UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ to _____________
COMMISSION FILE NUMBER: 0-24047
GLEN BURNIE BANCORP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1782444
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 CRAIN HIGHWAY, S.E., GLEN BURNIE, MARYLAND 21061
- ---------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
410-766-3300
---------------------------------------------------
(Registrant's telephone number, including area code)
Not applicableNOT APPLICABLE
- ----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
The number of outstanding shares of the registrant's common
stock as of JuneSeptember 30, 1999 was 901,147.908,293.
GLEN BURNIE BANCORP AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Condensed Consolidated Balance Sheets 3
- Condensed Consolidated Statements of Income 4
- Condensed Consolidated Statements of
Comprehensive Income 5
- Condensed Consolidated Statements of Cash Flows 6
- Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNESEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- ------------
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . $ 7,55510,477 $ 13,156
Federal funds sold . . . . . . . . . . . . . . . . . . . . . 2,5750 2,864
Investment securities available for sale,
at fair value. . . 30,450. . . . . . . . . . . 27,208 32,925
Investment securities held to maturity,
at cost (fair value JuneSeptember 30:
$28,230;$28,379; December 31: $32,540$32,540) . . . . . . . . . 28,62629,480 32,561
Loans receivable, net of allowance for
credit losses JuneSeptember 30: $2,839,$2,684,
December 31: $2,841. . . . . . . . . . . 138,868146,900 125,501
Premises and equipment at cost, net
of accumulated depreciationdepreciation. . . . . . . . . . . . . . . . . . . . . . . 4,1844,197 4,420
Other real estate owned. . . . . . . . . . . . . . . . . . . 515645 1,099
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 340327 368
Other assets . . . . . . . . . . . . . . . 4,652 4,677
-------- --------
Total assets. . . . . . . . . . 4,751 4,677
-------- --------
Total assets $217,864$223,886 $217,571
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits . . . . . . . . . . . . . . . . . . . . . $199,663$197,264 $199,611
Short-term borrowings. . . . . . . . . . . . . . . 8878,835 1,144
Other liabilities. . . . . . . . . . . . . . . . . 2,8773,196 2,647
-------- --------
Total liabilities. . . . . . . . . . . . $203,427$209,295 $203,402
======== ========-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $10, authorized
5,000,000 shares; issued and outstanding:
JuneSeptember 30: 901,147908,293 shares;
December 31: 894,938 shares . . . .shares. . . . . . . $ 9,0119,083 $ 8,949
Surplus. . . . . . . . . . . . . . . . . . . . . . 3,4623,550 3,374
Retained earnings. . . . . . . . . . . . . . . . . 1,9382,211 1,563
Accumulated other comprehensive income . . . . . . 26(253) 283
-------- --------
Total stockholders' equityequity. . . . . . . . . 14,43714,591 14,169
-------- --------
Total liabilities and
stockholders' equity . . . ..equity. . . . . . . . . . . . . $217,864$223,886 $217,571
======== ========
See accompanying notes to condensed consolidated financial statements.
23
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)(Unaudited)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
------------------- ------------------------------------- --------------------
1999 1998 1999 1998
------ ------- --------------- ------ ------
Interest income on:
Loans, including fees . . . . . . . . . $ 2,8283,038 $ 2,5952,650 $ 5,7208,758 $ 5,1707,820
U.S. Treasury and U.S.
Government agency
securitiessecurities. . . . . . . . . . . 833 1,160 1,673 2,315790 1,143 2,463 3,377
State and municipal
securities. . . . . . . . . 0 7911 0 191202
Other . . . . . . . . . . . . . . . . . 141 96 304 250129 182 433 513
------- ---------- -------- -------- ------ -----------------
Total interest income. . . . . . . . 3,802 3,930 7,697 7,9263,957 3,986 11,654 11,912
------- ---------- -------- -------- ------ -----------------
Interest expense on:
Deposits. . . . . . . . . . . 1,388 1,531 4,152 4,577
Short-term borrowings . . . . 22 6 43 20
------- ---------- -------- ----------
Total interest expense. . 1,366 1,514 2,764 3,046
Short-term borrowings1,410 1,537 4,195 4,597
------- ---------- -------- ----------
Net interest income. . 2,547 2,449 7,459 7,315
Provision for credit losses. . . 0 (500) 0 (500)
------- ---------- -------- ----------
Net interest income
after provision
for credit losses. . 2,547 2,949 7,459 7,815
------- ---------- -------- ----------
Other income:
Service charges on deposit
accounts . . . . . . . . . 13 6 21 14
-------- -------- ------ -------
Total interest expense. . . . . . . 1,379 1,520 2,785 3,060
-------- -------- ------ -------
Net interest income. . . . . . . 2,423 2,410 4,912 4,866
Provision for credit losses. . . . . . . . 0 0 0 0
-------- -------- ------ -------
Net interest income after
provision for credit losses. . . 2,423 2,410 4,912 4,866
-------- -------- ------ -------
Other income:
Service charges on deposit accounts . . 280 292 541 580293 301 834 881
Other fees and commissions. . . . . . . 72 49 133 10074 51 207 151
Other non-interest income . . . . . . . 67 39 94 1,18324 28 118 1,211
Gains on investment
securities. . . . . 2 219 27 . 251
-------- -------- ------ -------
Total other income.securities . . . . . . . . 421 599 795 2,1142 165 29 416
------- ---------- -------- ----------
Total other income. . . . 393 545 1,188 2,659
------- ---------- -------- ------ -----------------
Other expenses:
Salaries and employee
benefits. . . . . 1,303 1,211 2,595 2,494. . . . . 1,365 1,268 3,960 3,762
Occupancy . . . . . . . . . . . . . . . 350 344 695 671362 351 1,057 1,022
Other expenses. . . . . . . . . . . . . 638 1,083 1,568 3,530587 980 2,155 4,510
------- ---------- -------- -------- ------ -----------------
Total other expenses. . . . . . . . 2,291 2,638 4,858 6,6952,314 2,599 7,172 9,294
------- ---------- -------- -------- ------ -----------------
Income before income taxes . . . . . . . . 553 371 849 285626 895 1,475 1,180
Income tax expense (benefit) . . . . . . . 192 141 294 52223 379 512 431
------- ---------- -------- -------- ------ -----------------
Net income . . . . . . . . . . . . . . . . $ 361403 $ 230516 $ 555963 $ 233749
======= ========== ======== ======== ==================
Basic and diluted earnings
per share of common stock. . . . . . . .stock . . $ 0.400.45 $ 0.210.47 $ 0.621.07 $ 0.210.68
======= ========== ======== ======== ==================
Weighted average shares of
common stock outstandingoutstanding. . . . . . . . . . . . 900,004 1,094,680 898,693 1,093,900903,780 1,096,527 900,389 1,094,785
======= ========= ======= =================== ======== ==========
See accompanying notes to condensed consolidated financial statements.
34
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
------------------- ------------------------------------- --------------------
1999 1998 1999 1998
------ ------- ------------- ------ ------
Net income . . . . . . . . . . . . . . . $ 361403 $ 230516 $ 555963 $ 233749
Other comprehensive income
(expense), net of tax
Unrealized gains (losses)
securities:
Unrealized holding gains
(losses) arising during
period.period . . . . . (122) 2 (238) 71. . . . . (277) 133 (514) 251
Reclassification adjustment
for gain included in
net income . . . . . (1) (116) (19) (116). (2) (101) (21) (255)
------ ------ ------ -------------
Comprehensive income . . . . . . . . . . $ 238124 $ 116548 $ 298428 $ 188745
====== ====== ====== =============
See accompanying notes to condensed consolidated financial statements.
45
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNENine Months Ended
September 30,
-------------------------------------------------------
1999 1998
-------- -----------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 555963 $ 233749
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization, and
accretion . . . . . . . 349 187. . . . . . . . 507 177
Provision for credit losses . . . . . . . 0 (500)
Changes in assets and liabilities:
Decrease in other assets . . . . . . . 100 186
Decrease (increase) in other
liabilities. . . . . . . . . . . . . . . 0 0
Changes in assets and liabilities:
(Increase) decrease in other assets. . . . . . . . . 2 (77)
Decrease (increase) in other liabilities . . . . . . 293 (2,323)582 (3,228)
-------- ---------------
Net cash provided (used) by operating
activities . . . . . 1,199 (1,980)
-------- -------
Cash flows from investing activities:
Proceeds from disposals of investment securities . . . 15,955 28,426
Purchases of investment securities . . . . . . . . . . (9,901) (20,097)
Increase in loans, net . . . . . . . . . . . . . . . . (13,367) (894)
Purchases. 2,152 (2,616)
-------- --------
Cash flows from investing activities:
Proceeds from disposals of premises and equipment. . . . . . . . . . (62) (366)
Purchases of other real estateinvestment
securities . . . . . . . . . . . . 0 0
Disposal. . . 20,011 41,789
Purchases of other real estate.investment securities . . . . (11,856) (38,572)
Increase in loans, net . . . . . . . . . . (21,399) (7,789)
Purchases of premises and equipment. . . . (211) (597)
Purchases of other real estate . . . . . . (130) (359)
Disposal of other real estate. . . . . . . 584 2
Proceeds from sales of premises and
equipment. . . . . 0 2
-------- -------
Net cash provided (used) by investing activities . . . . . (6,791) 7,073
-------- -------
Cash flows from financing activities:
Increase (decrease) in deposits, net . . . . . . . . . 52 (15,197)
Decrease in short-term borrowings. . . . . . . . . . . (257) (52)
Dividends paid. 0 18
-------- --------
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . . . (13,001) (5,508)
-------- --------
Cash flows from financing activities:
Decrease in deposits, net. . . . (184) (176)
Issuance of common stock. . . . . (2,347) (10,821)
Increase (decrease) in short-term
borrowings. . . . . . . . . . . . . . . . 91 167,691 (104)
Dividends paid . . . . . . . . . . . . . . (243) (337)
Issuance of common stock . . . . . . . . . 205 87
-------- ---------------
Net cash used by financing activities . . . . . . . . . . (298) (15,409)5,306 (11,175)
-------- ---------------
Decrease in cash and cash equivalents. . . . . . . . . . . (5,890) (10,316)(5,543) (19,299)
Cash and cash equivalents, beginning of year . . . . . . . 16,03016,020 28,537
-------- ---------------
Cash and cash equivalents, end of period . . . . . . . . . $10,130 $18,221
======= =======$ 10,477 $ 9,238
======== ========
See accompanying notes to condensed consolidated financial statements.
56
GLEN BURNIE BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial
statements were prepared in accordance with instructions for
Form 10-Q and, therefore, do not include all information and
notes necessary for a complete presentation of financial
position, results of operations, changes in stockholders'
equity, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments (consisting
only of normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the
unaudited consolidated financial statements have been included
in the results of operations for the three and sixnine months ended
JuneSeptember 30, 1999 and 1998.
Operating results for the three and six-monthnine-month periods
ended JuneSeptember 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1999.
NOTE 2 - EARNINGS PER SHARE
------------------
Information for net income per share and weighted average
shares outstanding for prior periods have been restated to
reflect 1% stock dividends declared in June, September and
December 1998 and a 20% stock dividend paid in January 1998.
NOTE 3 - ADOPTION OF NEW FINANCIAL ACCOUNTING STANDARDS
----------------------------------------------
On January 1, 1998 the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards
for reporting and displaying comprehensive income and its
components (revenues, expense, gains and losses) in a full set
of general-purpose financial statements. This Statement
requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statement
and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of
financial position. In accordance with the provisions of SFAS
No. 130, comparative financial statements presented for earlier
periods have been reclassified to reflect the provisions of the
statement.
6Effective October 1, 1998, the Bank adopted the provisions
of SFAS No. 133, which provides for a special opportunity to
reclassify held to maturity securities to available for sale.
In connection therewith, the Bank reclassified held to maturity
securities with amortized cost approximating $20,300,000 as
available for sale, resulting in an increase in accumulated
other comprehensive income of approximately $270,000, net of
deferred taxes of approximately $170,000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Glen Burnie Bancorp, a Maryland corporation (the
"Company"), and its subsidiaries, The Bank of Glen Burnie (the
"Bank") and GBB Properties, Inc., both Maryland corporations,
had consolidated net income of $361,000$403,000 ($0.400.45 basic and diluted
earnings per share) for the secondthird quarter of 1999 compared to
secondthird quarter 1998 consolidated net income of $230,000$516,000 ($0.210.47
basic and diluted earnings per share). Year-to-date
consolidated net income for the sixnine months ended JuneSeptember 30,
1999 was $555,000$963,000 ($0.621.07 basic and diluted earnings per share)
compared to $233,000$749,000 ($0.210.68 basic and diluted earnings per
share) for the sixnine months ended JuneSeptember 30, 1998. The
increase in consolidated net income for the three and
six-monthnine-month periods was primarily attributable to reductionsdecreased non-
interest operating expenses, primarily lower legal and
professional fees due to the settlement of litigation in total other expense.which
the Company was involved in the prior periods.
NET INTEREST INCOME. The Company's consolidated net
interest income prior to provisions for credit losses for the
three and sixnine months ended JuneSeptember 30, 1999 was $2,423,000$2,547,000
and $4,912,000,$7,459,000, respectively, compared to $2,410,000$2,449,000 and
$4,866,000,$7,315,000, respectively, for the same periods in 1998, an
increase of $13,000$98,000, or 0.5%4.0%, for the three-month period and an
increase of $46,000$144,000, or 0.9%2.0%, for the six-monthnine-month period. The
increaseincreases in net interest income for the three and sixnine month
periods were primarily attributable to a reductionreductions in interest
expenses. Interest income decreased $128,000 (3.3%$29,000 (0.7%) for the
three months ended JuneSeptember 30, 1999 and decreased $229,000 (2.9%$258,000
(2.2%) for the sixnine months ended JuneSeptember 30, 1999, compared to
the same periods in 1998. The decreases in interest income were
attributable to declining yields on the securities portfolio.
Interest expense declined $141,000 (9.3%$127,000 (8.3%) for the three months
ended JuneSeptember 30, 1999 and declined $275,000 (9.0%$402,000 (8.7%) for the
sixnine months ended JuneSeptember 30, 1999, compared to the same
periods in 1998. Net interest margins for the three and sixnine
months ended JuneSeptember 30, 1999 were 4.97%5.03% and 5.08%5.03%,
respectively, compared to tax equivalent net interest margins of
5.23%4.82% and 5.04%4.84% for the three and sixnine months ended JuneSeptember
30, 1998, respectively. The decreaseincreases in net interest margin
for the three and nine months ended JuneSeptember 30, 1999 were
primarily due to declinesthe receipt of non-accrual interest in
interest rates on earning assets.connection with a bankruptcy settlement.
PROVISION FOR CREDIT LOSSES. The Company made no
provisions for credit losses during the three and sixnine months
ended September 30, 1999 compared to a recapture of $500,000 in
loss allowances during the three and nine month periods ended
JuneSeptember 30, 1999 and 1998. As of JuneSeptember 30, 1999, the allowance for
credit losses equaled 197.17%260.6% of non-accrual and past due loans
compared to 179.58%179.6% at December 31, 1998 and 144.34%159.8% at JuneSeptember
30, 1998. During the three and nine months ended JuneSeptember 30,
1999, the Company recorded net charge-offs of $93,000$159,000 and
for the six month period recorded net charge-offs of $2,000$157,000, respectively, compared to $193,000$65,000 in net charge-offs
during the three months ended JuneSeptember 30, 1998 and $444,000$509,000 in
net charge-offs during the sixnine months ended JuneSeptember 30, 1998.
OTHER INCOME. Other income decreased $178,000 (29.7%$152,000 (27.9%) and
$1,319,000 (62.4%$1,471,000 (55.3%), respectively, during the three and sixnine
months ended JuneSeptember 30, 1999 compared to the prior year
periods. The decrease in other income during the three months
ended JuneSeptember 30, 1999 was attributable to lower gains on
the investment
portfolio.securities. Other income for the six-monthnine-month period ended
JuneSeptember 30, 1998 was higher primarily due to the receipt of
$1,125,000 in settlement of a claim against a former insurance
provider during the first quarter of 1998.1998 reflected in other
income. Excluding this non-recurring gain, other income for the
first sixnine months of 1999 would have decreased due to lower
gains on the securities portfolio.
OTHER EXPENSE. Other expense decreased by $347,000$285,000, or
13.2%11.0%, for the quarter and decreased by $1,837,000,$2,122,000, or 27.4%22.8%,
for the six-monthnine-month period compared to the same periods in 1998.
Other expense for the 1998 period was increased by management's
decision to establish additional litigation reserves during the
first quarter. In addition, the Company experienced
significantly higher legal and professional fees during 1998 in
connection with an election contest at the 1998 Annual Meeting.
Included in other expense for the 1999 period was a $150,000
payment made to First Mariner Bancorp in January pursuant to a
standstill agreement. The Company will make four additional
payments of
8
$131,378 each over the next four years, provided First Mariner
Bancorp complies with the terms of the standstill agreement.
Other expense declined in the secondthird quarter as the result of
reductions in a variety of expense categories,
primarilylower legal expenses.
7
and professional fees.
INCOME TAXES. During the three and sixnine months ended
JuneSeptember 30, 1999, the Company recorded income tax expense of
$192,000$223,000 and $294,000,$512,000, respectively, compared to tax expense of
$141,000$379,000 and $52,000,$431,000, respectively, during the three and sixnine
months ended JuneSeptember 30, 1998. The Company has recently
reduced its holdings of tax-exempt state, county and municipal
securities and reinvested the proceeds in U.S. Government agency
securities, the income on which is not exempt from federal
taxation. Accordingly, the Company reported higher taxable
income duringfor the 1999 periods.nine months ended September 30, 1999. The
Company reported lower taxable income for the third quarter due
to a reduction in the provision for credit losses of $500,000
and securities gains of $165,000 taken in 1998.
FINANCIAL CONDITION
The Company's assets increased to $217,864,000$223,886,000 at JuneSeptember
30, 1999 from $217,571,000 at December 31, 1998 primarily due to
growth in the loan portfolio. The Bank's net loans totaled
$138,868,000$146,900,000 at JuneSeptember 30, 1999, compared to $125,501,000 on
December 31, 1998, an increase of $13,367,000 (9.6%$21,399,000 (17.0%).
The
increaseTheincrease in loans was primarily attributable to the Bank's
indirect automobile lending program. At JuneSeptember 30, 1999,
indirect loans totaled $39,039,000$46,128,000 compared to $24,630,000 at
December 31, 1998. The Bank's other loan portfolios have held
steady or declined during the year. In order to improve the
risk-weighting of its assets, the Company intends to sell
approximately $10,000,000 in indirect loans to another financial
institution.
The Company's total investment securities portfolio
(including both investment securities available for sale and
investment securities held to maturity) totaled $59,076,000$56,688,000 at
JuneSeptember 30, 1999, a $6,410,000$8,798,000, or 9.8%13.4%, decrease from
$65,486,000 at December 31, 1998. The Bank's cash and cash
equivalents (cash due from banks, interest-bearing deposits in
other financial institutions, and federal funds sold), as of
JuneSeptember 30, 1999, totaled $10,130,000$10,477,000, a decrease of
$5,890,000 (36.8%$5,543,000 (34.6%) from the December 31, 1998 total of
$16,020,000. The aggregate market value of investment
securities held by the Bank as of JuneSeptember 30, 1999 was
$58,680,000$55,587,000 compared to $65,465,000 as of December 31, 1998, a
$6,785,000 (10.4%$9,878,000 (15.1%) decrease.
Deposits as of JuneSeptember 30, 1999 totaled $199,663,000 an
increase$197,264,000, a
decrease of $52,000 (.02%$2,347,000 (1.2%) for the year to date. Demand
deposits as of JuneSeptember 30, 1999 totaled $42,804,000$45,074,000 which is a
decrease of $2,556,000 (5.6%$287,000 (0.6%) from $45,361,000 at December 31,
1998. NOW accounts as of JuneSeptember 30, 1999 totaled $20,311,000$18,863,000
which is a decrease of $290,000 (1.4%$1,738,000 (8.4%) from $20,601,000 at
December 31, 1998. Money market accounts increased $319,000
(1.6%decreased $1,745,000
(8.7%) for the year to date to total $20,369,000$18,305,000 on JuneSeptember
30, 1999. Savings deposits increased by $1,345,000,$1,216,000, or 3.2%3.0%,
for the year to date. Meanwhile, certificates of deposit over
$100,000 totaled $6,300,000$10,668,000 on JuneSeptember 30, 1999, an increase
of $542,000 (9.4%$59,000 (0.6%) from December 31, 1998. Other time deposits
(made up of certificates of deposit less than $100,000 and
individual retirement accounts) totaled $66,023,000$42,182,000 on JuneSeptember
30, 1999, a $853,000 (1.3%$350,000 (0.6%) decreaseincrease from December 31, 1998.
89
ASSET QUALITY. The following table sets forth the amount
of the Bank's restructured loans, non-accrual loans and
accruing loans 90 days or more past due at the dates indicated.
AT AT
JUNESEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------- ------------
(DOLLARS IN THOUSANDS)
Restructured Loans . . . . . . . . . . . . . . $ 253251 $ 294
======= ============= ======
Non-accrual Loans:
Real estate -- mortgage:
Residential . . . . . . . . . . . . . . . $ 250242 $ 336
Commercial. . . . . . . . . . . . . . . . 292 .505136 505
Real estate -- construction . . . . . . . . 292280 316
Installment . . . . . . . . . . . . . . . . 472314 463
Credit card & related . . . . . . . . . . . 0 0
Commercial. . . . . . . . . . . . . . . . . 11446 105
------------- ------
Total nonaccrual loans. . . . . . . . . 1,4201,018 1,725
------------- ------
Accruing loans past due 90 days or more:
Real estate -- mortgage:
Residential . . . . . . . . . . . . . . . 1312 0
Commercial. . . . . . . . . . . . . . . . 0 0
Real estate -- construction . . . . . . . . 0 0
Installment . . . . . . . . . . . . . . . . 0 0
Credit card & related . . . . . . . . . . . 20 18
Commercial. . . . . . . . . . . . . . . . . 0 0
------- ------------- ------
Total accruing loans past due 90
days or moremore. . . . . . . . . . . . 15. 12 18
------- ------------- ------
Total non-accrual and past due loans. . $ 1,435 $ 1,743
=======$1,030 $1,743
====== ======
Non-accrual and past due loans
to gross loans . . . . . . . . . . . . . . . . . . . 1.01%0.69% 1.35%
============= ======
Allowance for credit losses to
non-accrual and past due loans . . . . . . . . . . . . . 197.84%260.58% 179.58%
============= ======
At JuneSeptember 30, 1999, there were $245,000$244,000 in loans
outstanding not reflected in the above table as to which known
information about possible credit problems of borrowers caused
management to have serious doubts as to the ability of such
borrowers to comply with present loan repayment terms. Such
loans consist of loans which were not 90 days or more past due,
but where the borrower is in bankruptcy or has a history of
delinquency or the loan to value ratio is considered excessive
due to deterioration of the collateral or other factors.
ALLOWANCE FOR CREDIT LOSSES. The allowance for credit
losses is established through a provision for credit losses
charged to expense. Loans are charged against the allowance for
credit losses when management believes that the collectibility
of the principal is unlikely. The allowance, based on
evaluations of the collectibility of loans and prior loan loss
experience, is an amount that management believes will be
adequate to absorb possible losses on existing loans that may
become uncollectible. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions and trends that may
affect the borrowers' ability to pay.
910
Transactions in the allowance for credit losses for the
sixnine months ended JuneSeptember 30, 1999 and 1998 were as follows:
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
-----------------------------------------
1999 1998
-------- ------------- ------
(DOLLARS IN THOUSANDS)
Beginning balance. . . . . . . . . . . . . . $ 2,841 $ 4,139
-------- --------
Charge-offs. . . . . . . . . . . . . . . . . (266) (664)(523) (766)
Recoveries . . . . . . . . . . . . . . . . . 264 220366 257
-------- --------
Net charge-offs. . . . . . . . . . . . . . . (2) (444)(157) (509)
Provisions charged to operations . . . . . . 0 0(500)
-------- --------
Ending balance . . . . . . . . . . . . . . . $ 2,8392,684 $ 3,6953,130
======== ========
Average loans. . . . . . . . . . . . . . . . $134,487 $114,999$137,569 $116,014
Net charge-offs to average loans . . . . . . 0.00% 0.39%0.11% 0.44%
Net charge-offs during the sixnine months ended JuneSeptember 30,
1999 declined to $2,000$157,000 from $444,000$509,000 during the comparable
period in 1998. The Company attributes the reduction in
charge-off activity to an improvement in asset quality as the
Company has reduced nonperforming assets both in dollar volume
and as a percentage of the loan portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of
the Bank and does not currently have any material funding
commitments. The Company's principal sources of liquidity are
cash on hand and dividends received from the Bank. The Bank is
subject to various regulatory restrictions on the payment of
dividends.
The Bank's principal sources of funds for investments and
operations are net income, deposits from its primary market
area, principal and interest payments on loans, interest
received on investment securities and proceeds from maturing
investment securities. Its principal funding commitments are
for the origination or purchase of loans and the payment of
maturing deposits. Deposits are considered a primary source of
funds supporting the Bank's lending and investment activities.
The Bank's most liquid assets are cash and cash
equivalents, which are cash on hand, amounts due from financial
institutions, federal funds sold, certificates of deposit with
other financial institutions that have an original maturity of
three months or less and money market mutual funds. The levels
of such assets are dependent on the Bank's operating financing
and investment activities at any given time. The variations in
levels of cash and cash equivalents are influenced by deposit
flows and anticipated future deposit flows. The Bank's cash and
cash equivalents (cash due from banks, interest-bearing deposits
in other financial institutions, and federal funds sold), as of
JuneSeptember 30, 1999, totaled $10,130,000,$10,477,000, a decrease of
$5,890,000
(36.8%$5,543,000 (34.6%) from the December 31, 1998 total of
$16,020,000.
The Bank may draw on a $26.0 million line of credit from
the Federal Home Loan Bank of Atlanta. Borrowings under the
line are secured by a lien on the Bank's residential mortgage
loans. As of JuneSeptember 30, 1999, however, no amounts were$6,000,000 was outstanding
under this line. The Bank also has a secured line of credit in
the amount of $5.0 million from another commercial bank on which
no amounts were outstanding on JuneSeptember 30, 1999.
The Company's stockholders' equity increased $268,000,$422,000, or
1.9%3.0%, during the sixnine months ended JuneSeptember 30, 1999 primarily
due to the
retention ofan increase in retained earnings. Retained earnings
increased by $375,000$648,000 as the result of earnings during the
period.period offset by the accrual of $90,000 for cash dividends to be
paid after the end of the quarter. Stockholders' equity was
also increased by the issuance of 1,3707,146 shares pursuant to the
Company's Dividend
1011
Reinvestment and Stockholder Purchase Plans. Net unrealized
appreciation on securities available for sale decreased $257,000$536,000
to $26,000$(253,000) at JuneSeptember 30, 1999 from $283,000 at December
31, 1998.
The Federal Reserve Board and the FDIC have established
guidelines with respect to the maintenance of appropriate levels
of capital by bank holding companies and state non-member banks,
respectively. The regulations impose two sets of capital
adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum
ratio of capital to total assets, and risk-based capital rules,
which require the maintenance of specified minimum ratios of
capital to "risk-weighted" assets. At JuneSeptember 30, 1999, the
Bank was in full compliance with these guidelines with a Tier 1
leverage ratio of 8.08%6.04%, a Tier 1 risk-based capital ratio of
8.52%8.48% and a total risk-based capital ratio of 9.78%9.74%.
YEAR 2000 READINESS DISCLOSURE
As the year 2000 approaches, an important business issue
has emerged regarding how existing application software programs
and operating systems can accommodate this date value. For many
years, software applications routinely conserved magnetic
storage space by using only two digits to record calendar years;
for example, the year 1999 is stored as "99". On January 1,
2000, the calendars in many software applications will change
from "99" to "00". Many of these software applications, in
their current form, will produce erroneous results or will fail
to run at all since their logic cannot deal with this
transaction.
The Company's Year 2000 plan calls for the identification
of all systems that could be affected by Year 2000 problem, the
systematic assessment of their Year 2000 readiness and the
institution of appropriate remedial measures and contingency
planning. As part of its Year 2000 plan, the Company has ranked
its various computer systems according to their importance to
the continued functioning of the Bank. Assessment procedures
range from actual testing for the Company's most mission
critical systems to seeking written self assessments from
individual borrowers. Based on these assessments, the Company
has instituted appropriate remedial measures which include
software upgrades and the replacement of vendors and hardware
where necessary. The Company's Year 2000 plan includes
contingency and back-up plans for mission critical systems.
The Company's mainframe computer hardware and systems
software are Year 2000 compliant. The Company primarily
utilizes third-party vendor application software for all
computer applications. The third-party vendors for the
Company's banking applications are in the process of modifying,
upgrading or replacing their computer applications to insure
Year 2000 compliance. In addition, the Company has instituted a
Year 2000 compliance program whereby the Company is reviewing
the Year 2000 compliance issues that may be faced by its
third-party vendors. Under such program, the Company will
examine the need for modifications or replacement of all
non-Year 2000 compliant pieces of software. The Company spent
approximately $400,000 in 1997 and 1998 to upgrade certain
hardware and software and believes the cost of its Year 2000
compliance program will not be material to its financial
condition. The Company believes it is in substantial compliance
with its Year 2000 plan. In the event of unforseen disruptions
in Year 2000 compliance, the Company's business operations could
be adversely affected.
RECENTLY ENACTED LEGISLATION
On November 12, 1999, President Clinton signed legislation
which could have a far-reaching impact on the financial services
industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage
in a variety of new financial activities. Under the G-L-B Act,
any bank holding company whose depository institution
subsidiaries have satisfactory Community Reinvestment Act
("CRA") records may elect to become a financial holding company
if it certifies to the Federal Reserve Board that all of its
depository institution subsidiaries are well-capitalized and
well-managed. Financial holding companies may engage in any
activity that the Federal Reserve Board, after consultation with
the Secretary of the Treasury, determines to be financial in
nature or incidental to a financial activity. Financial holding
companies may also engage in activities that are complementary
to financial activities and do not pose a substantial risk to
the safety and soundness of their depository institution
subsidiaries or the financial system generally. The G-L-B Act
specifies that activities that are financial in nature include
lending and investing activities, insurance and annuity
underwriting
12
and brokerage, financial, investment and economic advice,
selling interests in pooled investment vehicles, securities
underwriting, engaging in activities currently permitted to bank
holding companies (including activities in which bank holding
companies may currently engage outside the United States) and
merchant banking through a securities or insurance underwriting
affiliate. The Federal Reserve Board, in consultation with
the Department of Treasury, may approve additional financial
activities.
The G-L-B Act permits well capitalized and well managed
national banks with satisfactory CRA records to invest in
financial subsidiaries that engage in activities that are
financial in nature (or incidental thereto) on an agency basis.
National banks that are among the 50 largest insured banks and
have at least one issue of investment grade debt outstanding may
invest in financial subsidiaries that engage in activities as
principal other than insurance underwriting, real estate
development or merchant banking. All national banks are given
the authority to underwrite municipal revenue bonds. The
aggregate total consolidated assets of a national bank's
financial subsidiaries may not exceed the lesser of 45% of the
bank's total consolidated assets or $50 billion. A national
bank would be required to deduct its investments in financial
subsidiaries from its regulatory capital. National banks must
also adopt procedures for protecting the bank against risks
associated with the financial subsidiary and to preserve the
separate corporate identity of the financial subsidiary.
Financial subsidiaries of state and national banks (which
include any subsidiary engaged in an activity not permitted
to a national bank directly) would be treated as affiliates for
purposes of the limitations on aggregate transactions with
affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the anti-tying restrictions of the Bank
Holding Company Act. State-chartered banks would be prohibited
from investing in financial subsidiaries unless they would be
well capitalized after deducting the amount of their investment
from capital and observe the other safeguards applicable to
national banks.
The G-L-B Act imposes functional regulation on bank
securities and insurance activities. Banks will only be exempt
from SEC regulation as securities brokers if they limit their
activities to those described in the G-L-B Act. Banks that
advise mutual funds will be subject to the same SEC regulation
as other investment advisors. Bank common trust funds will be
regulated as mutual funds if they are advertised or offered for
sale to the general public. National banks and their
subsidiaries will be prohibited from underwriting insurance
products other than those which they were lawfully underwriting
as of January 1, 1999 and are prohibited from underwriting title
insurance or tax-free annuities. National banks may only sell
title insurance in states in which state-chartered banks are
authorized to sell title insurance. The G-L-B Act directs the
federal banking agencies to promulgate regulations governing
sales practices in connection with permissible bank sales of
insurance.
The G-L-B Act imposes new requirements on financial
institutions with respect to customer privacy. The G-L-B Act
generally prohibits disclosure of customer information to non-
affiliated third parties unless the customer has been given the
opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their
privacy policies to customers annually. Financial institutions,
however, will be required to comply with state law if it is more
protective of customer privacy than the G-L-B Act. The G-L-B Act
directs the federal banking agencies, the National Credit Union
Administration, the Secretary of the Treasury, the Securities
and Exchange Commission and the Federal Trade Commission, after
consultation with the National Association of Insurance
Commissioners, to promulgate implementing regulations within six
months of enactment. The privacy provisions will become
effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal
Home Loan Bank System. The G-L-B Act imposes new capital
requirements on the Federal Home Loan Banks and authorizes them
to issue two classes of stock with differing dividend rates and
redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute
$300 million to pay interest on certain government obligations
in favor of a 20% of net earnings formula. The G-L-B Act
expands the permissible uses of Federal Home Loan Bank advances
by community financial institutions (under $500 million in
assets) to include funding loans to small businesses, small
farms and small agri-businesses. The G-L-B Act makes membership
in the Federal Home Loan Bank System voluntary for federal
savings associations.
13
The G-L-B Act contains a variety of other provisions
including a prohibition against ATM surcharges unless the
customer has first been provided notice of the imposition and
amount of the fee. The G-L-B Act reduces the frequency of CRA
examinations for smaller institutions and imposes certain
reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the
CRA.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET
RISK
Not applicable.
1114
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.Exhibits. The following exhibits are filed with this
-------- this report.
27 Financial Data Schedule (EDGAR Only).
(b) REPORTS ON FORMReports on Form 8-K. None.
12-------------------
15
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
GLEN BURNIE BANCORP
-------------------
(Registrant)
Date: August 16,November 12, 1999 By: /s/ John E. Porter
---------------------------------
John E. Porter
Chief Financial Officer
(Duly Authorized Representative
and Principal Financial Officer)