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Severn Bancorp Announces Restatement of Financial Statements To Reflect Additional Net Income

ANNAPOLIS, Md., Feb. 14, 2013 /PRNewswire/ -- Severn Bancorp, Inc. ("the Company"), (Nasdaq: SVBI) parent company of Severn Savings Bank, FSB ("Severn"), today announced that it will restate its previously issued annual consolidated financial statements for the fiscal years 2010, and 2011 and quarterly consolidated financial statements for fiscal years 2010, 2011 and 2012 (including its selected financial data for the relevant periods) due to errors identified in these financial statements.  These restatements are expected to be reflected in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 that will be filed with the Securities and Exchange Commission in March 2013.  The decision was made by the Company's Board of Directors, upon the recommendation of the Audit Committee and in consultation with management.   As a result of this decision, investors should no longer rely upon the Company's previously released financial statements for these periods and any earnings releases or other communications relating to these periods.

The Company estimates that it understated pre-tax income by an aggregate of approximately $1,627,000, over the restated periods, due to the Company overstating its FDIC insurance expense for those periods.  This resulted from the method the Company used to amortize a prepayment of its risk-based insurance assessment paid to the FDIC in 2009.  At that time, the Company paid an estimated assessment in advance for fiscal years 2010, 2011 and 2012 based on the level of net assets as of June 30, 2009, and began expensing the prepayment evenly over the three year period covered by the prepayment.  Management has now determined that this method of amortization was incorrect and that it should have amortized the prepayment based on the actual level of net assets over that period.  This error was discovered by management during the course of its preparation of the 2012 year-end financial statements and audit.

The amounts disclosed below are the estimated net cumulative effect of this error on income through December 31, 2012.  The effect on income in certain periods is quantitatively significant. The adjustments necessary have no effect on reported cash flow from operations, and do not have a material impact on the consolidated balance sheet.  The impact of this correction for the restatement periods increases cumulative net income by approximately $980,000 and cumulative earnings per share by approximately $0.09.

Impact of the restatement

The estimated adjustments to the Company's consolidated statements of operations are summarized in the tables below (in thousands, except per share amounts).

 

















Fiscal Year Ended






December 31, 2012

December 31, 2011

December 31, 2010






As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated


















Increase in:



























Pre-tax income

$        5,654

$           732

$        6,386

$        2,201

$           561

$        2,762

$        2,197

$           334

$        2,531




Net income

3,283

445

3,728

1,219

333

1,552

1,157

202

1,359




Basic and diluted














earnings(loss) per share

0.18

0.04

0.22

(0.05)

0.03

(0.02)

(0.06)

0.02

(0.04)


































Quarter Ended



March 31, 2012

June 30, 2012

September 30, 2012

December 31, 2012



As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated















Increase in:



























Pre-tax income

$           828

$           172

$        1,000

$        1,869

$           174

$        2,043

$           964

$           191

$        1,155

$        1,993

195

$        2,188

Net income

472

105

577

1,097

106

1,203

558

116

674

1,156

118

1,274

Basic and diluted














earnings per share

0.01

0.01

0.02

0.07

0.01

0.08

0.02

0.01

0.03

0.08

0.01

0.09































Quarter Ended



March 31, 2011

June 30, 2011

September 30, 2011

December 31, 2011



As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated















Increase in:



























Pre-tax income(loss)

$           791

83

$           874

$      (1,403)

$           152

$      (1,251)

$           954

$           159

$        1,113

$        1,859

$           167

$        2,026

Net income(loss)

447

49

496

(846)

90

(756)

551

95

646

1,067

99

1,166

Basic and diluted














earnings(loss) per share

0.00

0.01

0.01

(0.13)

0.01

(0.12)

0.01

0.01

0.02

0.06

0.01

0.07































Quarter Ended



March 31, 2010

June 30, 2010

September 30, 2010

December 31, 2010



As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated

As Reported

Adjustment

As Restated















Increase in:



























Pre-tax income(loss)

$         (829)

$             96

$         (733)

$        1,054

$             67

$        1,121

$           870

$             84

$           954

$        1,102

87

$        1,189

Net income(loss)

(528)

58

(470)

593

40

633

485

51

536

607

53

660

Basic and diluted














earnings(loss) per share

(0.10)

0.01

(0.09)

0.02

0.00

0.02

0.01

0.00

0.01

0.02

0.00

0.02

 

The Board of Directors, Audit Committee and management have discussed the matters disclosed in this press release with the Company's independent registered public accounting firm, ParenteBeard LLC.  The Company is working diligently to complete the restatement of its financial statements and expects to file its Annual Report on Form 10-K, including the restated financial statements, by no later than March 31, 2013.

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, statements with respect to the estimated effects of the revisions to its financial statements.  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, additional information arising from the review of the revisions to the financial statements by Severn and by its independent accountants, the Company's ability to maintain an effective system of internal controls 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, 2011.

SOURCE Severn Bancorp, Inc.

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