
|
%
|
0.96
|
%
|
0.90
|
%
|
0.95
|
%
|
0.95
|
%
|
||||||
Allowance
for loan losses to
|
||||||||||||||||
nonperforming
loans at end of period
|
152.29
|
%
|
443.30
|
%
|
632.10
|
%
|
1030.49
|
%
|
227.02
|
%
|
||||||
Years
Ended December 31,
|
|||||||||||||
2006
|
2005
|
2004
|
|||||||||||
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|||
|
|
Volume
|
Interest
|
Yield/Cost
|
|
Volume
|
Interest
|
Yield/Cost
|
|
Volume
|
Interest
|
Yield/Cost
|
|
(dollars
in thousands)
|
|||||||||||||
ASSETS
|
|||||||||||||
Loans
(1)
|
$819,038
|
$68,610
|
8.38%
|
$738,028
|
$56,120
|
7.60%
|
$600,030
|
$44,091
|
7.35%
|
||||
Investments
(2)
|
5,000
|
154
|
3.08%
|
5,000
|
154
|
3.08%
|
5,250
|
165
|
3.15%
|
||||
Mortgage-backed
securities
|
2,823
|
112
|
3.97%
|
4,065
|
173
|
4.26%
|
5,686
|
254
|
4.46%
|
||||
Other
interest-earning assets (3)
|
19,886
|
1,299
|
6.53%
|
15,923
|
688
|
4.32%
|
12,656
|
319
|
2.52%
|
||||
Total
interest-earning assets
|
846,747
|
70,175
|
8.29%
|
763,016
|
57,135
|
7.49%
|
623,622
|
44,829
|
7.19%
|
||||
Non-interest
earning assets
|
44,385
|
28,027
|
16,552
|
||||||||||
Total
Assets
|
$891,132
|
$791,043
|
$640,174
|
||||||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||||||||
Savings
and checking deposits
|
$138,242
|
$2,728
|
1.97%
|
$155,513
|
$2,455
|
1.58%
|
$192,946
|
$2,670
|
1.38%
|
||||
Certificates
of deposits
|
483,524
|
20,977
|
4.34%
|
408,026
|
13,819
|
3.39%
|
284,636
|
8,622
|
3.03%
|
||||
Borrowings
|
162,417
|
8,355
|
5.14%
|
134,833
|
5,681
|
4.21%
|
96,250
|
3,339
|
3.47%
|
||||
Total
interest-bearing liabilities
|
784,183
|
32,060
|
4.09%
|
698,372
|
21,955
|
3.14%
|
573,832
|
14,631
|
2.55%
|
||||
Non-interest
bearing liabilities
|
26,556
|
26,059
|
11,451
|
||||||||||
Stockholders'
equity
|
80,393
|
66,612
|
54,891
|
||||||||||
Total
liabilities and stockholders' equity
|
$891,132
|
$791,043
|
$640,174
|
||||||||||
Net
interest income and Interest rate spread
|
$38,115
|
4.20%
|
$35,180
|
4.35%
|
$30,198
|
4.64%
|
|||||||
Net
interest margin
|
4.50%
|
4.61%
|
4.84%
|
||||||||||
Average
interest-earning assets to
|
|||||||||||||
average
interest-bearing liabilities
|
107.98%
|
109.26%
|
108.68%
|
||||||||||
(1)
Non-accrual loans are included in the average balances and in the
computation of yields.
|
|||||||||||||
(2)
Bancorp does not have any tax-exempt securities.
|
|||||||||||||
(3)
Other interest earning assets includes interest bearing deposits
in other
banks, federal funds, and FHLB stock investments.
|
Year
ended December 31, 2006
|
Year
ended December 31, 2005
|
||||||||||||||||||
vs.
|
vs.
|
||||||||||||||||||
Year
ended December 31, 2005
|
Year
ended December 31, 2004
|
||||||||||||||||||
Total
|
Changes
Due to
|
Total
|
Changes
Due to
|
||||||||||||||||
Change
|
Volume
(1)
|
Rate
(1)
|
Change
|
Volume
(1)
|
Rate
(1)
|
||||||||||||||
(dollars
in thousands)
|
|||||||||||||||||||
Interest-earning
assets
|
|||||||||||||||||||
Loans
|
$
|
12,490
|
$
|
6,160
|
$
|
6,330
|
$
|
12,029
|
$
|
10,140
|
$
|
1,889
|
|||||||
Investments
|
-
|
-
|
-
|
(11
|
)
|
(8
|
)
|
(3
|
)
|
||||||||||
Mortgage-backed
securities
|
(61
|
)
|
(53
|
)
|
(8
|
)
|
(81
|
)
|
(72
|
)
|
(9
|
)
|
|||||||
Other
interest-earning assets
|
611
|
171
|
440
|
369
|
82
|
287
|
|||||||||||||
Total
interest income
|
$
|
13,040
|
$
|
6,278
|
$
|
6,762
|
$
|
12,306
|
$
|
10,142
|
$
|
2,164
|
|||||||
Interest-bearing
liabilities
|
|||||||||||||||||||
Savings
and checking deposits
|
$
|
273
|
$
|
(272
|
)
|
$
|
545
|
$
|
(215
|
)
|
$
|
(518
|
)
|
$
|
303
|
||||
Certificates
of deposits
|
7,158
|
2,557
|
4,601
|
5,197
|
3,738
|
1,459
|
|||||||||||||
Borrowings
|
2,674
|
1,162
|
1,512
|
2,342
|
1,338
|
1,004
|
|||||||||||||
Total
interest expense
|
$
|
10,105
|
$
|
3,447
|
$
|
6,658
|
$
|
7,324
|
$
|
4,558
|
$
|
2,766
|
|||||||
Net
change in interest income
|
$
|
2,935
|
$
|
2,831
|
$
|
104
|
$
|
4,982
|
$
|
5,584
|
$
|
(602
|
)
|
||||||
(1)
Changes in interest income/expense not arising from volume or rate
variances are allocated proportionately to rate and
volume.
|
|||||||||||||||||||
Payments
due by period
(dollars
in thousands)
|
||||||||||||||||
Total
|
2007
|
2008-2009
|
2010-2011
|
2012
+
|
||||||||||||
Long
term debt
|
$
|
155,000
|
$
|
15,000
|
$
|
35,000
|
$
|
10,000
|
$
|
95,000
|
||||||
Subordinated
debentures
|
20,619
|
-
|
-
|
-
|
20,619
|
|||||||||||
Operating
lease obligations
|
214
|
60
|
120
|
34
|
-
|
|||||||||||
Certificates
of Deposit
|
490,865
|
409,469
|
50,842
|
30,509
|
45
|
|||||||||||
Total
|
$
|
666,698
|
$
|
424,529
|
$
|
85,962
|
$
|
40,543
|
$
|
115,664
|
Net
Portfolio Value
|
NPV
as % of PV of Assets
|
||||
Change
In Rates
|
$
Amount
|
$
Change
|
%
Change
|
NPV
Ratio
|
Change
|
(dollars
are in thousands)
|
|||||
+300
bp
|
108,903
|
(17,518)
|
(14%)
|
12.22%
|
(148bp)
|
+200
bp
|
115,804
|
(10,617)
|
(8%)
|
12.83%
|
(87bp)
|
+100
bp
|
121,130
|
(5,292)
|
(4%)
|
13.27%
|
(42bp)
|
0
bp
|
126,421
|
13.69%
|
|||
-100
bp
|
130,260
|
3,838
|
3%
|
13.96%
|
27bp
|
-200
bp
|
132,417
|
5,995
|
5%
|
14.05%
|
36bp
|
-300
bp
|
-
|
-
|
-%
|
-%
|
-bp
|
/s/
Alan J. Hyatt
|
/s/
Thomas G. Bevivino
|
|
Alan
J. Hyatt
|
Thomas
G. Bevivino
|
|
President
and Chief Executive Officer
|
Principal
Financial Officer
|
Number
of
|
Number
of
|
|||||
securities
to be
|
securities
|
|||||
issued
upon
|
Weighted-average
|
remaining
available
|
||||
exercise
of
|
exercise
price of
|
for
future issuance
|
||||
outstanding
|
outstanding
|
Under
equity
|
||||
options,
warrants
|
options,
warrants
|
compensation
|
||||
Plan
Category
|
and
rights
|
and
rights
|
plans
|
|||
Equity
compensation plan approved by security
holders
|
112,400
|
$17.43
|
45,100
|
|||
Equity
compensation plans
not approved by security holders
|
-
|
-
|
-
|
|||
Total
|
112,400
|
$17.43
|
45,100
|
3.1
|
Articles
of Incorporation of Severn Bancorp, Inc.
(1)
|
3.2
|
Bylaws
of Severn Bancorp, Inc. (1)
|
3.3
|
Amendment
to Bylaws
|
10.1+
|
Description
of compensation of directors and officers
|
10.2+
|
Stock
Option Plan (3)
|
10.3+
|
Employee
Stock Ownership Plan (1)
|
10.4+
|
Form
of Common Stock Option Agreement(4)
|
14
|
Code
of Ethics (2)
|
21.1
|
Subsidiaries
of Severn Bancorp, Inc.
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
31.1
|
Certification
of CEO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
|
31.2
|
Certification
of CFO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
|
32
|
Certification
of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of
2002
|
SEVERN
BANCORP, INC.
|
|
March
6, 2007
|
/s/
Alan J. Hyatt
|
Alan
J. Hyatt
|
|
Chairman
of the Board, President,
|
|
Chief
Executive Officer and
Director
|
March
6, 2007
|
/s/
Alan J. Hyatt
|
Alan
J. Hyatt
|
|
Chairman
of the Board,
|
|
President,
Chief Executive Officer
|
|
and
Director
|
|
March
6, 2007
|
/s/
Thomas G. Bevivino
|
Thomas
G. Bevivino, Executive Vice
|
|
President
and Chief Financial Officer
|
|
March
6, 2007
|
/s/
S. Scott Kirkley
|
S.
Scott Kirkley, Executive Vice
|
|
President,
Secretary, Treasurer and Director
|
|
March
6, 2007
|
/s/
Melvin E. Meekins, Jr.
|
Melvin
E. Meekins, Jr., Executive
|
|
Vice
President and Director
|
|
March
6, 2007
|
/s/
Melvin
Hyatt
|
Melvin
Hyatt, Director
|
|
March
6, 2007
|
/s/
Ronald P. Pennington
|
Ronald
P. Pennington, Director
|
|
March
6, 2007
|
/s/
T. Theodore Schultz
|
T.
Theodore Schultz, Director
|
|
March
6, 2007
|
/s/
Albert W. Shields
|
Albert
W. Shields, Director
|
|
March
6, 2007
|
/s/
Louis DiPasquale, Jr.
|
Louis
DiPasquale, Jr., Director
|
|
March
6, 2007
|
/s/
Keith Stock
|
Keith
Stock, Director
|
|