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Severn Bank in the clear with federal regulators

Severn Savings Bank has terminated its agreement with regulators that began in April 2013.

The bank was under the watch of the Office of the Comptroller of the Currency for more than two years after regulators “found unsafe or unsound banking practices relating to asset quality, management, and credit risk management,” according to a formal agreement between the bank and government agency.

The OCC has a range of enforcement actions including formal agreements, cease and desist orders and civil money penalty orders. A formal agreement is a type of enforcement from the OCC that lays out a set of a terms the bank must honor.

The agreement included restrictions on how the bank did business, including a provision that Severn was not allowed to declare or pay dividends or make other capital contributions without approval from the OCC.

An elected board of directors was also required to appoint three of its members to a “compliance committee” tasked with making sure the bank adhered to the terms of its agreement. The board also had to assess Severn’s senior management to make sure the bank had competent leadership.

An OCC spokesman declined to comment any specific institutions or agreements.

The agreement is active until provisions are changed in writing with consent from both parties or the agreement is waived or terminated in writing by the OCC, according to language in the agreement.

“The termination of the Agreement with our regulators validates the strength and good standing of this bank. We continue in our commitment to providing top notch service, and this company is poised for growth and success,” said Alan J. Hyatt, president and chief executive officer in a statement.

The bank did not return a call requesting additional comment.

About a week before the agreement was signed on April 23, 2013, Severn reported a “modest” profit in its first-quarter earnings. At the time, Hyatt said the bank was working through troubled real estate loans. Severn reported first-quarter net income of $621,000, or 3 cents per diluted shares at the time, which was a 7.6 percent increase compared to net income of $577,000, or 2 cents per share, for the year-ago period.

Severn currently has around $780 million in assets, according to a press release. The bank has four branches in Annapolis, Edgewater and Glen Burnie.

In July, Severn reported a net income of $1,365,000, or 8 cents per share, for the second quarter of 2015 compared to a net loss of $576,000, or 12 cents per share, for the second quarter of 2014.

In an OCC performance evaluation dated Aug. 9, 2012, Severn received a “satisfactory” rating on its lending test, which evaluates the bank’s record of meeting credit needs through lending activities. The bank received an “outstanding” rating on the OCC’s community development test, which evaluates the bank’s lending, qualified investments and community development services.

Severn Bancorp shares rose 6.6 percent to $5.17 as of 4:30 p.m. on Friday.