Severn Bancorp: Having Weathered The Storm The Bank Is Now Set For Growth

12 Feb

Severn Bancorp: Having Weathered The Storm The Bank Is Now Set For Growth

Severn Bancorp (Nasdaq: SVBI), parent company of Severn Bank, is one small cap company to keep your eyes on. Based in Maryland, Severn designs its products and services to meet the needs of the Chesapeake Bay Region (Maryland, Delaware and North Virginia).

One might wonder if the targeted region is large enough to draw the attention of sophisticated investors. The answer would be yes. Severn is a prime example of what many call a “lean and mean” organization. Severn appears to have a bright future that is built upon a storied past.

Severn Bancorp: Weathering the storm

Founded way back in 1946 as a building and loan company, Severn has widened its scope of business to include certificates of deposit, retirement accounts, personal checking accounts and commercial checking accounts. Severn is also a community mortgage lender, providing funds for everything from purchasing to construction, rehabilitation and refinancing, with a special focus on Anne Arundel County.

In 2008, like hundreds of U.S. community banks, Severn was forced to turn to the TARP program to keep their doors open, selling 23,393 original shares of preferred stock to the U.S. Department of the Treasury. The high-interest rate (5% initially then 9% in 2013) took its toll on many banks, forcing them out of business altogether, but Severn endured. In 2009 they also benefited from Dodd-Frank and were released from all agreements with their regulators.

In 2016 the company issued a private placement offering that enabled them to restructure their debt and pay off the remaining TARP balance. Severn sold 2 million shares of common stock at the price of $5.50 for a total of $11 million, lowering the debt costs and paying all accrued and unpaid interest and preferred dividends, propelling the company forward. The bank is now well-capitalized having reduced their cost of funds and improved their financial strength.

In recent years Severn bolstered its management team with two additions that have proven to be solid choices. First, in 2015, they brought in Christopher Chick as Chief Lending Officer. Chick has won many awards in his career, serves on many boards and committees and offers expertise in one of Severn’s most crucial areas – lending. In 2016 the company added Paul Susie as EVP and CFO. Susie has years of experience in both managing and growing companies of similar size and scope. Both men show the company’s commitment to the future.

All of these changes, along with continued management discipline, has led to a steady rise in valuation. Just a few years ago, in 2012, stock was selling at $2.60. Today, the price is hovering around $7.50 and has been steadily rising. The company has seen nine consecutive quarters of profitability.

Management is key

Part of Severn’s long-term stability comes from the leadership of Chairman and President Alan Hyatt, who has been in this role for nearly forty years. Hyatt has built a reputation throughout the region with local small and midsize businesses that rely on Severn’s community style customer service. With Severn, you get the feel of a Nasdaq corporation with the experience of a small bank.

The last few years have seen Severn not only survive, but grow. They are as healthy as they have ever been and gaining further strength daily, as the stock price would indicate. The company is growing at a rate of roughly 10% annually. Year against year pricing shows January 13, 2016 at $5.30 and January 13, 2017 at $7.50. Severn appears to be making the right moves at the right times, all of which is the result of sound financial strategy and tactics.

Only the board knows what the future plans look like. Will they continue to focus on their existing market? Will they expand their territory, products and services? Or, will they seek to be purchased. My guess is the latter. Either way, the stock seems to be healthy with a lot of upside potential.

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