GLEN BURNIE BANCORP
10-Ks and 10-Qs
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SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2009 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)
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MARYLAND
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52-1782444
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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101 Crain Highway, S.E., Glen Burnie, Maryland
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21061
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s
telephone number, including area
code (410)
766-3300
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Class
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Name of Each Exchange on Which Registered
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None
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None
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Securities
registered pursuant to Section 12(g) of the Act:
Title of
Class
Common
Stock, $1.00 par value
Common
Stock Purchase Rights
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes
¨
No
x
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
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
¨
Accelerated
Filer
¨
Non-Accelerated
Filer
¨
Smaller
Reporting Company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2009 was $16,090,896.
The
number of shares of common stock outstanding as of February 23, 2009 was
2,683,015.
documents
incorporated by reference
To the
extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrant’s definitive proxy statement for its 2010 Annual
Meeting of Shareholders (to be filed).
GLEN
BURNIE BANCORP
2009
ANNUAL REPORT ON FORM 10-K
Table of
Contents
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PART
I
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Item
1.
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Business
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3
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Item
2.
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Properties
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16
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Item
3.
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Legal
Proceedings
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17
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Executive
Officers of the Registrant
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17
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PART
II
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Item
4.
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Market
for Registrant’s Common Equity, Related
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Stockholder
Matters and Issuer Purchases of Equity Securities
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18
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Item
5.
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Selected
Financial Data
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20
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Item
6.
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Management’s
Discussion and Analysis of Financial
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Condition
and Results of Operations
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21
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Item
7.
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Financial
Statements and Supplementary Data
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30
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Item
8.
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Changes
in and Disagreements with Accountants
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on
Accounting and Financial Disclosure
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30
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Item
8A(T).
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Controls
and Procedures
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30
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Item
8B.
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Other
Information
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31
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PART
III
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Item
9.
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Directors,
Executive Officers and Corporate Governance
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32
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Item
10.
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Executive
Compensation
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32
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Item
11.
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Security
Ownership of Certain Beneficial Owners
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and
Management and Related Stockholder Matters
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32
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Item
12.
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Certain
Relationships and Related Transactions, and Director
Independence
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32
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Item
13.
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Principal
Accountant Fees and Services
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32
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PART
IV
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Item
14.
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Exhibits
and Financial Statement Schedules
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33
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Signatures
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34
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General
Glen
Burnie Bancorp (the “Company”) is a bank holding company organized in 1990 under
the laws of the State of Maryland. It presently owns all the outstanding shares
of capital stock of The Bank of Glen Burnie (the “Bank”), a commercial bank
organized in 1949 under the laws of the State of Maryland, serving northern Anne
Arundel County and surrounding areas from its main office and branch in Glen
Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville,
Severn (two locations), Linthicum and Severna Park, Maryland. The Bank also
maintains two remote Automated Teller Machine (“ATM”) locations in Ferndale and
Pasadena, Maryland. The Bank maintains a website at www.thebankofglenburnie.com.
The Bank is the oldest independent commercial bank in Anne Arundel County. The
Bank is engaged in the commercial and retail banking business as authorized by
the banking statutes of the State of Maryland, including the acceptance of
demand and time deposits, and the origination of loans to individuals,
associations, partnerships and corporations. The Bank’s real estate financing
consists of residential first and second mortgage loans, home equity lines of
credit and commercial mortgage loans. Commercial lending consists of both
secured and unsecured loans. The Bank also originates automobile
loans through arrangements with local automobile dealers. The Bank’s
deposits are insured up to applicable limits by the Federal Deposit Insurance
Corporation (“FDIC”).
The
Company’s principal executive office is located at 101 Crain Highway, S.E., Glen
Burnie, Maryland 21061. Its telephone number at such office is (410)
766-3300.
Information
on the Company and its subsidiary Bank may be obtained from the Company’s
website
www.thebankofglenburnie.com
.
Copies of the Company’s annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments thereto are available free
of charge on the website as soon as they are filed with the SEC through a link
to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu
item, then click on the “All SEC Filings” or “Insider Transactions”
link.
Economic and Credit Turmoil
of 2008 and 2009
The turmoil and economic downturn of
2008, which continued in 2009, has engulfed the United States and world
financial services industry. The ensuing overall consequences to numerous
industries and the U.S. economy is well known and discussed daily in the
media. The Bank and, as a result, the Company, have not been immune
to the impact of these difficult economic times. While, due to
conservative lending decisions, the Bank has no exposure to the credit issues
affecting the sub-prime residential mortgage market, the economic slowdown
resulted in the necessity of our contributing $2,442,976 to the provision for
loan losses in 2009, in addition to the $1,145,649 provision made in 2008,
primarily
due to valuation issues in our commercial mortgage portfolio and continuing
delinquency in our indirect automobile portfolio combined with adjustments we
made to the risk factors in our calculation of required loan loss reserves.
In
addition,
the
economic downturn also resulted in an FDIC insurance premium assessment for 2009
of $549,716, a more than 1,400% increase from the 2008 assessment of
$35,544. In 2008, the economic downturn also resulted in the
necessity of the Bank taking in our first OREO (Other Real Estate Owned)
property on a defaulted mortgage since 1999. Also in 2008, the
Federal Housing Finance Agency was named conservator over both the Federal
National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac), two government sponsored agencies in which we had
invested through the purchase of $3,000,000 of AAA rated preferred
stock. As a result, in 2008 we wrote down the value of those
investments to $184,000 by taking a charge to earnings in third quarter of 2008
of $2,816,000. Each of these factors will be discussed as appropriate
elsewhere in this report. Nevertheless, despite the continuing
economic downturn and these events, which are unusual for us in any year, we
realized net income of $1,262,462 for 2009, and $403,962 net income for
2008. We remain well capitalized and did not need to apply for any
funding from the U.S. Department of Treasury’s Troubled Asset Relief Program
(TARP). During 2009, we continued to lend money and, we believe, meet
the needs of our customers and neighbors through a difficult year. We
believe we are a sound, conservatively run financial institution that has been
profitable in 2008 and 2009 despite the deterioration in the economic
environment and the outside forces that have affected us these past two
years.
3
Market
Area
The Bank
considers its principal market area for lending and deposit products to consist
of Northern Anne Arundel County, Maryland, which consists of those portions of
the county north of U.S. Route 50. Northern Anne Arundel County includes mature
suburbs of the City of Baltimore, which in recent years have experienced modest
population growth and are characterized by an aging population. Management
believes that the majority of the working population in its market area either
commutes to Baltimore or is employed at businesses located at or around the
nearby Baltimore Washington International Airport. Anne Arundel County is
generally considered to have more affordable housing than other suburban
Baltimore areas and attracts younger persons and minorities on this basis. This
inflow, however, has not been sufficient to affect current population
trends.
Lending
Activities
The Bank
offers a full range of consumer and commercial loans. The Bank’s lending
activities include residential and commercial real estate loans, construction
loans, land acquisition and development loans, commercial loans and consumer
installment lending including indirect automobile lending. Substantially all of
the Bank’s loan customers are residents of Anne Arundel County and surrounding
areas of Central Maryland. The Bank solicits loan applications for commercial
loans from small to medium sized businesses located in its market area. The
Company believes that this is a market in which a relatively small community
bank, like the Bank, has a competitive advantage in personal service and
flexibility. The Bank’s consumer lending currently consists primarily of
indirect automobile loans originated through arrangements with local
dealers.
The
Company’s total loan portfolio increased during the 2009, 2008, 2007, 2006, and
2005 fiscal years. In 2009, the increase in the loan portfolio was
primarily due to increases in refinanced mortgage loans, purchased money
mortgage loans, home equity and commercial mortgages, partially offset by a
decrease in indirect loans and mortgage participations purchased.
In 2008, the increase in
the loan portfolio was primarily due to increases in refinanced mortgage loans,
commercial and residential construction loans and mortgage participations
purchased, partially offset by additional mortgage participations sold and a
decrease in indirect loans. In 2007, the increases were due to
residential and commercial mortgages and construction, offset by a decrease in
indirect lending and mortgage participations purchased and an increase in
mortgage participations sold. In 2006, the increases were primarily
due to an increase in commercial mortgages (due to an increase in
participations), offset by decreases in residential mortgages and indirect
automobile loans. In 2005, the increases were primarily due to an
increase in commercial and industrial mortgages and indirect automobile
loans.
The
following table provides information on the composition of the loan portfolio at
the indicated dates.
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At December 31,
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2009
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2008
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2007
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2006
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2005
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(Dollars in Thousands)
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$
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%
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$
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%
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$
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%
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$
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%
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$
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%
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Mortgage:
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Residential
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$ | 95,683 | 39.81 | % | $ | 87,708 | 36.85 | % | $ | 76,781 | 37.98 | % | $ | 68,341 | 34.88 | % | $ | 71,841 | 37.17 | % | ||||||||||||||||||||
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Commercial
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79,845 | 33.23 | 76,153 | 31.99 | 47,843 | 23.66 | 53,164 | 27.13 | 37,666 | 19.50 | ||||||||||||||||||||||||||||||
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Construction
and land development
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1,743 | 0.73 | 6,590 | 2.77 | 5,876 | 2.91 | 1,609 | 0.83 | 1,402 | 0.73 | ||||||||||||||||||||||||||||||
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Consumer:
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Installment
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15,965 | 6.64 | 16,451 | 6.91 | 17,087 | 8.45 | 15,044 | 7.67 | 15,748 | 8.15 | ||||||||||||||||||||||||||||||
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Credit
card
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166 | 0.07 | 173 | 0.07 | 143 | 0.07 | 144 | 0.08 | 128 | 0.07 | ||||||||||||||||||||||||||||||
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Indirect
automobile
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37,092 | 15.44 | 43,970 | 18.47 | 49,260 | 24.37 | 52,539 | 26.81 | 60,510 | 31.31 | ||||||||||||||||||||||||||||||
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Commercial
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9,801 | 4.08 | 6,974 | 2.94 | 5,184 | 2.56 | 5,077 | 2.60 | 5,932 | 3.07 | ||||||||||||||||||||||||||||||
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Gross
loans
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240,295 | 100.00 | % | 238,019 | 100.00 | % | 202,174 | 100.00 | % | 195,918 | 100.00 | % | 193,227 | 100.00 | % | |||||||||||||||||||||||||
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Unearned
income on loans
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(839 | ) | (864 | ) | (816 | ) | (743 | ) | (821 | ) | ||||||||||||||||||||||||||||||
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Gross
loans net of unearned income
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239,456 | 237,155 | 201,357 | 195,175 | 192,406 | |||||||||||||||||||||||||||||||||||
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Allowance
for credit losses
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(3,573 | ) | (2,022 | ) | (1,604 | ) | (1,839 | ) | (2,201 | ) | ||||||||||||||||||||||||||||||
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Loans,
net
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$ | 235,883 | $ | 235,133 | $ | 199,753 | $ | 193,336 | $ | 190,205 | ||||||||||||||||||||||||||||||
The
following table sets forth the maturities for various categories of the loan
portfolio at December 31, 2009. Demand loans and loans which have no stated
maturity, are treated as due in one year or less. At December 31, 2009, the Bank
had $51,867,185 in loans due after one year with variable rates and $161,335,414
in such loans with fixed rates.
4
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Due Within
One Year
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Due Over One To
Five Years
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Due Over
Five Years
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Total
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(In
Thousands)
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Real
Estate - mortgage:
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Residential
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$ | 7,447 | $ | 2,580 | $ | 85,656 | $ | 95,683 | ||||||||
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Commercial
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11,113 | 43,639 | 25,093 | 79,845 | ||||||||||||
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Construction
and land development
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738 | 281 | 724 | 1,743 | ||||||||||||
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Installment
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492 | 9,792 | 5,681 | 15,965 | ||||||||||||
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Credit
Card
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51 | 27 | 88 | 166 | ||||||||||||
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Indirect
automobile
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1,082 | 29,512 | 6,498 | 37,092 | ||||||||||||
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Commercial
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6,169 | 500 | 3,132 | 9,801 | ||||||||||||
| $ | 27,092 | $ | 86,331 | $ | 126,872 | $ | 240,295 | |||||||||
Real Estate
Lending.
The Bank offers long-term mortgage financing for
residential and commercial real estate as well as shorter term construction and
land development loans. Residential mortgage and residential
construction loans are originated with fixed rates, while commercial mortgages
may be originated on either a fixed or variable rate
basis. Commercial construction loans are generally originated on a
variable rate basis. Substantially all of the Bank’s real estate
loans are secured by properties in Anne Arundel County, Maryland
.
Under the Bank’s
loan policies, the maximum permissible loan-to-value ratio for owner-occupied
residential mortgages is 80% of the lesser of the purchase price or appraised
value. For residential investment properties, the maximum
loan-to-value ratio is 80%. The maximum permissible loan-to-value
ratio for residential and residential construction loans is 80%. The
maximum loan-to-value ratio for permanent commercial mortgages is
75%. The maximum loan-to-value ratio for land development loans is
70% and for unimproved land is 65%. The Bank also offers home equity
loans secured by the borrower’s primary residence, provided that the aggregate
indebtedness on the property does not exceed 80% of its
value. Because mortgage lending decisions are based on conservative
lending policies, the Company has no exposure to the credit issues affecting the
sub-prime residential mortgage market.
Commercial
Lending.
The Bank’s commercial loan portfolio consists of
demand, installment and time loans for commercial purposes. The
Bank’s business demand, installment and time lending includes various working
capital loans, equipment, vehicles, lines of credit and letters of credit for
commercial customers. Demand loans require the payment of interest
until called, while installment loans require a monthly payment of principal and
interest, and time loans require at maturity a single payment of principal and
interest due monthly. Such loans may be made on a secured or an
unsecured basis. All such loans are underwritten on the basis of the
borrower’s creditworthiness rather than the value of the
collateral.
Installment
Lending.
The Bank makes consumer and commercial installment
loans for the purchase of automobiles, boats, other consumer durable goods,
capital goods and equipment. Such loans provide for repayment in
regular installments and are secured by the goods financed. Also
included in installment loans are overdraft loans and other credit repayable in
installments. As of December 31, 2009, approximately 62.32% of the
installment loans in the Bank’s portfolio (other than indirect automobile
lending) had been originated for commercial purposes and 37.68% had been
originated for consumer purposes.
Indirect Automobile
Lending.
The Bank commenced its indirect automobile lending
program in January 1998. The Bank finances new automobiles for terms
of up to 72 months and used automobiles for terms of up to 60
months. For used vehicles, the age of the vehicle plus the term of
the loan cannot exceed eight years. The Bank does not lend more than
the MSRP on new vehicles. On used vehicles, the Bank will not lend more than
110% of the average wholesale published in a nationally recognized used vehicle
pricing guide. The Bank requires all borrowers to obtain vendor’s
single interest coverage protecting the Bank against loss in the case a
borrower’s automobile insurance lapses. The Bank originates indirect
loans through a network of approximately 41dealers which are primarily new car
dealers located in Anne Arundel County and the surrounding
counties. Participating dealers take loan applications from their
customers and transmit them to the Bank for approval.
Other Loans.
The
Bank offers overdraft protection lines of credit, tied to checking accounts, as
a convenience to qualified customers.
5
Although
the risk of non-payment for any reason exists with respect to all loans, certain
other specific risks are associated with each type of loan. The
primary risks associated with commercial loans, including commercial real estate
loans, are the quality of the borrower’s management and a number of economic and
other factors which induce business failures and depreciate the value of
business assets pledged to secure the loan, including competition, insufficient
capital, product obsolescence, changes in the borrowers’ cost, environmental
hazards, weather, changes in laws and regulations and general changes in the
marketplace. Primary risks associated with residential real estate
loans include fluctuating land and property values and rising interest rates
with respect to fixed-rate, long-term loans. Residential construction
lending exposes the Company to risks related to builder
performance. Consumer loans, including indirect automobile loans, are
affected primarily by domestic economic instability and a variety of factors
that may lead to the borrower’s unemployment, including deteriorating economic
conditions in one or more segments of a local or broader
economy. Because the Bank deals with borrowers through an
intermediary on indirect automobile loans, this form of lending potentially
carries greater risks of defects in the application process for which claims may
be made against the Bank. Indirect automobile lending may also
involve the Bank in consumer disputes under state “lemon” or other
laws. The Bank seeks to control these risks by following strict
underwriting and documentation guidelines. In addition, dealerships are
contractually obligated to indemnify the Bank for such losses for a limited
period of time.
The
Bank’s lending activities are conducted pursuant to written policies approved by
the Board of Directors intended to ensure proper management of credit
risk. Loans are subject to a well defined credit process that
includes credit evaluation of borrowers, establishment of lending limits and
application of lending procedures, including the holding of adequate collateral
and the maintenance of compensating balances, as well as procedures for on-going
identification and management of credit deterioration. Regular
portfolio reviews are performed by the Bank’s Senior Credit Officer to identify
potential underperforming loans and other credit facilities, estimate loss
exposure and to ascertain compliance with the Bank’s policies. On a
quarterly basis, the Bank’s Internal Auditor performs an independent loan review
in accordance with the Bank’s loan review policy. For significant
problem loans, management review consists of evaluation of the financial
strengths of the borrower and any guarantor, the related collateral, and the
effects of economic conditions.
The
Bank’s loan approval policy provides for various levels of individual lending
authority. The maximum aggregate lending authority granted by the
Bank to any one Lending Officer is $750,000. A combination of
approvals from certain officers may be used to lend up to an aggregate of
$1,000,000. The Bank’s Executive Committee is authorized to approve
loans up to $3.0 million. Larger loans must be approved by the full
Board of Directors.
Under
Maryland law, the maximum amount which the Bank is permitted to lend to any one
borrower and their related interests may generally not exceed 10% of the Bank’s
unimpaired capital and surplus, which is defined to include the Bank’s capital,
surplus, retained earnings and 50% of its allowance for possible loan
losses. Under this authority, the Bank would have been permitted to
lend up to $3.08 million to any one borrower at December 31, 2009. By
interpretive ruling of the Commissioner of Financial Regulation, Maryland banks
have the option of lending up to the amount that would be permissible for a
national bank which is generally 15% of unimpaired capital and surplus (defined
to include a bank’s total capital for regulatory capital purposes plus any loan
loss allowances not included in regulatory capital). Under this
formula, the Bank was permitted to lend up to $5.02 million to any one borrower
through December 31, 2009. At December 31, 2009, the largest amount
outstanding to any one borrower and its related interests was
$4,890,000.
Non-Performing
Loans
It will
be the policy of The Bank of Glen Burnie that any loan that is ninety (90) days
or more delinquent in the payment of principal and/or interest be placed into
non-accrual status. Notwithstanding the aforementioned, it is
determined that there appears to be a substantial amount of risk of not
collecting all of the agreed upon interest that would normally accrue to a loan,
the loan should be placed into Non-Accrual status even if the determination is
made prior to ninety (90) days delinquent. A variance to this rule
would be if the asset is both well secured and in the process of
collection. An asset is “well secured” if it is secured by (1) by
collateral in the form of liens on or pledges of real or personal
property, including securities that have a realizable value sufficient to
discharge the debt (including accrued interest) in full, or (2) by the guarantee
of a financially responsible party. An asset is “in the process of
collection” if collection of the asset is proceeding in due course either (1)
through legal action, including judgment enforcement procedures, or (2) in
appropriate circumstances, through collection efforts not involving legal action
which are reasonably expected to result in prepayment of the debt or in its
restoration to a current status in the near future.
The Bank seeks to control delinquencies
through diligent collection procedures. For consumer loans, the Bank
sends out payment reminders on the seventh and twelfth days after a payment is
due. If a consumer loan becomes 15 days past due, the account is
transferred to the Bank’s collections department, which will contact the
borrower by telephone and/or letter before the account becomes 30
days past due. If a consumer loan becomes more than 30 days past due,
the Bank will continue its collection efforts and will move to repossession or
foreclosure by the 45th day if the Bank has reason to believe that the
collateral may be in jeopardy or the borrower has failed to respond to prior
communications. The Bank will move to repossess or foreclose in all
instances in which a consumer loan becomes more than 60 days
delinquent. After repossession of a motor vehicle, the borrower has a
15-day statutory right to redeem the vehicle and is entitled to 10 days’ notice
before the sale of a repossessed vehicle. The Bank sells the vehicle
as promptly as feasible after the expiration of these periods. If the
amount realized from the sale of the vehicle is less than the loan amount, the
Bank will seek a deficiency judgment against the borrower. The Bank
follows similar collection procedures with respect to commercial
loans.
6
While the
Bank has weathered the economic and credit turbulence during 2009 and remains
strong, the Bank experienced a significant increase in non-accrual loans as of
December 31, 2009. 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:
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At December 31,
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2009
|
2008
|
2007
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2006
|
2005
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||||||||||||||||
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(Dollars
In Thousands)
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Restructured
Loans
|
$ | 87 | $ | - | $ | 578 | $ | - | $ | - | ||||||||||
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Non-accrual
loans:
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||||||||||||||||||||
|
Real
estate – mortgage:
|
||||||||||||||||||||
|
Residential
|
$ | 215 | $ | - | $ | - | $ | 3 | $ | 14 | ||||||||||
|
Commercial
|
2,626 | 659 | - | - | - | |||||||||||||||
|
Real
estate - construction
|
- | - | - | - | - | |||||||||||||||
|
Installment
|
176 | 208 | 212 | 46 | 159 | |||||||||||||||
|
Commercial
|
- | - | - | 8 | 12 | |||||||||||||||
|
Total
non-accrual loans
|
3,017 | 867 | 212 | 57 | 185 | |||||||||||||||
|
Accruing
loans past due 90 days or more
|
||||||||||||||||||||
|
Real
estate – mortgage:
|
||||||||||||||||||||
|
Residential
|
8 | 3 | 512 | 2 | 1 | |||||||||||||||
|
Commercial
|
- | - | - | - | - | |||||||||||||||
|
Real
estate - construction
|
- | 5 | - | - | 3 | |||||||||||||||
|
Installment
|
1 | 26 | - | - | - | |||||||||||||||
|
Commercial
|
12 | - | 128 | - | - | |||||||||||||||
|
Total
accruing loans past due 90 days or more
|
21 | 34 | 640 | 2 | 4 | |||||||||||||||
|
Total
non-accrual and past due loans
|
$ | 3,038 | $ | 901 | $ | 852 | $ | 59 | $ | 189 | ||||||||||
|
Non-accrual
and past due loans to gross loans
|
1.26 | % | 0.38 | % | 0.43 | % | 0.03 | % | 0.10 | % | ||||||||||
|
Allowance
for credit losses to non-accrual and past due loans
|
117.61 | % | 224.42 | % | 188.27 | % | 3,116.95 | % | 1,164.55 | % | ||||||||||
For the
year ended December 31, 2009, interest of $105,365 would have been accrued on
non-accrual loans if such loans had been current in accordance with their
original terms. During that period, interest on non-accrual loans was not
included in income. $2,993,569, or 99%, of the Bank’s total $3,016,727
non-accrual loans at December 31, 2009 were attributable to 12
borrowers. One of these borrowers was in bankruptcy at that date.
Because of the legal protections afforded to borrowers in bankruptcy,
collections on such loans are difficult and the Bank anticipates that such loans
may remain delinquent for an extended period of time. Three of these loans are
secured with commercial real estate collateral which should repay some or all of
the active principal balance on the loans.
At
December 31, 2009, there were loans outstanding, totaling $6,496,910, not
reflected in the above table as to which known information about the borrower’s
possible credit problems caused management to have serious doubts as to the
ability of the borrowers to comply with present loan repayment
terms. These 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.
At
December 31, 2009, the Company had $25,000 in real estate acquired in partial or
total satisfaction of debt, compared to $550,000 and $50,000 in such properties
at each of December 31, 2008 and 2007. This decrease resulted from
the sale in 2009 of OREO valued at $550,000, which was acquired in
2008. The $25,000 balance at December 31, 2009 reflects the deposit
on OREO acquired during 2009, which is awaiting ratification by the
court. All such properties are recorded at the lower of cost or fair
value at the date acquired and carried on the balance sheet as other real estate
owned. Losses arising at the date of acquisition are charged against the
allowance for credit losses. Subsequent write-downs that may be required and
expense of operation are included in non-interest expense. Gains and losses
realized from the sale of other real estate owned are included in non-interest
income or expense. For a description of the properties comprising other real
estate owned at December 31, 2009, see “Item 2. — Properties.”
7
Allowance For Credit
Losses
The
Bank’s allowance for credit losses is based on the probable estimated losses
that may be sustained in its loan portfolio. The allowance is based on two
basic principles of accounting. (1) ASC Topic 450, formerly Statement of
Financial Accountings Standards (SFAS) No. 5 “Accounting for Contingencies”,
which requires that losses be accrued when they are probable of occurring and
estimable, and (2) ASC Topic 310, formerly SFAS No. 114 “Accounting by Creditors
for Impairment of a Loan”, which requires that losses be accrued based on the
differences between the value of collateral, present value of future cash flows
or values that are observable in the secondary market and the loan
balance.
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 collectability of the principal is unlikely.
The allowance, based on evaluations of the collectability 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, value of collateral, and current economic conditions and trends
that may affect the borrower’s ability to pay. Because mortgage
lending decisions are based on conservative lending policies, the Company has no
exposure to the credit issues affecting the sub-prime residential mortgage
market.
In 2009,
the Bank increased its provision for credit losses due to net charge offs on
installment loans of $711,000 (primarily made up of charge offs on indirect
automobile loans of $647,000) and adjustments to the risk factors for our loan
loss reserve calculation as economic conditions deteriorated.
|
Year Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(Dollars
In Thousands)
|
||||||||||||||||||||
|
Beginning
Balance
|
$ | 2,022 | $ | 1,604 | $ | 1,839 | $ | 2,201 | $ | 2,412 | ||||||||||
|
Loans
charged off
|
||||||||||||||||||||
|
Real
estate - mortgage:
|
||||||||||||||||||||
|
Residential
|
85 | - | - | 1 | - | |||||||||||||||
|
Commercial
|
- | - | - | - | - | |||||||||||||||
|
Real
estate - construction
|
- | - | - | - | - | |||||||||||||||
|
Installment
|
1,070 | 1,079 | 591 | 528 | 495 | |||||||||||||||
|
Credit
card & related
|
- | - | - | - | - | |||||||||||||||
|
Commercial
|
133 | 2 | - | 253 | 127 | |||||||||||||||
|
Total
|
1,288 | 1,081 | 591 | 782 | 622 | |||||||||||||||
|
Recoveries
|
||||||||||||||||||||
|
Real
estate - mortgage:
|
||||||||||||||||||||
|
Residential
|
- | - | - | 1 | - | |||||||||||||||
|
Commercial
|
- | - | - | - | - | |||||||||||||||
|
Real
estate - construction
|
- | - | - | - | - | |||||||||||||||
|
Installment
|
359 | 333 | 258 | 335 | 276 | |||||||||||||||
|
Credit
card & related
|
- | - | - | - | - | |||||||||||||||
|
Commercial
|
37 | 20 | 48 | 22 | 185 | |||||||||||||||
|
Total
|
396 | 353 | 306 | 358 | 461 | |||||||||||||||
|
Net
charge offs/(recoveries)
|
892 | 728 | 285 | 424 | 161 | |||||||||||||||
|
Provisions
(credited) charged to operations
|
2,443 | 1,146 | 50 | 62 | (50 | ) | ||||||||||||||
|
Ending
balance
|
$ | 3,573 | $ | 2,022 | $ | 1,604 | $ | 1,839 | $ | 2,201 | ||||||||||
|
Average
loans
|
$ | 239,788 | $ | 219,485 | $ | 199,632 | $ | 186,706 | $ | 191,706 | ||||||||||
|
Net
charge-offs to average loans
|
0.37 | % | 0.33 | % | 0.14 | % | 0.23 | % | 0.09 | % | ||||||||||
8
The
following table shows the allowance for credit losses broken down by loan
category as of December 31, 2009, 2008, 2007, 2006, and 2005:
|
At December 31
,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Portfolio
|
Allowance For
Each Category
|
Percentage Of Loans In
Each Category To
Total Loans
|
Allowance For
Each Category
|
Percentage Of Loans In
Each Category To
Total Loans
|
||||||||||||
|
(Dollars
In Thousands)
|
||||||||||||||||
|
Real
Estate - mortgage:
|
||||||||||||||||
|
Residential
|
$ | 162 | 39.81 | % | $ | 123 | 36.85 | % | ||||||||
|
Commercial
|
2,377 | 33.23 | 460 | 31.99 | ||||||||||||
|
Real
Estate — construction
|
4 | 0.73 | 63 | 2.77 | ||||||||||||
|
Installment
|
146 | 6.64 | 161 | 6.91 | ||||||||||||
|
Credit
Card
|
- | 0.07 | - | 0.07 | ||||||||||||
|
Indirect
automobile
|
697 | 15.44 | 942 | 18.47 | ||||||||||||
|
Commercial
|
237 | 4.08 | 240 | 2.94 | ||||||||||||
|
Unallocated
|
(50 | ) | - | 33 | - | |||||||||||
|
Total
|
$ | 3,573 | 100.00 | % | $ | 2,022 | 100.00 | % | ||||||||
|
At December 31,
|
||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Portfolio
|
Allowance For
Each Category
|
Percentage Of
Loans In Each
Category To
Total Loans
|
Allowance For
Each Category
|
Percentage Of
Loans In Each
Category To
Total Loans
|
Allowance For
Each Category
|
Percentage Of
Loans In Each
Category To
Total Loans
|
||||||||||||||||||
|
(Dollars
In Thousands)
|
||||||||||||||||||||||||
|
Real
Estate – mortgage:
|
||||||||||||||||||||||||
|
Residential
|
$ | 117 | 37.98 | % | $ | 149 | 34.88 | % | $ | 153 | 37.17 | % | ||||||||||||
|
Commercial
|
163 | 23.66 | 314 | 27.13 | 277 | 19.50 | ||||||||||||||||||
|
Real
Estate – construction
|
102 | 2.91 | 14 | 0.83 | 8 | 0.73 | ||||||||||||||||||
|
Installment
|
55 | 8.45 | 103 | 7.67 | 103 | 8.15 | ||||||||||||||||||
|
Credit
Card
|
- | 0.07 | - | 0.08 | - | 0.07 | ||||||||||||||||||
|
Indirect
automobile
|
892 | 24.37 | 1,119 | 26.81 | 1,260 | 1.31 | ||||||||||||||||||
|
Commercial
|
257 | 2.56 | 260 | 2.60 | 264 | 3.07 | ||||||||||||||||||
|
Unallocated
|
18 | - | 120 | - | 136 | - | ||||||||||||||||||
|
Total
|
$ | 1,604 | 100.00 | % | $ | 1,839 | 100.00 | % | $ | 2,201 | 100.00 | % | ||||||||||||
Investment
Securities
The Bank
maintains a substantial portfolio of investment securities to provide liquidity
as well as a source of earnings. The Bank’s investment securities portfolio
consists primarily of securities issued by U.S. Government agencies including
mortgage-backed securities, securities issued by certain states and their
political subdivisions, and corporate trust preferred securities. The
tax treatment of the Bank’s portfolio of securities issued by certain states and
their political subdivisions allows the Company to use the full tax advantage of
this portfolio.
The
following table presents at amortized cost the composition of the investment
portfolio by major category at the dates indicated.
|
At December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(In
Thousands)
|
||||||||||||
|
U.S.
Treasury securities
|
$ | - | $ | - | $ | - | ||||||
|
U.S.
Government agencies and mortgage backed securities
|
54,030 | 25,571 | 44,094 | |||||||||
|
Obligations
of states and political subdivisions
|
30,073 | 31,466 | 32,311 | |||||||||
|
Corporate
trust preferred
|
2,080 | 2,169 | 2,167 | |||||||||
|
Total
investment securities
|
$ | 86,183 | $ | 59,206 | $ | 78,572 | ||||||
9
The
following table sets forth the scheduled maturities, amortized costs and
weighted average yields for the Company’s investment securities portfolio at
December 31, 2009:
|
One Year Or Less
|
One To Five Years
|
Five to Ten Years
|
More Than Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Amort.
Cost
|
Weighted
Average
Yield
|
Amort.
Cost
|
Weighted
Average
Yield
|
Amort.
Cost
|
Weighted
Average
Yield
|
Amort.
Cost
|
Weighted
Average
Yield
|
Amort.
Cost
|
Weighted
Average
Yield
|
|||||||||||||||||||||||||||||||
|
U.S.
Treasury securities
|
$ | - | - | % | $ | - | - | % | $ | - | - | % | $ | - | - | % | $ | - | - | % | ||||||||||||||||||||
|
U.S.
Government agencies and mortgage backed securities
|
- | - | - | - | 1,261 | 5.00 | 52,769 | 4.67 | 54,030 | 4.67 | ||||||||||||||||||||||||||||||
|
Obligations
of states and political subdivisions
|
650 | 3.19 | 1,825 | 3.49 | 566 | 4.36 | 27,032 | 4.40 | 30,073 | 4.32 | ||||||||||||||||||||||||||||||
|
Corporate
trust preferred
|
- | - | - | - | - | - | 2,080 | 8.68 | 2,080 | 8.68 | ||||||||||||||||||||||||||||||
|
Total
investment securities
|
$ | 650 | 3.19 | % | $ | 1,825 | 3.49 | % | $ | 1,827 | 4.80 | % | $ | 81,881 | 4.70 | % | $ | 86,183 | 4.67 | % | ||||||||||||||||||||
At December 31, 2009, the Bank had no
investments in securities of a single issuer (other than the U.S. Government
securities and securities of federal agencies and government-sponsored
enterprises), which aggregated more than 10% of stockholders’
equity.
Deposits And Other Sources
of Funds
The funds
needed by the Bank to make loans are primarily generated by deposit accounts
solicited from the communities surrounding its branches in northern Anne Arundel
County. Consolidated total deposits were $294,357,837 as of December 31, 2009.
The Bank uses borrowings from the Federal Home Loan Bank (“FHLB”) of Atlanta to
supplement funding from deposits. The Bank was permitted to borrow up to $70.85
million under a line of credit from the FHLB of Atlanta as of December 31,
2009.
Deposits.
The Bank’s deposit
products include regular savings accounts (statements), money market deposit
accounts, demand deposit accounts, NOW checking accounts, IRA and SEP accounts,
Christmas Club accounts and certificates of deposit. Variations in service
charges, terms and interest rates are used to target specific markets. Ancillary
products and services for deposit customers include safe deposit boxes, money
orders and travelers checks, night depositories, automated clearinghouse
transactions, wire transfers, ATMs, telephone banking, and a customer call
center. The Bank is a member of the Cirrus(R) and Star(R) ATM
networks.
As stated
above, the Bank obtains deposits principally through its network of branch
offices. The Bank does not solicit brokered deposits. At December 31, 2009, the
Bank had approximately $45.2
million in certificates
of deposit and other time deposits of $100,000 or more, including IRA accounts.
The following table provides information as to the maturity of all time deposits
of $100,000 or more at December 31, 200
9:
|
Amount
(In Thousands)
|
||||
|
Three
months or less
|
$ | 10,286 | ||
|
Over
three through six months
|
4,829 | |||
|
Over
six through 12 months
|
10,948 | |||
|
Over
12 months
|
19,183 | |||
|
Total
|
$ | 45,246 | ||
Borrowings.
In addition to
deposits, the Bank from time to time obtains advances from the FHLB of Atlanta
of which it is a member. FHLB of Atlanta advances may be used to provide funds
for residential housing finance, for small business lending, and to meet
specific and anticipated needs. The Bank may draw on a $70.85 million
line of credit from the FHLB of Atlanta, which is secured by a floating lien on
the Bank’s residential first mortgage loans and various federal and agency
securities. There was $10 million in a convertible advance under this credit
arrangement at December 31, 2009. The advance matures in
November 1, 2017, is
callable monthly, and bears a 3.28% rate of interest. There was a $5 million
convertible advance settled July 21, 2008 with a final maturity of July 23,
2018. This advance has a 2.73% rate of interest and was callable
quarterly, starting July 23, 2009. There was a $5 million convertible advance
taken out August 22, 2008 which has a final maturity of August 22,
2018. This advance has a 3.344% rate of interest and is callable
quarterly, starting August 22, 2011. There was $7 million in a long-term
convertible advance under this credit arrangement at December 31, 2009. The
advance matures in
September 2010 and bears
a 5.84% rate of interest. On September 7, 2000, the Company issued $5,155,000 of
its 10.6% Junior Subordinated Deferrable Interest Debentures to Glen Burnie
Statutory Trust I, a Connecticut statutory trust wholly owned by the Company.
The Trust, in turn, issued $5 million of its 10.6% capital securities to
institutional investors. The debentures are scheduled to mature on
September 7, 2030, unless called by the Company not earlier than September 7,
2010. It is the Company’s intention to call these debentures at the
earliest opportunity. The Bank also has an unsecured line of credit
in the amount of $9 million from another commercial bank but currently has no
balance outstanding. The Bank has a mortgage note on the 103 Crain
Highway address with a balance of $33,711 as of December 31,
2009. This note is payable monthly through October 2010 and has a 7%
interest rate.
10
Competition
The Bank faces competition for deposits
and loans from other community banks, branches or affiliates of larger banks,
savings and loan associations, savings banks and credit unions, which compete
vigorously (currently, sixteen FDIC-insured depository institutions operate
within two miles of the Bank’s headquarters). With respect to indirect lending,
the Bank faces competition from other banks and the financing arms of automobile
manufacturers. The Bank competes in this area by offering competitive rates and
responsive service to dealers.
The Bank’s interest rates, loan and
deposit terms, and offered products and services are impacted, to a large
extent, by such competition. The Bank attempts to provide superior service
within its community and to know, and facilitate services, to, its customers. It
seeks commercial relationships with small to medium size businesses, which the
Bank believes would welcome personal service and flexibility. The
bank believes its greatest competition comes from larger intra- and inter-state
financial institutions.
Other
Activities
The
Company also owns all outstanding shares of capital stock of GBB Properties,
Inc. (“GBB”), another Maryland corporation which was organized in 1994 and which
is engaged in the business of acquiring, holding and disposing of real property,
typically acquired in connection with foreclosure proceedings (or deeds in lieu
of foreclosure) instituted by the Bank or acquired in connection with branch
expansions by the Bank.
Employees
At
December 31, 2009, the Bank had 116 full-time equivalent employees. Neither the
Company nor GBB currently has any employees.
Regulation of the
Company
General.
The
Company is a bank holding company within the meaning of the Bank Holding Company
Act of 1956 (the “BHCA”). As such, the Company is registered with the Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”) and
subject to Federal Reserve Board regulation, examination, supervision and
reporting requirements. As a bank holding company, the Company is required to
furnish to the Federal Reserve Board annual and quarterly reports of its
operations at the end of each period and to furnish such additional information
as the Federal Reserve Board may require pursuant to the BHCA. The Company is
also subject to regular inspection by Federal Reserve Board
examiners.
Under the
BHCA, a bank holding company must obtain the prior approval of the Federal
Reserve Board before: (1) acquiring direct or indirect ownership or control of
any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
“Riegle-Neal Act”) authorizes the Federal Reserve Board to approve an
application of an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank located in a state other than such holding company’s home state,
without regard to whether the transaction is prohibited by the laws of any
state. The Federal Reserve Board may not approve the acquisition of a bank that
has not been in existence for the minimum time period (not exceeding five years)
specified by the statutory law of the host state. The Riegle-Neal Act also
prohibits the Federal Reserve Board from approving such an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank’s home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank or bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit contained in the Riegle-Neal Act. Under Maryland law, a bank holding
company is prohibited from acquiring control of any bank if the bank holding
company would control more than 30% of the total deposits of all depository
institutions in the State of Maryland unless waived by the Maryland Commissioner
of Financial Regulation.
11
Additionally,
the federal banking agencies are authorized to approve interstate merger
transactions without regard to whether such transaction is prohibited by the law
of any state, unless the home state of one of the banks opted out of the
Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal
Act and prior to June 1, 1997 which applies equally to all out-of-state banks
and expressly prohibits merger transactions involving out-of-state banks. The
State of Maryland did not pass such a law during this period. Interstate
acquisitions of branches will be permitted only if the law of the state in which
the branch is located permits such acquisitions. Interstate mergers and branch
acquisitions will also be subject to the nationwide and statewide insured
deposit concentration amounts described above.
The BHCA
also prohibits, with certain exceptions, a bank holding company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
a company that is not a bank or a bank holding company, or from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal
exceptions to these prohibitions involve certain non-bank activities which, by
statute or by Federal Reserve Board regulation or order, have been identified as
activities closely related to the business of banking or managing or controlling
banks. The activities of the Company are subject to these legal and regulatory
limitations under the BHCA and the Federal Reserve Board’s regulations
thereunder. Notwithstanding the Federal Reserve Board’s prior approval of
specific nonbanking activities, the Federal Reserve Board has the power to order
a holding company or its subsidiaries to terminate any activity, or to terminate
its ownership or control of any subsidiary, when it has reasonable cause to
believe that the continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company.
Effective
with the enactment of the Gramm-Leach-Bliley Act (“G-L-B”) on November 12, 1999,
bank holding companies whose financial institution subsidiaries are well
capitalized and well managed and have satisfactory Community Reinvestment Act
records can elect to become “financial holding companies” which will be
permitted to engage in a broader range of financial activities than are
currently permitted to bank holding companies. Financial holding companies are
authorized to engage in, directly or indirectly, financial activities. A
financial activity is an activity that is: (i) financial in nature; (ii)
incidental to an activity that is financial in nature; or (iii) complementary to
a financial activity and that does not pose a safety and soundness risk. The
G-L-B Act includes a list of activities that are deemed to be financial in
nature. Other activities also may be decided by the Federal Reserve Board to be
financial in nature or incidental thereto if they meet specified criteria. A
financial holding company that intends to engage in a new activity to acquire a
company to engage in such an activity is required to give prior notice to the
Federal Reserve Board. If the activity is not either specified in the G-L-B Act
as being a financial activity or one that the Federal Reserve Board has
determined by rule or regulation to be financial in nature, the prior approval
of the Federal Reserve Board is required.
The
Maryland Financial Institutions Code prohibits a bank holding company from
acquiring more than 5% of any class of voting stock of a bank or bank holding
company without the approval of the Commissioner of Financial Regulation except
as otherwise expressly permitted by federal law or in certain other limited
situations. The Maryland Financial Institutions Code additionally prohibits any
person from acquiring voting stock in a bank or bank holding company without 60
days’ prior notice to the Commissioner if such acquisition will give the person
control of 25% or more of the voting stock of the bank or bank holding company
or will affect the power to direct or to cause the direction of the policy or
management of the bank or bank holding company. Any doubt whether the stock
acquisition will affect the power to direct or cause the direction of policy or
management shall be resolved in favor of reporting to the Commissioner. The
Commissioner may deny approval of the acquisition if the Commissioner determines
it to be anti-competitive or to threaten the safety or soundness of a banking
institution. Voting stock acquired in violation of this statute may not be voted
for five years.
Capital Adequacy.
The Federal
Reserve Board has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See “Regulation of the Bank — Capital Adequacy.”
12
Dividends and Distributions.
The Federal Reserve Board has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve Board has issued a policy statement on the payment of cash dividends by
bank holding companies, which expresses the Federal Reserve Board’s view that a
bank holding company should pay cash dividends only to the extent that the
company’s net income for the past year is sufficient to cover both the cash
dividends and a rate of earning retention that is consistent with the company’s
capital needs, asset quality, and overall financial condition.
Bank
holding companies are required to give the Federal Reserve Board notice of any
purchase or redemption of their outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the bank holding company’s consolidated net
worth. The Federal Reserve Board may disapprove such a purchase or redemption if
it determines that the proposal would violate any law, regulation, Federal
Reserve Board order, directive, or any condition imposed by, or written
agreement with, the Federal Reserve Board. Bank holding companies whose capital
ratios exceed the thresholds for “well capitalized” banks on a consolidated
basis are exempt from the foregoing requirement if they were rated composite 1
or 2 in their most recent inspection and are not the subject of any unresolved
supervisory issues.
Regulation of the
Bank
General.
As a state-chartered
bank with deposits insured by the FDIC but which is not a member of the Federal
Reserve System (a “state non-member bank”), the Bank is subject to the
supervision of the Maryland Commissioner of Financial Regulation and the FDIC.
The Commissioner and FDIC regularly examine the operations of the Bank,
including but not limited to capital adequacy, reserves, loans, investments and
management practices. These examinations are for the protection of the Bank’s
depositors and not its stockholders. In addition, the Bank is required to
furnish quarterly and annual call reports to the Commissioner and FDIC. The
FDIC’s enforcement authority includes the power to remove officers and directors
and the authority to issue cease-and-desist orders to prevent a bank from
engaging in unsafe or unsound practices or violating laws or regulations
governing its business.
The
Bank’s deposits are insured by the FDIC to the legal maximum of $250,000 for
each insured depositor. Some of the aspects of the lending and deposit business
of the Bank that are subject to regulation by the Federal Reserve Board and the
FDIC include reserve requirements and disclosure requirements in connection with
personal and mortgage loans and savings deposit accounts. In addition, the Bank
is subject to numerous Federal and state laws and regulations which set forth
specific restrictions and procedural requirements with respect to the
establishment of branches, investments, interest rates on loans, credit
practices, the disclosure of customer information, the disclosure of credit
terms and discrimination in credit transactions.
Patriot Act.
The
USA Patriot Act (the “Patriot Act”), includes provisions pertaining to domestic
security, surveillance procedures, border protection, and terrorism laws to be
administered by the Secretary of the Treasury. Title III of the Patriot
Act entitled, “International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001” includes amendments to the Bank Secrecy Act which expand
the responsibilities of financial institutions in regard to anti-money
laundering activities with particular emphasis upon international money
laundering and terrorism financing activities through designated correspondent
and private banking accounts.
Section
313(a) of the Patriot Act prohibits any insured financial institution such as
the Bank, from providing correspondent accounts to foreign banks which do not
have a physical presence in any country (designated as “shell banks”), subject
to certain exceptions for regulated affiliates of foreign banks. Section
313(a) also requires financial institutions to take reasonable steps to ensure
that foreign bank correspondent accounts are not being used to indirectly
provide banking services to foreign shell banks, and Section 319(b) requires
financial institutions to maintain records of the owners and agent for service
of process of any such foreign banks with whom correspondent accounts have been
established.
Section
312 of the Patriot Act creates a requirement for special due diligence for
correspondent accounts and private banking accounts. Under Section 312,
each financial institution that establishes, maintains, administers, or manages
a private banking account or a correspondent account in the United States for a
non-United States person, including a foreign individual visiting the United
States, or a representative of a non-United States person shall establish
appropriate, specific, and, where necessary, enhanced, due diligence policies,
procedures, and controls that are reasonably designed to detect and record
instances of money laundering through those accounts.
The
Company and the Bank are not currently aware of any account relationships
between the Bank and any foreign bank or other person or entity as described
above under Sections 313(a) or 312 of the Patriot Act.
13
The
terrorist attacks on September 11, 2001 have realigned national security
priorities of the United States and it is reasonable to anticipate that the
United States Congress may enact additional legislation in the future to combat
terrorism including modifications to existing laws such as the Patriot Act to
expand powers as deemed necessary. The enactment of the Patriot Act has
increased the Bank’s compliance costs, and the impact of any additional
legislation enacted by Congress may have upon financial institutions is
uncertain. However, such legislation would likely increase compliance
costs and thereby potentially have an adverse effect upon the Company’s results
of operations.
Community Reinvestment
Act.
Community Reinvestment Act (“CRA”) regulations evaluate banks’
lending to low and moderate income individuals and businesses across a
four-point scale from “outstanding” to “substantial noncompliance,” and are a
factor in regulatory review of applications to merge, establish new branch
offices or form bank holding companies. In addition, any bank rated in
“substantial noncompliance” with the CRA regulations may be subject to
enforcement proceedings. The Bank has a current rating of “satisfactory”
for CRA compliance.
Capital Adequacy.
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.
The
regulations of the Federal Reserve Board and the FDIC require bank holding
companies and state non-member banks, respectively, to maintain a minimum
leverage ratio of “Tier 1 capital” (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the Federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization’s capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve Board has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization’s ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of
capital.
The
risk-based capital rules of the Federal Reserve Board and the FDIC require bank
holding companies and state non-member banks, respectively, to maintain minimum
regulatory capital levels based upon a weighting of their assets and off-balance
sheet obligations according to risk. Risk-based capital is composed of two
elements: Tier 1 capital and Tier 2 capital. Tier 1 capital consists primarily
of common stockholders’ equity, certain perpetual preferred stock (which must be
noncumulative in the case of banks), and minority interests in the equity
accounts of consolidated subsidiaries; less all intangible assets, except for
certain purchased mortgage servicing rights and credit card relationships. Tier
2 capital elements include, subject to certain limitations, the allowance for
losses on loans and leases; perpetual preferred stock that does not qualify as
Tier 1 capital and long-term preferred stock with an original maturity of at
least 20 years from issuance; hybrid capital instruments, including perpetual
debt and mandatory convertible securities; and subordinated debt and
intermediate-term preferred stock.
The
risk-based capital regulations assign balance sheet assets and credit equivalent
amounts of off-balance sheet obligations to one of four broad risk categories
based principally on the degree of credit risk associated with the obligor. The
assets and off-balance sheet items in the four risk categories are weighted at
0%, 20%, 50% and 100%. These computations result in the total risk-weighted
assets. The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital (Tier 1 capital plus Tier
2 capital) to total risk-weighted assets of 8%, with at least 4% as Tier 1
capital. For the purpose of calculating these ratios: (i) Tier 2 capital is
limited to no more than 100% of Tier 1 capital; and (ii) the aggregate amount of
certain types of Tier 2 capital is limited. In addition, the risk-based capital
regulations limit the allowance for loan losses includable as capital to 1.25%
of total risk-weighted assets.
FDIC
regulations and guidelines additionally specify that state non-member banks with
significant exposure to declines in the economic value of their capital due to
changes in interest rates may be required to maintain higher risk-based capital
ratios. The Federal banking agencies, including the FDIC, have proposed a system
for measuring and assessing the exposure of a bank’s net economic value to
changes in interest rates. The Federal banking agencies, including the FDIC,
have stated their intention to propose a rule establishing an explicit capital
charge for interest rate risk based upon the level of a bank’s measured interest
rate risk exposure after more experience has been gained with the proposed
measurement process. Federal Reserve Board regulations do not specifically take
into account interest rate risk in measuring the capital adequacy of bank
holding companies.
14
The FDIC
has issued regulations which classify state non-member banks by capital levels
and which authorize the FDIC to take various prompt corrective actions to
resolve the problems of any bank that fails to satisfy the capital standards.
Under such regulations, a well-capitalized bank is one that is not subject to
any regulatory order or directive to meet any specific capital level and that
has or exceeds the following capital levels: a total risk-based capital ratio of
10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of 5%. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements: a total risk-based capital
ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of
either (i) 4% or (ii) 3% if the bank has the highest composite examination
rating. A bank not meeting these criteria is treated as undercapitalized,
significantly undercapitalized, or critically undercapitalized depending on the
extent to which the bank’s capital levels are below these standards. A state
non-member bank that falls within any of the three undercapitalized categories
established by the prompt corrective action regulation will be subject to severe
regulatory sanctions. As of December 31, 2009, the Bank was well capitalized as
defined by the FDIC’s regulations.
Branching.
Maryland
law provides that, with the approval of the Commissioner, Maryland banks may
establish branches within the State of Maryland without geographic restriction
and may establish branches in other states by any means permitted by the laws of
such state or by federal law. The Riegle-Neal Act authorizes the FDIC to approve
interstate branching de novo by state banks, only in states that specifically
allow for such branching.
Dividend
Limitations.
Pursuant to the Maryland Financial Institutions
Code, Maryland banks may only pay dividends from undivided profits or, with the
prior approval of the Commissioner, their surplus in excess of 100% of required
capital stock. The Maryland Financial Institutions Code further restricts the
payment of dividends by prohibiting a Maryland bank from declaring a dividend on
its shares of common stock until its surplus fund equals the amount of required
capital stock or, if the surplus fund does not equal the amount of capital
stock, in an amount in excess of 90% of net earnings. In addition, the Bank is
prohibited by federal statute from paying dividends or making any other capital
distribution that would cause the Bank to fail to meet its regulatory capital
requirements. Further, the FDIC also has authority to prohibit the payment of
dividends by a state non-member bank when it determines such payment to be an
unsafe and unsound banking practice.
Deposit Insurance.
The Bank is
required to pay semi-annual assessments based on a percentage of its insured
deposits to the FDIC for insurance of its deposits by the Bank Insurance Fund
(“BIF”). Under the Federal Deposit Insurance Act, the FDIC is required to set
semi-annual assessments for BIF-insured institutions to maintain the designated
reserve ratio of the BIF at 1.25% of estimated insured deposits or at a higher
percentage of estimated insured deposits that the FDIC determines to be
justified for that year by circumstances raising a significant risk of
substantial future losses to the BIF.
Under the
risk-based deposit insurance assessment system adopted by the FDIC, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution’s capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups — “well capitalized, adequately capitalized or
undercapitalized.” Within each capital group, institutions are assigned to one
of three subgroups on the basis of supervisory evaluations by the institution’s
primary supervisory authority and such other information as the FDIC determines
to be relevant to the institution’s financial condition and the risk posed to
the deposit insurance fund. Under the current assessment schedule,
well-capitalized banks with the best supervisory ratings are not required to pay
any premium for deposit insurance. All BIF-insured banks, however, will be
required to begin paying an assessment to the FDIC in an amount equal to 2.12
basis points times their assessable deposits to help fund interest payments on
certain bonds issued by the Financing Corporation, an agency established by the
federal government to finance takeovers of insolvent thrifts.
Transactions with Affiliates.
A state non-member bank or its subsidiaries may not engage in “covered
transactions” with any one affiliate in an amount greater than 10% of such
bank’s capital stock and surplus, and for all such transactions with all
affiliates a state non-member bank is limited to an amount equal to 20% of
capital stock and surplus. All such transactions must also be on terms
substantially the same, or at least as favorable, to the bank or subsidiary as
those provided to a non-affiliate. The term “covered transaction” includes the
making of loans, purchase of assets, issuance of a guarantee and similar other
types of transactions. An affiliate of a state non-member bank is any company or
entity which controls or is under common control with the state non-member bank
and, for purposes of the aggregate limit on transactions with affiliates, any
subsidiary that would be deemed a financial subsidiary of a national bank. In a
holding company context, the parent holding company of a state non-member bank
(such as the Company) and any companies which are controlled by such parent
holding company are affiliates of the state non-member bank. The BHCA further
prohibits a depository institution from extending credit to or offering any
other services, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain limited
exceptions.
15
Loans to Directors, Executive
Officers and Principal Stockholders.
Loans to directors, executive
officers and principal stockholders of a state non-member bank must be made on
substantially the same terms as those prevailing for comparable transactions
with persons who are not executive officers, directors, principal stockholders
or employees of the Bank unless the loan is made pursuant to a compensation or
benefit plan that is widely available to employees and does not favor insiders.
Loans to any executive officer, director and principal stockholder together with
all other outstanding loans to such person and affiliated interests generally
may not exceed 15% of the bank’s unimpaired capital and surplus and all loans to
such persons may not exceed the institution’s unimpaired capital and unimpaired
surplus
.
Loans to
directors, executive officers and principal stockholders, and their respective
affiliates, in excess of the greater of $100,000 or 5% of capital and surplus
(up to $500,000) must be approved in advance by a majority of the board of
directors of the bank with any “interested” director not participating in the
voting. State non-member banks are prohibited from paying the overdrafts of any
of their executive officers or directors. In addition, loans to executive
officers may not be made on terms more favorable than those afforded other
borrowers and are restricted as to type, amount and terms of
credit.
|
Year
Opened
|
Owned/
Leased
|
Book Value
|
Approximate
Square Footage
|
Deposits
|
||||||||||||
|
Main Office:
|
||||||||||||||||
|
101
Crain Highway, S.E.
Glen
Burnie, MD 21061
|
1953
|
Owned
|
$ | 671,060 | 10,000 | $ | 87,115,646 | |||||||||
|
Branches:
|
||||||||||||||||
|
Odenton
1405
Annapolis Road
Odenton,
MD 21113
|
1969
|
Owned
|
150,062 | 6,000 | 40,465,617 | |||||||||||
|
Riviera
Beach
8707
Ft. Smallwood Road
Pasadena,
MD 21122
|
1973
|
Owned
|
130,706 | 2,500 | 31,372,810 | |||||||||||
|
Crownsville
1221
Generals Highway
Crownsville,
MD 21032
|
1979
|
Owned
|
296,199 | 3,000 | 51,088,811 | |||||||||||
|
Severn
811
Reece Road
Severn,
MD 21144
|
1984
|
Owned
|
144,954 | 2,500 | 28,640,749 | |||||||||||
|
New
Cut Road
740
Stevenson Road
Severn,
MD 21144
|
1995
|
Owned
|
1,371,380 | 2,600 | 23,941,839 | |||||||||||
|
Linthicum
Burwood
Village Shopping Center
Glen
Burnie, MD 21060
|
2005
|
Leased
|
133,556 | 2,500 | 15,043,178 | |||||||||||
|
Severna
Park
534
Ritchie Highway
Severna
Park, MD 21146
|
2002
|
Leased
|
87,353 | 2,184 | 17,219,471 | |||||||||||
|
Operations Centers:
|
||||||||||||||||
|
106
Padfield Blvd.
Glen
Burnie, MD 21061
|
1991
|
Owned
|
863,065 | 16,200 | N/A | |||||||||||
|
103
Crain Highway, S.E.
Glen
Burnie, MD 21061
|
2000
|
Owned
|
272,262 | 3,727 | N/A | |||||||||||
16
At
December 31, 2009, the Bank owned one foreclosed real estate property with a
total book value of $25,000.
The book value for the
New Cut Road branch (formerly the South Crain branch) increased due to no longer
leasing the premises but having built a new branch office.
From time
to time, the Company and the Bank are involved in various legal actions relating
to their business activities. At December 31, 2009, there were no actions to
which the Company or the Bank was a party which involved claims for money
damages exceeding 10% of the Company’s consolidated current assets in any one
case or in any group of proceedings presenting in large degree the same legal
and factual issues.
EXECUTIVE OFFICERS OF THE
REGISTRANT
Set forth
below is information about the Company’s executive officers.
|
NAME
|
AGE
|
POSITIONS
|
|||
|
F.
William Kuethe, Jr.
|
77
|
President
Emeritus
|
|||
|
Michael
G. Livingston
|
56
|
President
and Chief Executive Officer
|
|||
|
John
E. Porter
|
56
|
Senior
Vice President and Chief Financial Officer
|
F.
WILLIAM KUETHE, JR. was appointed to the honorary position of President Emeritus
of the Company and the Bank effective January 1, 2008 when he retired from
full-time employment and stepped down from his positions of President and Chief
Executive Officer of the Company and the Bank which he held since
1995. Mr. Kuethe has been a director of the Company and the Bank
since 1995 and was President of Glen Burnie Mutual Savings Bank from 1960
through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker
with banking experience from 1960 to present, at all levels. He is the father of
Frederick W. Kuethe, III, a director of the Company.
MICHAEL
G. LIVINGSTON was appointed President and Chief Executive Officer of the Company
and the Bank effective January 1, 2008. Prior to that date, Mr.
Livingston was Deputy Chief Executive Officer and Executive Vice President since
August 2004, Chief Operating Officer since January 2004, Deputy Chief Operating
Officer from February 2003 through December 2003, Senior Vice President from
January 1998 until August 2004, and Chief Lending Officer of the Bank from 1996
until August 2004. Mr. Livingston was elected as a director of the
Company and the Bank on January 1, 2005.
JOHN E.
PORTER was appointed Senior Vice President in January 1998. He has
been Treasurer and Chief Financial Officer of the Company since 1995 and Vice
President, Treasurer and Chief Financial Officer of the Bank since
1990.
17
The
Common Stock is traded on the Nasdaq Capital Market under the symbol
“GLBZ”. As of February 23, 2009, there were 436 record holders of the
Common Stock. The closing price for the Common Stock on that date was
$9.70. A 20% stock dividend had been declared for stockholders’ of
record on January 12, 2008, payable January 18, 2008.
The
following table sets forth the high and low sales prices for the Common Stock
for each full quarterly period during 2009 and 2008 as reported by Nasdaq. The
quotations represent prices between dealers and do not reflect the retailer
markups, markdowns or commissions, and may not represent actual
transactions. Also shown are dividends declared per share for these
periods.
|
2009
|
2008
|
|||||||||||||||||||||||
|
Quarter Ended
|
High
|
Low
|
Dividends
|
High
|
Low
|
Dividends
|
||||||||||||||||||
|
March
31,
|
$ | 10.96 | $ | 8.41 | $ | 0.10 | $ | 14.12 | $ | 10.25 | $ | 0.10 | ||||||||||||
|
June
30,
|
9.40 | 7.80 | 0.10 | 12.95 | 11.00 | 0.10 | ||||||||||||||||||
|
September
30
|
9.25 | 7.70 | 0.10 | 12.00 | 8.90 | 0.10 | ||||||||||||||||||
|
December
31
|
9.76 | 8.09 | 0.10 | 10.94 | 8.54 | 0.15 | ||||||||||||||||||
A regular
dividend of $0.10 was declared for stockholders’ of record on December 29, 2009,
payable on January 6, 2010.
The
Company intends to pay dividends approximating forty percent (40%) of its
profits for each quarter. However, dividends remain subject to declaration by
the Board of Directors in its sole discretion and there can be no assurance that
the Company will be legally or financially able to make such payments. Payment
of dividends may be limited by federal and state regulations which impose
general restrictions on a bank’s and bank holding company’s right to pay
dividends (or to make loans or advances to affiliates which could be used to pay
dividends). Generally, dividend payments are prohibited unless a bank or bank
holding company has sufficient net (or retained) earnings and capital as
determined by its regulators. See “
Item 1. Business
-
Supervision and Regulation - Regulation of the Company - Dividends and
Distributions” and “
Item 1. Business
—
Supervision and Regulation - Regulation of the Bank - Dividend Limitations.” The
Company does not believe that those restrictions will materially limit its
ability to pay dividends.
Performance
Graph
The
following graph compares the cumulative total return on the Common Stock during
the five years ended December 31, 2009 with that of a broad market index (Nasdaq
Composite), and a peer group consisting of publicly traded Maryland, Virginia
and District of Columbia commercial banks with total assets between $200 million
and $500 million (“Peer Group”). The Peer Group is comprised of Pinnacle
Bankshares Corp., Bank of the James Financial Group, Inc., Botetourt Bankshares,
Inc., Bay Banks of VA., Inc., Citizens Bancorp of Virginia, Old Line Bankshares,
Inc., Patapsco Bancorp Inc., Frederick County Bancorp Inc., Central
Virginia Bankshares, Inc., Bay National Corp., Annapolis Bancorp, Inc., Calvin
B. Taylor Bankshares Inc., and Carrollton Bancorp. A significant number of the
banks we used in the Peer Group in prior years no longer qualified for the
criteria which would afford a reasonable comparison to the Company and,
accordingly, a new Peer Group was developed. The graph assumes $100
was invested on December 31, 2004 in the Common Stock and in each of the indices
and assumes reinvestment of dividends. The following information shall not be
deemed to be “soliciting material” or to be “filed” with the SEC or subject to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, except
to the extent that the Company specifically incorporates it by reference into a
later filing with the SEC.
18
|
Total Return Analysis
|
||||||||||||||||||||||||
|
12/31/2004
|
12/31/2005
|
12/31/2005
|
12/31/2007
|
12/31/2008
|
12/31/2009
|
|||||||||||||||||||
|
Glen
Burnie Bancorp
|
$ | 100.00 | $ | 91.06 | $ | 89.12 | $ | 83.66 | $ | 73.68 | $ | 64.92 | ||||||||||||
|
Peer
Group
|
$ | 100.00 | $ | 99.12 | $ | 103.87 | $ | 85.27 | $ | 56.78 | $ | 51.09 | ||||||||||||
|
Nasdaq
Composite
|
$ | 100.00 | $ | 102.12 | $ | 112.73 | $ | 124.73 | $ | 74.87 | $ | 108.83 | ||||||||||||
Source:
Zacks Investment Research.
19
The
following table presents consolidated selected financial data for the Company
and its subsidiaries for each of the periods indicated. Dividends and earnings
per share have been adjusted to give retroactive effect to a 20% stock dividend
paid on January 18, 2008, and one paid on January 23, 2006.
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(Dollars
In Thousand Except Per Share Data)
|
||||||||||||||||||||
|
Operations
Data:
|
||||||||||||||||||||
|
Net
Interest Income
|
$ | 12,102 | $ | 11,922 | $ | 11,866 | $ | 11,821 | $ | 11,966 | ||||||||||
|
Provision
for Credit Losses
|
2,443 | 1,146 | 50 | 62 | (50 | ) | ||||||||||||||
|
Other
Income
|
2,365 | 2,051 | 2,157 | 2,244 | 2,114 | |||||||||||||||
|
Other
Expense
|
10,995 | 13,102 | 10,433 | 10,682 | 10,625 | |||||||||||||||
|
Net
Income
|
1,262 | 404 | 2,782 | 2,720 | 2,775 | |||||||||||||||
|
Share
Data:
|
||||||||||||||||||||
|
Basic
Net Income Per Share
|
$ | 0.46 | $ | 0.14 | $ | 0.93 | $ | 0.92 | $ | 0.94 | ||||||||||
|
Diluted
Net Income Per Share
|
0.46 | 0.14 | 0.93 | 0.92 | 0.94 | |||||||||||||||
|
Cash
Dividends Declared Per Common Share
|
0.40 | 0.45 | 0.45 | 0.45 | 0.41 | |||||||||||||||
|
Weighted
Average Common Shares Outstanding:
|
||||||||||||||||||||
|
Basic
|
2,734,524 | 2,981,124 | 2,988,796 | 2,972,362 | 2,956,417 | |||||||||||||||
|
Diluted
|
2,734,524 | 2,981,124 | 2,988,796 | 2,972,362 | 2,956,417 | |||||||||||||||
|
Financial
Condition Data:
|
||||||||||||||||||||
|
Total
Assets
|
$ | 353,397 | $ | 332,502 | $ | 307,274 | $ | 317,746 | $ | 306,561 | ||||||||||
|
Loans
Receivable, Net
|
235,883 | 235,133 | 199,753 | 193,337 | 190,205 | |||||||||||||||
|
Total
Deposits
|
294,358 | 269,768 | 252,917 | 274,833 | 265,248 | |||||||||||||||
|
Long
Term Borrowings
|
27,034 | 27,072 | 17,107 | 7,140 | 7,171 | |||||||||||||||
|
Junior
Subordinated Debentures
|
5,155 | 5,155 | 5,155 | 5,155 | 5,155 | |||||||||||||||
|
Total
Stockholders’ Equity
|
25,149 | 27,908 | 29,736 | 28,201 | 26,625 | |||||||||||||||
|
Performance
Ratios:
|
||||||||||||||||||||
|
Return
on Average Assets
|
0.36 | % | 0.13 | % | 0.89 | % | 0.84 | % | 0.89 | % | ||||||||||
|
Return
on Average Equity
|
4.87 | 1.49 | 9.60 | 10.00 | 10.50 | |||||||||||||||
|
Net
Interest Margin (1)
|
4.29 | 4.31 | 4.39 | 4.31 | 4.46 | |||||||||||||||
|
Dividend
Payout Ratio
|
85.59 | 332.98 | 48.33 | 49.18 | 43.52 | |||||||||||||||
|
Capital
Ratios:
|
||||||||||||||||||||
|
Average
Equity to Average Assets
|
7.37 | % | 8.99 | % | 9.28 | % | 8.36 | % | 8.47 | % | ||||||||||
|
Leverage
Ratio
|
8.86 | 10.50 | 11.34 | 10.30 | 10.17 | |||||||||||||||
|
Total
Risk-Based Capital Ratio
|
14.40 | 14.93 | 17.50 | 17.07 | 16.98 | |||||||||||||||
|
Asset
Quality Ratios:
|
||||||||||||||||||||
|
Allowance
for Credit Losses to Gross Loans
|
1.18 | % | 0.85 | % | 0.80 | % | 0.94 | % | 1.14 | % | ||||||||||
|
Non-accrual
and Past Due Loans to Gross Loans
|
1.26 | % | 0.38 | % | 0.43 | % | 0.03 | % | 0.10 | % | ||||||||||
|
Allowance
for Credit Losses to Non- Accrual and Past Due Loans
|
117.61 | % | 224.42 | % | 188.27 | % | 3,116.95 | % | 1,164.55 | % | ||||||||||
|
Net
Loan Charge-offs (Recoveries) to Average Loans
|
0.37 | % | 0.33 | % | 0.14 | % | 0.23 | % | 0.09 | % | ||||||||||
(1)
Presented on a tax-equivalent basis
20
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
When used
in this discussion and elsewhere in this Annual Report on Form 10-K, the words
or phrases “will likely result,” “are expected to,” “will continue,” “is
anticipated,” “intends”, “estimate,” “project” or similar expressions are
intended to identify “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and readers are advised that various factors,
including regional and national economic conditions, unfavorable judicial
decisions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors could affect the Company’s financial performance and could cause the
Company’s actual results for future periods to differ materially from those
anticipated or projected. The Company does not undertake and
specifically disclaims any obligation to update any forward-looking statements
to reflect occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.
Overview
During 2009, net interest income before
provision for credit losses increased to $12,101,787 from $11,922,003 in 2008, a
1.51% increase. Total interest income increased from $18,176,036 in
2008 to $18,644,297 in 2009, a 2.58% increase. Interest expense for
2009 totaled $6,542,510, a 4.61% increase from $6,254,033 in
2008. Net income in 2009 was $1,262,462 compared to $403,962 in 2008.
The increase in net income was primarily due to a write-down of $2,816,000 taken
in 2008 on investments in three series of preferred stock issued by Federal
National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac) held by the Company as a result of the appointment of
the Federal Housing Finance Agency as conservator over Fannie Mae and Freddie
Mac. In 2009, the Company recorded a provision for loan losses of $2,442,976, an
increase from the $1,145,649 provision made in 2008. In
addition, the FDIC assessment for 2009 was $549,716, an increase from the 2008
assessment of $35,544.
The Bank and, as a result, the Company,
have not been immune to the impact of the continuing economic downturn in the
United States in 2009. While, due to conservative lending decisions,
the Bank has no exposure to the credit issues affecting the sub-prime
residential mortgage market, the economic slowdown resulted in the necessity of
our increasing our reserve for loan losses in 2009, as noted above, primarily
due to valuation issues in our commercial mortgage portfolio and continuing
delinquency in our indirect automobile portfolio combined with adjustments we
made to the risk factors in our calculation of required loan loss reserves.
Despite the sharp economic downturn and these events, which have negatively
affected our industry, we realized net income of $1,262,462 for 2009, remained
well capitalized and did not need to apply for any funding from the U.S.
Department of Treasury’s Troubled Asset Relief Program (TARP). In
2009, the Bank’s loan portfolio remained stable with net charge-offs of $892,000
for the year.
All per
share amounts throughout this report have been adjusted to give retroactive
effect to a 20% stock dividend paid on January 23, 2006 and to a 20% stock
dividend paid on January 18, 2008.
Comparison of Results of
Operations for the Years Ended December 31, 2009, 2008 and
2007
General.
For the year ended
December 31, 2009, the Company reported consolidated net income of $1,262,462
($0.46 basic and diluted earnings per share) compared to consolidated net income
of $403,962
(
$0.14 basic
and diluted earnings per share) for the year ended December 31, 2008 and
consolidated net income of $2,782,141
(
$0.93 basic and diluted
earnings per share) for the year ended December 31, 2007. The
increase in 2009 consolidated net income was due to the write down on Fannie Mae
and Freddie Mac preferred stock in 2008, offset by the increase in the provision
for loan losses, the increased FDIC insurance premium assessment, and an
increase in deposit and long term borrowings expense in 2009. The
decrease in 2008 consolidated net income was due to the write down on Fannie Mae
and Freddie Mac preferred stock and the increase in the provision for loan
losses.
Net Interest Income.
The
primary component of the Company’s net income is its net interest income, which
is the difference between income earned on assets and interest paid on the
deposits and borrowings used to fund income producing assets. Net interest
income is determined by the spread between the yields earned on the Company’s
interest-earning assets and the rates paid on interest-bearing liabilities as
well as the relative amounts of such assets and liabilities. Net interest
income, divided by average interest-earning assets, represents the Company’s net
interest margin.
21
Net
interest income is affected by the mix of loans in the Bank’s loan
portfolio. Currently a majority of the Bank’s loans are residential
and commercial mortgage loans secured by real estate and indirect automobile
loans secured by automobiles.
In 2009,
the Bank continued its strategy of reducing its portfolio of above market rate
savings products and continued to direct its efforts to increase higher yielding
commercial loans. This strategy produced significant increases in the
Bank’s commercial loan portfolio. Because mortgage lending decisions
are based on conservative lending policies the Company has no exposure to the
credit issues affecting the sub-prime residential mortgage market. At
the same time, we have reduced our exposure to lower yielding indirect
automobile loans.
Consolidated
net interest income for the year ended December 31, 2009 was $12,101,787
compared to $11,922,003 for the year ended December 31, 2008 and $11,866,208 for
the year ended December 31, 2007. The $179,784 increase for the most
recent year was primarily due to an increase in loan income partially offset by
a decrease in interest income on securities and increases in interest expense on
deposits and long-term borrowings. The $55,795 increase for 2008 compared to
2007 was primarily due to an increase in loan income partially offset by
decreases in interest income on securities and increases in interest expense on
long term borrowings. The interest income, net of tax, for 2009
was $12,807,059, a $212,720 or 1.69% increase from the after tax net interest
income for 2008, which was $12,594,339, a $28,869 or 0.23% decrease from the
$12,623,208 after tax net interest income for 2007.
Interest
expense increased from $6,254,033 in 2008 to $6,542,510 in 2009, a $288,477 or a
4.62% increase,
primarily due to a full
year of interest expense on the long-term borrowings and an increase in deposit
expense. Interest expense increased from $5,971,048 in 2007 to
$6,254,033 in 2008, a $282,985 or a 4.74% increase, primarily due to increased
borrowings used to fund the outflow from maturing higher rate 15-month
certificates of deposit and IRAs and to fund loan growth. Net
interest margin for the year ended December 31, 2009 was 4.29% compared to 4.31%
and 4.39% for the years ended December 31, 2008 and 2007,
respectively.
22
The
following table allocates changes in income and expense attributable to the
Company’s interest-earning assets and interest-bearing liabilities for the
periods indicated between changes due to changes in rate and changes in volume.
Changes due to rate/volume are allocated to changes due to volume.
|
Year Ended December 31,
|
||||||||||||||||||||||||
|
2009
|
VS.
|
2008
|
2008
|
VS.
|
2007
|
|||||||||||||||||||
|
Change Due To:
|
Change Due To:
|
|||||||||||||||||||||||
|
Increase/
Decrease
|
Rate
|
Volume
|
Increase/
Decrease
|
Rate
|
Volume
|
|||||||||||||||||||
|
(In Thousands)
|
||||||||||||||||||||||||
|
ASSETS:
|
||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||
|
Federal
funds sold
|
$ | 7 | $ | (44 | ) | $ | 51 | $ | (134 | ) | $ | (18 | ) | $ | (116 | ) | ||||||||
|
Interest-bearing
deposits
|
(115 | ) | (229 | ) | 114 | 31 | (207 | ) | 238 | |||||||||||||||
|
Investment
securities:
|
||||||||||||||||||||||||
|
U.S.
Treasury securities, obligations of U.S. government agencies and
mortgage-backed securities
|
(109 | ) | (404 | ) | 295 | (591 | ) | 7 | (598 | ) | ||||||||||||||
|
Obligations
of states and political subdivisions(1)
|
(121 | ) | 68 | (189 | ) | (75 | ) | 43 | (118 | ) | ||||||||||||||
|
All
other investment securities
|
(4 | ) | (1 | ) | (3 | ) | (58 | ) | 1 | (59 | ) | |||||||||||||
|
Total
investment securities
|
(234 | ) | (337 | ) | 103 | (724 | ) | 51 | (775 | ) | ||||||||||||||
|
Loans,
net of unearned income:
|
||||||||||||||||||||||||
|
Demand,
time and lease
|
9 | (122 | ) | 131 | (58 | ) | (179 | ) | 121 | |||||||||||||||
|
Mortgage
and construction
|
995 | (436 | ) | 1,431 | 1,749 | 152 | 1,597 | |||||||||||||||||
|
Installment
and credit card
|
(212 | ) | 54 | (266 | ) | (183 | ) | 253 | (436 | ) | ||||||||||||||
|
Total
gross loans(2)
|
792 | (504 | ) | 1,296 | 1,508 | 226 | 1,282 | |||||||||||||||||
|
Allowance
for credit losses
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
net loans
|
792 | (504 | ) | 1,296 | 1,508 | 226 | 1,282 | |||||||||||||||||
|
Total
interest-earning assets
|
$ | 450 | $ | (1,114 | ) | $ | 1,564 | $ | 681 | $ | 52 | $ | 629 | |||||||||||
|
LIABILITIES:
|
||||||||||||||||||||||||
|
Interest-bearing
deposits:
|
||||||||||||||||||||||||
|
Savings
and NOW
|
$ | (22 | ) | $ | (23 | ) | $ | 1 | $ | (79 | ) | $ | (69 | ) | $ | (10 | ) | |||||||
|
Money
market
|
(5 | ) | (8 | ) | 3 | (41 | ) | (27 | ) | (14 | ) | |||||||||||||
|
Other
time deposits
|
184 | (958 | ) | 1,142 | 76 | (209 | ) | 285 | ||||||||||||||||
|
Total
interest-bearing deposits
|
157 | (989 | ) | 1,146 | (44 | ) | (305 | ) | 261 | |||||||||||||||
|
Non-interest-bearing
deposits
|
- | - | - | - | - | - | ||||||||||||||||||
|
Borrowed
funds
|
130 | (147 | ) | 277 | 328 | (577 | ) | 905 | ||||||||||||||||
|
Total
interest-bearing liabilities
|
$ | 287 | $ | (1,136 | ) | $ | 1,423 | $ | 284 | $ | (882 | ) | $ | 1,166 | ||||||||||
(1) Tax
equivalent basis.
(2)
Non-accrual loans included in average balances.
23
The
following table provides information for the designated periods with respect to
the average balances, income and expense and annualized yields and costs
associated with various categories of interest-earning assets and
interest-bearing liabilities.
|
Year Ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
|
Average
Balance
|
Interest
|
Yield/
Cost
|
Average
Balance
|
Interest
|
Yield/
Cost
|
Average
Balance
|
Interest
|
Yield/
Cost
|
||||||||||||||||||||||||||||
|
(Dollars
In Thousands)
|
||||||||||||||||||||||||||||||||||||
|
ASSETS:
|
||||||||||||||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||||||
|
Federal
funds sold
|
$ | 4,843 | $ | 12 | 0.26 | % | $ | 433 | $ | 5 | 1.15 | % | $ | 2,665 | $ | 139 | 5.22 | % | ||||||||||||||||||
|
Interest-bearing
deposits
|
12,337 | 15 | 0.12 | 6,560 | 130 | 1.98 | 1,929 | 99 | 5.13 | |||||||||||||||||||||||||||
|
Investment
securities:
|
||||||||||||||||||||||||||||||||||||
|
U.S.
Treasury securities, obligations of U.S. government agencies and
mortgage-backed securities
|
44,367 | 1,854 | 4.18 | 38,532 | 1,963 | 5.09 | 50,392 | 2,554 | 5.07 | |||||||||||||||||||||||||||
|
Obligations
of states and political subdivisions(1)
|
29,557 | 2,013 | 6.81 | 32,421 | 2,134 | 6.58 | 34,288 | 2,209 | 6.45 | |||||||||||||||||||||||||||
|
All
other investment securities
|
2,138 | 189 | 8.84 | 2,168 | 193 | 8.90 | 2,839 | 251 | 8.84 | |||||||||||||||||||||||||||
|
Total
investment securities
|
76,062 | 4,056 | 5.33 | 73,121 | 4,290 | 5.87 | 87,519 | 5,014 | 5.73 | |||||||||||||||||||||||||||
|
Loans,
net of unearned income:
|
||||||||||||||||||||||||||||||||||||
|
Demand,
time and lease
|
8,132 | 399 | 4.91 | 6,082 | 390 | 6.41 | 4,788 | 448 | 9.36 | |||||||||||||||||||||||||||
|
Mortgage
and construction
|
173,741 | 10,770 | 6.20 | 151,656 | 9,775 | 6.45 | 126,391 | 8,026 | 6.35 | |||||||||||||||||||||||||||
|
Installment
and credit card
|
57,915 | 4,079 | 7.04 | 61,747 | 4,291 | 6.95 | 68,453 | 4,474 | 6.54 | |||||||||||||||||||||||||||
|
Total
gross loans(2)
|
239,788 | 15,248 | 6.36 | 219,485 | 14,456 | 6.59 | 199,632 | 12,948 | 6.49 | |||||||||||||||||||||||||||
|
Allowance
for credit losses
|
(2,037 | ) | (1,479 | ) | (1,766 | ) | ||||||||||||||||||||||||||||||
|
Total
net loans
|
237,751 | 15,248 | 6.41 | 218,006 | 14,456 | 6.63 | 197,866 | 12,948 | 6.54 | |||||||||||||||||||||||||||
|
Total
interest-earning assets
|
330,993 | 19,331 | 5.84 | 298,120 | 18,881 | 6.33 | 289,979 | 18,200 | 6.28 | |||||||||||||||||||||||||||
|
Cash
and due from banks
|
4,488 | 7,891 | 8,862 | |||||||||||||||||||||||||||||||||
|
Other
assets
|
16,709 | 14,740 | 13,661 | |||||||||||||||||||||||||||||||||
|
Total
assets
|
$ | 352,192 | $ | 320,751 | $ | 312,502 | ||||||||||||||||||||||||||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
deposits:
|
||||||||||||||||||||||||||||||||||||
|
Savings
and NOW
|
$ | 71,124 | 162 | 0.23 | % | $ | 69,468 | 184 | 0.26 | % | $ | 72,831 | 263 | 0.36 | % | |||||||||||||||||||||
|
Money
market
|
14,363 | 57 | 0.40 | 13,751 | 62 | 0.45 | 15,918 | 103 | 0.65 | |||||||||||||||||||||||||||
|
Other
time deposits
|
137,764 | 4,718 | 3.42 | 110,049 | 4,534 | 4.12 | 103,491 | 4,458 | 4.31 | |||||||||||||||||||||||||||
|
Total
interest-bearing deposits
|
223,251 | 4,937 | 2.21 | 193,268 | 4,780 | 2.47 | 192,240 | 4,824 | 2.51 | |||||||||||||||||||||||||||
|
Short-term
borrowed funds
|
262 | 0 | 0.02 | 2,209 | 51 | 2.31 | 2,294 | 119 | 5.19 | |||||||||||||||||||||||||||
|
Long-term
borrowed funds
|
32,206 | 1,605 | 4.98 | 26,287 | 1,424 | 5.42 | 13,949 | 1,028 | 7.37 | |||||||||||||||||||||||||||
|
Total
interest-bearing liabilities
|
255,719 | 6,542 | 2.56 | 221,764 | 6,255 | 2.82 | 208,483 | 5,971 | 2.86 | |||||||||||||||||||||||||||
|
Non-interest-bearing
deposits
|
67,572 | 68,340 | 73,415 | |||||||||||||||||||||||||||||||||
|
Other
liabilitiesS
|
2,957 | 1,806 | 1,609 | |||||||||||||||||||||||||||||||||
|
Stockholders’
equity
|
25,944 | 28,841 | 28,995 | |||||||||||||||||||||||||||||||||
|
Total
liabilities and equity
|
$ | 352,192 | $ | 320,751 | $ | 312,502 | ||||||||||||||||||||||||||||||
|
Net
interest income
|
$ | 12,789 | $ | 12,626 | $ | 12,229 | ||||||||||||||||||||||||||||||
|
Net
interest spread
|
3.28 | % | 3.51 | % | 3.42 | % | ||||||||||||||||||||||||||||||
|
Net
interest margin
|
4.29 | % | 4.31 | % | 4.39 | % | ||||||||||||||||||||||||||||||
1 Tax
equivalent basis. The incremental tax rate applied was (13.45%) for
2009 and (104.7%) for 2008.
2 Non-accrual
loans included in average balance.
Provision for Credit
Losses.
During the year ended December 31, 2009, the Company
made a provision of $2,442,976 for credit losses, compared to a provision of
$1,145,649 and $50,000 for credit losses for the years ended December 31, 2008
and 2007, respectively. The increase in the provision for credit
losses for 2009 was due to net charge offs on installment loans of $711,000
(primarily made up of charge offs on indirect automobile loans of $647,000),
adjustments to the risk factors for our loan loss reserve calculation, and due
to additional specific reserves on impaired loans, as economic conditions
deteriorated. At December 31, 2009, the allowance for credit losses
equaled 117.61% of non-accrual and past due loans compared to 224.42% and
188.27% at December 31, 2008 and 2007, respectively. During the year
ended December 31, 2009, the Company recorded net charge-offs of $892,000
compared to $728,000 and $285,000 in net charge-offs during the years ended
December 31, 2008 and 2007, respectively.
24
Other Income.
Other
income includes service charges on deposit accounts, other fees and commissions,
net gains on investment securities, and income on Bank owned life insurance
(BOLI). Other income
increased from
$2,050,587 in 2008 to $2,365,249 in 2009, a $314,662, or 15.34% increase.
The increase was
primarily due to an increase in gains on securities, partially offset by
decreases in service charges and other fees and commissions. Other
income decreased from $2,157,292 in 2007 to $2,050,587 in 2008, a $106,705, or
4.95% decrease. The decrease was primarily due to a decrease in service charges
and other fees and commissions, partially offset by gains on investment
securities.
Other Expenses.
Other expenses
decreased from $13,102,341 in 2008 to $10,994,851 in 2009, a $2,107,490 or
16.08% decrease.
This decrease, which
consists of non-interest operating expenses, was primarily due to the write-down
of one Fannie Mae and two Freddie Mac securities in the amount of $2,816,000 in
2008, offset by increases in salary and employee benefits and FDIC assessments
in 2009.
Other
expenses increased from $10,433,019 in 2007 to $13,102,341 in 2008, a $2,669,322
or 25.59% increase. This increase, which consists of non-interest operating
expenses, was primarily due to the write-down of the Fannie Mae and Freddie Mac
securities mentioned above. Lesser increases occurred in salaries and
wages and occupancy costs, partially offset by decreases in employee benefits
and furniture and equipment.
Income
Taxes.
During the year ended December 31, 2009, the Company
recorded an income tax benefit of $233,253, compared to an income tax benefit of
$679,362 for the year ended December 31, 2008. This decrease was
primarily due to a tax benefit of $1,110,770 from the write-down of $2,816,000
for the Fannie Mae and Freddie Mac securities in 2008. In addition to
this, the amount of tax exempt income on municipal securities decreased and
there was a larger amount contributed to provision for credit losses in
2009. During the year ended December 31, 2008, the Company recorded
an income tax benefit of $679,362, compared to an income tax expense of $758,340
for the year ended December 31, 2007. This difference was primarily
due to a tax benefit of $1,110,770 from the write-down of $2,816,000 for the
Fannie Mae and Freddie Mac securities. In addition, in 2008 the amount of tax
exempt income on municipal securities decreased and a larger amount was
contributed to provision for credit losses.
Comparison of Financial
Condition at December 31, 2009, 2008 and 2007
The
Company’s total assets increased to $353,396,697 at December 31, 2009 from
$332,502,215 at December 31, 2008. The Company’s total assets
increased to $332,502,215 at December 31, 2008 from $307,273,868 at December 31,
2007.
The
Company’s net loan portfolio increased to $235,882,862 at December 31, 2009
compared to $235,132,621 at December 31, 2008 and $199,753,132 at December 31,
2007. The increase in the loan portfolio during the 2009 period is primarily due
to an increase in commercial mortgages, purchase money mortgages, refinances,
home equity and demand commercial secured loans. They were partially offset by a
decline in indirect automobile loans and mortgage participations purchased
besides a larger provision for credit losses. The increase in the
loan portfolio during the 2008 period is primarily due to an increase in
refinanced mortgage loans, commercial and residential construction loans, demand
commercial secured loans and mortgage participations purchased. These
were partially offset by a decline in indirect automobile loans and additional
mortgage participations sold.
During
2009, the Company’s total investment securities portfolio (including both
investment securities available for sale and investment securities held to
maturity) totaled $84,462,605, a $26,513,960 or 45.75%, increase from
$57,948,645 at December 31, 2008. This increase is primarily
attributable to a increase in mortgage backed securities and Government Agency
collateralized mortgage obligations (CMO) partially offset by a decrease in U.S.
Government Agencies and non-Maryland municipal securities.
During 2008, the
Company’s total investment securities portfolio (including both investment
securities available for sale and investment securities held to maturity)
totaled $57,948,645, a $19,917,368 or 25.58%, decrease
from $77,866,013 at
December 31, 2007. This decrease is primarily attributable to a
decrease in mortgage backed securities.
Deposits
as of December 31, 2009 totaled $294,357,837, an increase of $24,590,239, or
9.12%, from the $269,767,598 total as of December 31, 2008. Deposits
as of December 31, 2008 totaled $269,767,598, an increase of $16,850,832, or
6.66%, from the $252,916,766 total as of December 31,
2007. Demand deposits as of December 31, 2009 totaled
$67,807,699, a $4,268,940, or 6.72%, increase from $63,538,759 at December 31,
2008. NOW and Super NOW accounts, as of December 31, 2009, increased
by $1,273,739, or 6.04% from their 2008 level to $22,353,053.
Money market accounts
increased by $2,520,056, or 19.74%, from their 2008 level, to total $15,284,223
at December 31, 2009.
Savings deposits
increased by $2,576,600, or 5.63%, from their 2008 level, to $48,378,319 at
December 31, 2009.
Time deposits over
$100,000 totaled $45,246,086 on December 31, 2009, an increase of $7,602,739, or
20.20% from December 31, 2008.
Other time deposits
(made up of certificates of deposit less than $100,000 and individual retirement
accounts) totaled $95,288,457 on December 31, 2009, a $6,346,539 or 7.14%
increase from December 31, 2008.
25
Total
stockholders’ equity as of December 31, 2009 decreased by $2,759,130, or 9.89%,
from the 2008 period. The decrease was attributed to an increase in
accumulated other comprehensive loss, net of tax, and the excess of the cash
dividends paid and common stock shares repurchased and retired over the net
income for 2009.
Total stockholders’ equity as of December 31, 2008 decreased by $1,827,902, or
6.15%, from the 2007 period. The decrease was attributed to an
increase in accumulated other comprehensive loss, net of tax, and the excess of
the cash dividends paid and common stock shares repurchased and retired over the
net income for 2008.
Off-Balance Sheet
Arrangements
Off-Balance Sheet
Arrangements.
The Bank is a party to financial instruments in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit, which involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the consolidated financial statements.
Loan
commitments and lines of credit are agreements to lend to customers as long as
there is no violation of any conditions of the contracts. Loan
commitments generally have interest rates fixed at current market amounts, fixed
expiration dates, and may require payment of a fee. Lines of credit
generally have variable interest rates. Many of the loan commitments
and lines of credit are expected to expire without being drawn upon;
accordingly, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral or
other security obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation. Collateral held
varies but may include deposits held in financial institutions, U.S. Treasury
securities, other marketable securities, accounts receivable, inventory,
property and equipment, personal residences, income-producing commercial
properties, and land under development. Personal guarantees are also
obtained to provide added security for certain commitments.
Letters
of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to guarantee the installation of real property improvements and
similar transactions. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral and obtains personal guarantees
supporting those commitments for which collateral or other securities is deemed
necessary.
The
Bank’s exposure to credit loss in the event of nonperformance by the customer is
the contractual amount of the commitment. Loan commitments, lines of
credit, and letters of credit are made on the same terms, including collateral,
as outstanding loans. As of December 31, 2009, the Bank has accrued
$200,000 for unfunded commitments related to these financial instruments with
off balance sheet risk, which is included in other liabilities.
Market Risk
Management
Market risk is the risk of loss arising
from adverse changes in the fair value of financial instruments due to changes
in interest rates, exchange rates or equity pricing. The Company’s
principal market risk is interest rate risk that arises from its lending,
investing and deposit taking activities. The Company’s profitability
is dependent on the Bank’s net interest income. Interest rate risk
can significantly affect net interest income to the degree that interest bearing
liabilities mature or reprice at different intervals than interest earning
assets. The Bank’s Asset/Liability and Risk Management Committee
oversees the management of interest rate risk. The primary purpose of
the committee is to manage the exposure of net interest margins to unexpected
changes due to interest rate fluctuations. The Company does not
utilize derivative financial or commodity instruments or hedging strategies in
its management of interest rate risk. The primary tool used by the
committee to monitor interest rate risk is a “gap” report which measures the
dollar difference between the amount of interest bearing assets and interest
bearing liabilities subject to repricing within a given time
period. These efforts affect the loan pricing and deposit rate
policies of the Company as well as the asset mix, volume guidelines, and
liquidity and capital planning.
The
following table sets forth the Bank’s interest-rate sensitivity at December 31,
2009.
26
|
0-3 Months
|
Over 3 To
12 Months
|
Over 1
Through 5 Years
|
Over 5
Years
|
Total
|
||||||||||||||||
|
(Dollars In Thousands)
|
||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash
and due from banks
|
$ | - | $ | - | $ | - | $ | - | $ | 10,742 | ||||||||||
|
Federal
funds and overnight deposits
|
692 | - | - | - | 692 | |||||||||||||||
|
Securities
|
- | 651 | 1,851 | 81,961 | 84,463 | |||||||||||||||
|
Loans
|
11,508 | 11,172 | 86,331 | 126,872 | 235,883 | |||||||||||||||
|
Fixed
Assets
|
- | - | - | - | 4,121 | |||||||||||||||
|
Other
Assets
|
- | - | - | - | 17,496 | |||||||||||||||
|
Total
assets
|
$ | 12,200 | $ | 11,823 | $ | 88,182 | $ | 208,833 | $ | 353,397 | ||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Demand
deposit accounts
|
$ | - | $ | - | $ | - | $ | - | $ | 67,808 | ||||||||||
|
NOW
accounts
|
22,353 | - | - | - | 22,353 | |||||||||||||||
|
Money
market deposit accounts
|
15,284 | - | - | - | 15,284 | |||||||||||||||
|
Savings
accounts
|
48,378 | 212 | - | - | 48,500 | |||||||||||||||
|
IRA
accounts
|
5,988 | 10,969 | 21,674 | 819 | 39,450 | |||||||||||||||
|
Certificates
of deposit
|
25,591 | 41,374 | 33,484 | 422 | 100,871 | |||||||||||||||
|
Other
liabilities
|
- | - | - | - | 28,737 | |||||||||||||||
|
Junior
Subordinated Debenture
|
- | - | - | - | 5,155 | |||||||||||||||
|
Stockholders’
equity
|
- | - | - | - | 25,149 | |||||||||||||||
|
Total
liabilities and Stockholders’ equity
|
$ | 117,594 | $ | 52,555 | $ | 55,158 | $ | 1,241 | $ | 353,397 | ||||||||||
|
GAP
|
$ | (105,396 | ) | $ | (40,732 | ) | $ | 33,024 | $ | 207,592 | ||||||||||
|
Cumulative
GAP
|
(105,396 | ) | (146,128 | ) | (113,014 | ) | 94,578 | |||||||||||||
|
Cumulative
GAP as a % of total assets
|
(29.82 | %) | (41.35 | %) | (31.98 | %) | 26.76 | % | ||||||||||||
The
foregoing analysis assumes that the Bank’s assets and liabilities move with
rates at their earliest repricing opportunities based on final
maturity. Mortgage backed securities are assumed to mature during the
period in which they are estimated to prepay and it is assumed that loans and
other securities are not called prior to maturity. Certificates of
deposit and IRA accounts are presumed to reprice at maturity. NOW
savings accounts are assumed to reprice at within three months although it is
the Company’s experience that such accounts may be less sensitive to changes in
market rates.
In
addition to gap analysis, the Bank utilizes a simulation model to quantify the
effect a hypothetical immediate plus or minus 200 basis point change in rates
would have on net interest income and the economic value of
equity. The model takes into consideration the effect of call
features of investments as well as prepayments of loans in periods of declining
rates. When actual changes in interest rates occur, the changes in
interest earning assets and interest bearing liabilities may differ from the
assumptions used in the model and, in the Bank’s experience, the changes
historically realized have been narrower than those projected by the
model. However, the Bank believes that the model is a prudent
forecasting tool. As of December 31, 2009, the model produced the
following sensitivity profile for net interest income and the economic value of
equity.
|
Immediate Change in Rates
|
||||||||||||||||
| -200 |
-100
|
+100
|
+200
|
|||||||||||||
|
Basis Points
|
Basis Points
|
Basis Points
|
Basis Points
|
|||||||||||||
|
%
Change in Net Interest Income
|
-4.9 | % | -3.1 | % | 0.6 | % | -1.6 | % | ||||||||
|
%
Change in Economic Value of Equity
|
-16.1 | % | -8.2 | % | 0.4 | % | -11.4 | % | ||||||||
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 the primary source of funds supporting the Bank’s lending and
investment activities. The Bank also uses borrowings from the FHLB of
Atlanta to supplement deposits, residential and small business lending, and to
meet specific and anticipated needs.
27
The
Bank’s most liquid assets are cash and cash equivalents, which are cash on hand,
amounts due from financial institutions, federal funds sold 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.
Cash and
cash equivalents (cash due from banks, interest-bearing deposits in other
financial institutions, and federal funds sold), as of December 31, 2009,
totaled $11,433,822, a decrease of $9,804,081 or 46.17%, from the December 31,
2008 total of $21,237,903. This decrease was due to federal funds
sold and interest-bearing deposits in FHLB.
As of December 31, 2009, the Bank was
permitted to draw on a $70.85 million line of credit from the FHLB of
Atlanta. Borrowings under the line are secured by a floating lien on
the Bank’s residential mortgage loans and its portfolio of U.S. Government and
agency securities. As of December 31, 2009, a $7 million long-term
convertible advance was outstanding under this line. There was also a
$10 million convertible advance (callable monthly and with a final maturity of
November 1, 2017.)
There was a $5 million
convertible advance settled July 21, 2008 with a final maturity of July 23,
2018. This advance has a 2.73% rate of interest and was callable
quarterly, starting July 23, 2009. There was a $5 million convertible advance
taken out August 22, 2008 which has a final maturity of August 22,
2018. This advance has a 3.344% rate of interest and is callable
quarterly, starting August 22, 2011.
In addition the Bank has
unsecured lines of credit totaling $9 million from a commercial bank on which
there is no outstanding balances at December 31, 2009.
Furthermore, on
September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior
Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a
Connecticut statutory trust wholly owned by the Company. The Trust,
in turn, issued $5,000,000 of its 10.6% capital securities to institutional
investors. The debentures are scheduled to mature on September 7,
2030, unless called by the Company not earlier than September 7,
2010. As of December 31, 2009, the full $5,155,000 was
outstanding.
Federal
banking regulations require the Company and the Bank to maintain specified
levels of capital. At December 31, 2009, the Company was in
compliance with these requirements with a leverage ratio of 8.68%, a Tier 1
risk-based capital ratio of 13.23% and total risk-based capital ratio of
14.49%. At December 31, 2009, the Bank met the criteria for
designation as a well capitalized depository institution under FDIC
regulations.
Impact of Inflation and
Changing Prices
The consolidated financial statements
and notes thereto presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. Unlike most industrial companies, nearly all of the
Company’s assets and liabilities are monetary in nature. As a result,
interest rates have a greater impact on the Company’s performance than do the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Critical Accounting
Policies
The Company’s accounting policies are
more fully described in Note 1 of the Notes to the Consolidated Financial
Statements, starting on page F-8 and are essential to understanding Management’s
Discussion and Analysis of Financial Condition and Results of
Operations. As discussed there, the preparation of financial
statements in conformity with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and accompanying
notes. Since future events and their effects cannot be determined
with absolute certainty, the determination of estimates requires the exercise of
judgment. Management has used the best information available to make
the estimations necessary to value the related assets and liabilities based on
historical experience and on various assumptions which are believed to be
reasonable under the circumstances. Actual results could differ from
those estimates, and such differences may be material to the financial
statements. The Company reevaluates these variables as facts and
circumstances change. Historically, actual results have not differed
significantly from the Company’s estimates. The following is a
summary of the more judgmental accounting estimates and principles involved in
the preparation of the Company’s financial statements, including the
identification of the variables most important in the estimation
process:
28
Allowance for Credit
Losses.
The Bank’s allowance for credit losses is determined
based upon estimates that can and do change when the actual events occur,
including historical losses as an indicator of future losses, fair market value
of collateral, and various general or industry or geographic specific economic
events. The use of these estimates and values is inherently subjective and
the actual losses could be greater or less than the estimates. For further
information regarding our allowance for credit losses, see “Allowance for Credit
Losses” under Item 1- “Business” of this Annual Report.
Accrued
Taxes.
Management estimates income tax expense based on the
amount it expects to owe various tax authorities. Income taxes are
discussed in more detail in Note 10 to the consolidated financial
statements. Accrued taxes represent the net estimated amount due or
to be received from taxing authorities. In estimating accrued taxes,
management assesses the relative merits and risks of the appropriate tax
treatment of transactions taking into account statutory, judicial and regulatory
guidance in the context of the Company’s tax position.
Recently Issued Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2009-01, Topic 105
Generally Accepted Accounting
Principles - Amendments Based on Statement of Financial Accounting Standards No.
168 - The FASB Accounting Standards Codification™ and the Hierarchy of Generally
Accepted Accounting Principles
. Under this ASU,
The FASB Accounting
Standards Codification
(Codification) became the source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by the FASB to
be applied by nongovernmental entities. For SEC registrants, rules
and interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative
GAAP. On September 15, 2009, the effective date of this ASU, the
Codification superseded all then-existing non-SEC accounting and reporting
standards unless a particular accounting or reporting standard was specifically
grandfathered into the Codification as authoritative GAAP. All other
non-grandfathered non-SEC accounting literature not included in the Codification
is no longer authoritative. In the FASB’s view, the issuance of this
ASU and the Codification does not change GAAP (except in limited instances not
applicable to public nongovernmental entities). The adoption of ASU
2009-01, formerly FASB Statement No. 168, did not have a material impact on the
Company’s consolidated financial statements.
On
January 12, 2009, the FASB amended Topic 820,
Fair Value Measurement and
Disclosures
, of the Codification to reduce complexity and achieve more
consistent determinations as to whether other-than-temporary impairments of
available for sale or held to maturity debt securities have
occurred. The ASU was effective for interim and annual reporting
periods ending after December 15, 2008. The adoption of this ASU did
not have an impact on the Company’s consolidated financial
statements. This ASU was formerly FASB Staff Position (FSP) EITF
99-20-1,
Amendments to the
Impairment Guidance of EITF Issue No. 99-20
.
In April
2009, the FASB issued three amendments to provide additional guidance and
disclosures regarding fair value measurements and impairments of
securities. These three amendments were effective for interim and
annual periods ending after June 15, 2009. The adoption of these
amendments did not have a material impact on the Company’s consolidated
financial statements. These amendments were formerly:
FSP FAS
157-4,
Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly
, which provides guidance for estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased. This amendment is included in Accounting Standards
Codification (ASC) 820-10-35.
FSP FAS
115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairment
, which
provides guidance for impaired debt securities to make the guidance more
operational and improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in financial statements
.
This amendment
is included in ASC 320-10-25.
FSP FAS
107-1 and APB 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
, which requires
disclosure about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements. This amendment is included in ASC 825-10-50.
In May
2009, the FASB issued FASB Statement No. 165,
Subsequent Events,
which
established general standards of and accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. This FASB Statement was
effective for interim and annual periods ending after June 15,
2009. The Company has complied with the requirements of FASB
165. This amendment is included in ASC 855-10-50 and
55.
29
In June
2009, the FASB issued FASB Statement No. 166,
Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140
to improve the
reporting for the transfer of financial assets resulting from (1) practices that
have developed since the issuance of FASB Statement No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
which
are not consistent with the original intent and key requirements of that
Statement, and (2) concerns of financial statement users that many of the
financial assets (and related obligations) that have been derecognized should
continue to be reported in the financial statements of
transferors. This Statement must be applied as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. Earlier application
is prohibited. The Company will review the requirements of FASB No. 166
and comply with its requirements. The Company does not expect that
the adoption of this Statement will have a material impact on the Company’s
consolidated financial statements. This amendment is included in ASC
860-10.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation
No. 46(R)
, to amend certain requirements of FASB Interpretation No. 46
(revised December 2003),
Consolidation of Variable Interest
Entities
to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. The Statement is effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The Company
will review the requirements of FASB No. 167 and comply with its
requirements. The Company does not expect that the adoption of this
Statement will have a material impact on the Company’s consolidated financial
statements. This amendment is included in ASC 942-810.
In August
2009 the FASB amended Topic 820 – Fair Value Measurements and Disclosures by
issuance of ASU No. 2009-05. The update addresses measuring
liabilities at fair value. The update provides clarification that in
circumstances in which a quoted price is an active market for the identical
liability is not available, other specified techniques may be used to
measure fair value. The adoption of this ASU did not have a material
impact on the Company’s consolidated financial statements.
In
January 2010, the FASB issued ASU No. 2010-06-
Fair Value Measurements and
Disclosures
amending Topic 820. The ASU provides for
additional disclosures of transfers between assets and liabilities valued under
Level 1 and 2 inputs as well as additional disclosures regarding those assets
and liabilities valued under Level 3 inputs. The new disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009 except for those provisions addressing Level 3 fair value measurements
which provisions are effective for fiscal years, and periods therein, beginning
after December 15, 2010.
|
ITEM
7
.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
The
financial statements and supplementary data required by this Item 7 are included
in the Company’s Consolidated Financial Statements and set forth in the pages
indicated in Item 14(a) of this Annual Report.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
|
|
CONTROLS AND
PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The
Company maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission, and is accumulated and communicated to management in a timely
manner. The Company’s Chief Executive Officer and Chief Financial
Officer have evaluated this system of disclosure controls and procedures as of
the end of the period covered by this annual report, and have concluded that the
system is effective.
30
Management’s
Annual Report on Internal Control over Financial Reporting
The
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of our financial statements for external reporting purposes
in accordance with U.S. generally accepted accounting principles (GAAP).
Internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures
of the company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on
the financial statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with policies or procedures may
deteriorate.
Management (with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer) conducted an evaluation of the effectiveness of the Company’s internal
control over financial reporting based on the framework in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded
that the Company’s internal control over financial reporting was effective as of
December 31, 2009.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management’s
report in this Annual Report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
|
ITEM
8B
.
|
OTHER
INFORMATION
|
Not
applicable.
31
The
information with respect to the identity and business experience of the
directors of the Company and their remuneration set forth in the section
captioned “Proposal I — Election of Directors” in the Company’s definitive Proxy
Statement to be filed pursuant to Regulation 14A and issued in conjunction with
the 2010 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated
herein by reference. The information with respect to the identity and
business experience of executive officers of the Company is set forth in Part I
of this Form 10-K. The information with respect to the Company’s
Audit Committee is incorporated herein by reference to the section captioned
“Meetings and Committees of the Board of Directors” in the Proxy
Statement. The information with respect to compliance with Section
16(a) of the Exchange Act is incorporated herein by reference to the section
captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy
Statement. The information with respect to the Company’s Code of
Ethics is incorporated herein by reference to the section captioned “Code of
Ethics” in the Proxy Statement.
|
ITEM
10
.
|
EXECUTIVE
COMPENSATION
|
The information required by this item
is incorporated herein by reference to the sections captioned “Director
Compensation” and “Executive Compensation” in the Proxy Statement.
|
ITEM
11.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The information required by this item
is incorporated herein by reference to the sections captioned “Voting Securities
and Principal Holders Thereof” and “Securities Ownership of Management” in the
Proxy Statement.
|
ITEM
12
.
|
CERTAIN
RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The
information required by this item is incorporated herein by reference to the
section captioned “Election of Directors” and “Transactions with Management” in
the Proxy Statement.
|
ITEM
13
.
|
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
|
The information required by this item
is incorporated herein by reference to the section captioned “Authorization for
Appointment of Auditors – Disclosure of Independent Auditor Fees” in the Proxy
Statement.
32
(a) 1. Financial
Statements
.
|
Page
|
||
|
Report
of Independent registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheets as of December 31, 2009, 2008 and 2007
|
F-2
|
|
|
Consolidated
Statements of Income for the Years Ended December 31, 2009, 2008 and
2007
|
F-3
|
|
|
Consolidated
Statements of Comprehensive Income for the Years Ended December 31, 2009,
2008 and 2007
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Years Ended December
31, 2009, 2008 and 2007
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
(a) 2.
Financial Statement Schedules.
All
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are omitted because of the absence of
conditions under which they are required or because the required information is
included in the consolidated financial statements and related notes
thereto.
(a) 3.
Exhibits required to be filed by Item 601 of Regulation S-K.
|
Exhibit No.
|
||
|
3.1
|
Articles
of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment
No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No.
0-24047)
|
|
|
3.2
|
Articles of Amendment, dated
October 8, 2003
(incorporated by reference to Exhibit 3.2 to the
Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September
30, 2003, File No. 0-24047)
|
|
|
3.3
|
Articles
Supplementary, dated November 16, 1999 (incorporated by reference to
Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December
8, 1999, File No. 0-24047)
|
|
|
3.4
|
By-Laws
(incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2003, File No.
0-24047)
|
|
|
4.1
|
Rights
Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp and
The Bank of Glen Burnie, as Rights Agent, as amended and restated as of
December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment
No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No.
0-24047)
|
|
|
10.1
|
Glen
Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s
Registration Statement on Form S-8, File No.33-62280)
|
|
|
10.2
|
The
Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the
Registrant’s Registration Statement on Form S-8, File No.
333-46943)
|
|
|
10.3
|
Amended
and Restated Change-in-Control Severance Plan (incorporated by reference
to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 2001, File No. 0-24047)
|
|
|
10.4
|
The
Bank of Glen Burnie Executive and Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 to the Registrant’s Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No.
0-24047)
|
|
|
21
|
Subsidiaries
of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December
31, 2001, File No. 0-24047)
|
|
|
23
|
Consent
of TGM Group LLC
|
|
|
31.1
|
Rule
15d-14(a) Certification of Chief Executive Officer
|
|
|
31.2
|
Rule
15d-14(a) Certification of Chief Financial Officer
|
|
|
32.1
|
Section
1350 Certifications
|
33
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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
|
||
|
March
12, 2010
|
By:
|
/s/ Michael G.
Livingston
|
|
Michael
G. Livingston
|
||
|
President
and Chief Executive
Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Michael G. Livingston
|
President,
Chief Executive Officer
|
March
12, 2010
|
||
|
Michael
G. Livingston
|
and
Director
|
|||
|
/s/ F. William Kuethe, Jr.
|
President
Emeritus and Director
|
March
12, 2010
|
||
|
F.
William Kuethe, Jr.
|
||||
|
/s/ John E. Porter
|
Senior
Vice President and Chief
|
March
12, 2010
|
||
|
John
E. Porter
|
Financial
Officer
|
|||
|
/s/ John E. Demyan
|
Chairman
of the Board and Director
|
March
12, 2010
|
||
|
John
E. Demyan
|
||||
|
/s/ Shirley E. Boyer
|
Director
|
March
12, 2010
|
||
|
Shirley
E. Boyer
|
||||
|
/s/ Thomas Clocker
|
Director
|
March
12, 2010
|
||
|
Thomas
Clocker
|
||||
|
/s/ Norman E. Harrison, Jr.
|
Director
|
March
12, 2010
|
||
|
Norman
E. Harrison, Jr.
|
||||
|
/s/ F. W. Kuethe, III
|
Director
|
March
12, 2010
|
||
|
F.
W. Kuethe, III
|
||||
|
/s/ Charles Lynch
|
Director
|
March
12, 2010
|
||
|
Charles
Lynch
|
||||
|
/s/ Edward L. Maddox
|
Director
|
March
12, 2010
|
||
|
Edward
L. Maddox
|
||||
|
/s/ William N. Scherer,
Sr.
|
Director
|
March
12, 2010
|
||
|
William N. Scherer, Sr.
|
||||
|
/s/ Karen B. Thorwarth
|
Director
|
March
12, 2010
|
||
|
Karen
B. Thorwarth
|
||||
|
/s/ Mary Lou Wilcox
|
Director
|
March
12, 2010
|
||
|
Mary
Lou Wilcox
|
34
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Glen
Burnie Bancorp and Subsidiaries
Glen
Burnie, Maryland
We have
audited the accompanying consolidated balance sheets of Glen Burnie Bancorp and
subsidiaries as of December 31, 2009, 2008, and 2007, and the related
consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for each of the years then
ended. Glen Burnie Bancorp and subsidiaries’ management is
responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Glen Burnie
Bancorp and subsidiaries as of December 31, 2009, 2008, and 2007, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
Salisbury,
Maryland
March 12,
2010
F-1
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||
|
|
||||||||||||
|
December
31,
|
2009
|
2008
|
2007
|
|||||||||
|
Assets
|
||||||||||||
|
Cash
and due from banks
|
$ | 6,993,811 | $ | 6,960,377 | $ | 8,220,582 | ||||||
|
Interest-bearing
deposits in other financial institutions
|
3,748,387 | 7,883,816 | 5,847,562 | |||||||||
|
Federal
funds sold
|
691,624 | 6,393,710 | 726,916 | |||||||||
|
Cash
and cash equivalents
|
11,433,822 | 21,237,903 | 14,795,060 | |||||||||
|
Investment
securities available for sale, at fair value
|
84,462,605 | 57,948,645 | 77,182,181 | |||||||||
|
Investment
securities held to maturity (fair value
|
||||||||||||
|
2007
$726,193)
|
- | - | 683,832 | |||||||||
|
Federal
Home Loan Bank stock, at cost
|
1,858,300 | 1,767,600 | 1,381,900 | |||||||||
|
Maryland
Financial Bank stock, at cost
|
100,000 | 100,000 | 100,000 | |||||||||
|
Common
stock in the Glen Burnie Statutory Trust I
|
155,000 | 155,000 | 155,000 | |||||||||
|
Ground
rents, at cost
|
184,900 | 184,900 | 202,900 | |||||||||
|
Loans,
less allowance for credit losses
|
||||||||||||
|
2009 $3,572,528;
2008
$2,021,690; 2007 $1,604,491;
|
235,882,862 | 235,132,621 | 199,753,132 | |||||||||
|
Premises
and equipment, at cost, less accumulated depreciation
|
4,120,597 | 3,099,448 | 3,087,908 | |||||||||
|
Accrued
interest receivable on loans and investment securities
|
1,626,792 | 1,680,392 | 1,508,640 | |||||||||
|
Deferred
income tax benefits
|
3,129,435 | 2,286,483 | 453,512 | |||||||||
|
Other
real estate owned
|
25,000 | 550,000 | 50,000 | |||||||||
|
Cash
value of life insurance
|
7,702,656 | 7,434,573 | 7,161,403 | |||||||||
| Other assets | 2,714,728 | 924,650 | 758,400 | |||||||||
|
Total
assets
|
$ | 353,396,697 | $ | 332,502,215 | $ | 307,273,868 | ||||||
|
Liabilities
and Stockholders' Equity
|
||||||||||||
| Liabilites: | ||||||||||||
| Deposits: | ||||||||||||
|
Noninterest-bearing
|
$ | 67,807,699 | $ | 63,538,759 | $ | 68,760,373 | ||||||
|
Interest-bearing
|
226,550,138 | 206,228,839 | 184,156,393 | |||||||||
|
Total
deposits
|
294,357,837 | 269,767,598 | 252,916,766 | |||||||||
|
Short-term
borrowings
|
81,290 | 629,855 | 502,529 | |||||||||
|
Long-term
borrowings
|
27,033,711 | 27,071,712 | 17,107,135 | |||||||||
|
Junior
subordinated debentures owed to unconsolidated
|
||||||||||||
|
subsidiary
trust
|
5,155,000 | 5,155,000 | 5,155,000 | |||||||||
|
Dividends
payable
|
230,285 | 385,794 | 385,010 | |||||||||
|
Accrued
interest payable on deposits
|
112,599 | 139,579 | 134,274 | |||||||||
|
Accrued
interest payable on junior subordinated debentures
|
171,518 | 171,518 | 171,518 | |||||||||
|
Other
liabilities
|
1,105,335 | 1,272,907 | 1,165,482 | |||||||||
|
Total
liabilities
|
328,247,575 | 304,593,963 | 277,537,714 | |||||||||
|
Commitments
and contingencies
|
||||||||||||
|
Stockholders'
equity:
|
||||||||||||
|
Common
stock, par value $1, authorized 15,000,000 shares;
|
||||||||||||
|
issued
and outstanding
2009
2,683,015
shares;
|
||||||||||||
|
2008
2,967,727 shares; 2007 2,484,465 shares;
|
2,683,015 | 2,967,727 | 2,498,465 | |||||||||
| Surplus | 9,190,911 | 11,568,241 | 11,921,129 | |||||||||
|
Retained
earnings
|
14,311,508 | 14,129,637 | 15,750,156 | |||||||||
|
Accumulated
other comprehensive loss, net of tax
|
(1,036,312 | ) | (757,353 | ) | (433,596 | ) | ||||||
|
Total
stockholders' equity
|
25,149,122 | 27,908,252 | 29,736,154 | |||||||||
|
Total
liabilities and stockholders' equity
|
$ | 353,396,697 | $ | 332,502,215 | $ | 307,273,868 | ||||||
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-2
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||
|
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
income on:
|
||||||||||||
|
Loans,
including fees
|
$ | 15,248,717 | $ | 14,456,017 | $ | 13,326,693 | ||||||
|
U.S.
Government agency securities
|
1,854,201 | 1,962,553 | 2,553,527 | |||||||||
|
State
and municipal securities
|
1,308,116 | 1,410,676 | 1,451,540 | |||||||||
|
Corporate
trust preferred securities
|
189,012 | 192,749 | 250,526 | |||||||||
|
Federal
funds sold
|
12,428 | 5,034 | 139,075 | |||||||||
|
Other
|
31,823 | 149,007 | 115,895 | |||||||||
|
Total
interest income
|
18,644,297 | 18,176,036 | 17,837,256 | |||||||||
|
Interest
expense on:
|
||||||||||||
|
Deposits
|
4,937,282 | 4,780,185 | 4,824,425 | |||||||||
|
Short-term
borrowings
|
49 | 50,567 | 119,101 | |||||||||
|
Long-term
borrowings
|
1,058,749 | 877,101 | 481,092 | |||||||||
|
Junior
subordinated debentures
|
546,430 | 546,180 | 546,430 | |||||||||
|
Total
interest expense
|
6,542,510 | 6,254,033 | 5,971,048 | |||||||||
|
Net
interest income
|
12,101,787 | 11,922,003 | 11,866,208 | |||||||||
|
Provision
for credit losses
|
2,442,976 | 1,145,649 | 50,000 | |||||||||
|
Net
interest income after provision for credit losses
|
9,658,811 | 10,776,354 | 11,816,208 | |||||||||
|
Other
income:
|
||||||||||||
|
Service
charges on deposit accounts
|
693,725 | 737,070 | 814,392 | |||||||||
|
Other
fees and commissions
|
817,559 | 849,417 | 953,873 | |||||||||
|
Gains
on investment securities, net
|
585,882 | 190,930 | 120,079 | |||||||||
|
Income
on life insurance
|
268,083 | 273,170 | 268,948 | |||||||||
|
Total
other income
|
2,365,249 | 2,050,587 | 2,157,292 | |||||||||
|
Other
expenses:
|
||||||||||||
|
Salaries
and wages
|
4,792,480 | 4,694,461 | 4,623,067 | |||||||||
|
Employee
benefits
|
1,503,848 | 1,525,023 | 1,702,535 | |||||||||
|
Occupancy
|
871,081 | 903,976 | 886,345 | |||||||||
|
Furniture
and equipment
|
761,462 | 754,191 | 844,147 | |||||||||
|
Impairment
loss on investment securities
|
76,779 | 2,816,000 | - | |||||||||
|
Other
expenses
|
2,989,201 | 2,408,690 | 2,376,925 | |||||||||
|
Total
other expenses
|
10,994,851 | 13,102,341 | 10,433,019 | |||||||||
|
Income
(loss) before income taxes (benefits)
|
1,029,209 | (275,400 | ) | 3,540,481 | ||||||||
|
Federal
and state income taxes (benefits)
|
(233,253 | ) | (679,362 | ) | 758,340 | |||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Basic
and diluted earnings per share of common stock
|
$ | 0.46 | $ | 0.14 | $ | 0.93 | ||||||
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-3
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||
|
Consolidated
Statements of Comprehensive Income
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Other
comprehensive loss, net of tax
|
||||||||||||
|
Unrealized
holding gains (losses) arising during the
|
||||||||||||
|
period
(net of deferred taxes (benefits)
2009
$18,260
;
|
||||||||||||
|
2008
($1,264,081); 2007 ($23,422))
|
27,648 | (1,913,998 | ) | (37,231 | ) | |||||||
|
Reclassification
adjustment for impairment loss included
|
||||||||||||
|
in
net income (net of deferred tax benefits
2009
$30,539;
|
||||||||||||
|
2008
$1,110,771
)
|
46,240 | 1,705,229 | - | |||||||||
|
Reclassification
adjustment for gains included in net
|
||||||||||||
|
income
(net of deferred taxes
2009
$233,034
;
|
||||||||||||
|
2008
$75,942; 2007 $50,237)
|
(352,847 | ) | (114,988 | ) | (79,842 | ) | ||||||
|
Total
other comprehensive loss
|
(278,959 | ) | (323,757 | ) | (117,073 | ) | ||||||
|
Comprehensive
income
|
$ | 983,503 | $ | 80,205 | $ | 2,665,068 | ||||||
The Notes to Consolidated Financial
Statements are an integral part of these consolidated financial
statements
F-4
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||||||||||||||
|
Consolidated
Statements of Changes in Stockholders' Equity
|
||||||||||||||||||||||||
|
Years
Ended December 31, 2009, 2008, and 2007
|
||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||||||
|
Common
Stock
|
Retained
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||||
|
Shares
|
Par
Value
|
Surplus
|
Earnings
|
Loss
|
Equity
|
|||||||||||||||||||
|
Balances,
December 31, 2006
|
2,484,633 | $ | 2,484,633 | $ | 11,719,907 | $ | 14,312,496 | $ | (316,523 | ) | $ | 28,200,513 | ||||||||||||
|
Net
income
|
- | - | - | 2,782,141 | - | 2,782,141 | ||||||||||||||||||
|
Cash
dividends, $.45 per share
|
- | - | - | (1,344,481 | ) | - | (1,344,481 | ) | ||||||||||||||||
|
Dividends
reinvested under dividend
|
||||||||||||||||||||||||
|
reinvestment
plan
|
12,791 | 12,791 | 187,668 | - | - | 200,459 | ||||||||||||||||||
|
Shares
issued under employee stock
|
||||||||||||||||||||||||
|
purchase
plan
|
1,041 | 1,041 | 13,554 | - | - | 14,595 | ||||||||||||||||||
|
Other
comprehensive loss, net of tax
|
- | - | - | - | (117,073 | ) | (117,073 | ) | ||||||||||||||||
|
Balances,
December 31, 2007
|
2,498,465 | 2,498,465 | 11,921,129 | 15,750,156 | (433,596 | ) | 29,736,154 | |||||||||||||||||
|
Net
income
|
- | - | - | 403,962 | - | 403,962 | ||||||||||||||||||
|
Cummulative
effect of adoption
|
||||||||||||||||||||||||
|
of
EITF 06-04
|
- | - | - | (179,794 | ) | - | (179,794 | ) | ||||||||||||||||
|
Shares
repurchased and retired
|
(50,300 | ) | (50,300 | ) | (526,939 | ) | - | - | (577,239 | ) | ||||||||||||||
|
Cash
dividends, $.45 per share
|
- | - | - | (1,345,128 | ) | - | (1,345,128 | ) | ||||||||||||||||
|
Dividends
reinvested under dividend
|
||||||||||||||||||||||||
|
reinvestment
plan
|
20,003 | 20,003 | 174,051 | - | - | 194,054 | ||||||||||||||||||
|
Stock
split effected in form of 20%
|
||||||||||||||||||||||||
|
stock
dividend
|
499,559 | 499,559 | - | (499,559 | ) | - | - | |||||||||||||||||
|
Other
comprehensive loss, net of tax
|
- | - | - | - | (323,757 | ) | (323,757 | ) | ||||||||||||||||
|
Balances,
December 31, 2008
|
2,967,727 | 2,967,727 | 11,568,241 | 14,129,637 | (757,353 | ) | 27,908,252 | |||||||||||||||||
|
Net
income
|
- | - | - | 1,262,462 | - | 1,262,462 | ||||||||||||||||||
|
Shares
repurchased and retired
|
(305,083 | ) | (305,083 | ) | (2,530,626 | ) | - | - | (2,835,709 | ) | ||||||||||||||
|
Cash
dividends, $.45 per share
|
- | - | - | (1,080,591 | ) | - | (1,080,591 | ) | ||||||||||||||||
|
Dividends
reinvested under dividend
|
||||||||||||||||||||||||
|
reinvestment
plan
|
20,371 | 20,371 | 153,296 | - | - | 173,667 | ||||||||||||||||||
|
Other
comprehensive loss, net of tax
|
- | - | - | - | (278,959 | ) | (278,959 | ) | ||||||||||||||||
|
Balances,
December 31, 2009
|
2,683,015 | $ | 2,683,015 | $ | 9,190,911 | $ | 14,311,508 | $ | (1,036,312 | ) | $ | 25,149,122 | ||||||||||||
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-5
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||
|
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Adjustments
to reconcile net income to net
|
||||||||||||
|
cash
provided by operating activities
|
||||||||||||
|
Depreciation,
amortization, and accretion
|
652,780 | 421,229 | 496,172 | |||||||||
|
Provision
for credit losses
|
2,442,976 | 1,145,649 | 50,000 | |||||||||
|
Deferred
income (benefits) taxes, net
|
(658,719 | ) | (1,605,603 | ) | (87,720 | ) | ||||||
|
Gains
on disposals of assets, net
|
(569,428 | ) | (173,393 | ) | (119,652 | ) | ||||||
|
Impairment
losses on investment securities
|
76,779 | 2,816,000 | - | |||||||||
|
Income
on investment in life insurance
|
(268,083 | ) | (273,170 | ) | (268,948 | ) | ||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Decrease (increase) in accrued interest receivable
|
53,600 | (171,752 | ) | 118,793 | ||||||||
|
(Increase)
decrease in other assets
|
(1,838,514 | ) | (118,962 | ) | 106,163 | |||||||
|
(Decrease)
increase in accrued interest payable
|
(26,980 | ) | 5,305 | (11,368 | ) | |||||||
|
Decrease
in other liabilities
|
(167,572 | ) | (72,369 | ) | (21,890 | ) | ||||||
|
Net
cash provided by operating activities
|
959,301 | 2,376,896 | 3,043,691 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Maturities
of available for sale mortgage-backed securities
|
7,612,135 | 4,402,208 | 7,301,634 | |||||||||
|
Maturities
of other available for sale investment securities
|
- | - | 300,000 | |||||||||
|
Sales
of held to maturity debt securities
|
- | 684,100 | - | |||||||||
|
Sales
of available for sale debt securities
|
24,920,635 | 25,977,280 | 17,889,342 | |||||||||
|
Purchases
of available for sale mortgage-backed securities
|
(54,787,147 | ) | (981,811 | ) | - | |||||||
|
Purchases
of other available for sale investment securities
|
(4,456,293 | ) | (13,318,481 | ) | (6,907,162 | ) | ||||||
|
Purchase
of FHLB stock
|
(90,700 | ) | (385,700 | ) | (453,900 | ) | ||||||
|
Increase
in loans, net
|
(3,193,217 | ) | (36,525,138 | ) | (6,466,528 | ) | ||||||
|
Proceeds
from sales of other real estate
|
548,994 | 50,000 | - | |||||||||
|
Purchases
of other real estate
|
(25,000 | ) | (550,000 | ) | - | |||||||
|
Purchases
of premises and equipment
|
(1,398,320 | ) | (501,717 | ) | (128,452 | ) | ||||||
|
Net
cash (used) provided by investing activities
|
(30,868,913 | ) | (21,149,259 | ) | 11,534,934 | |||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Increase
(decrease) in noninterest-bearing deposits, NOW
|
||||||||||||
|
accounts,
money market accounts, and savings accounts, net
|
4,268,940 | (5,221,614 | ) | (5,968,925 | ) | |||||||
|
Increase
(decrease) in time deposits, net
|
20,321,299 | 22,072,446 | (15,947,766 | ) | ||||||||
|
(Decrease)
increase in short-term borrowings
|
(548,565 | ) | 127,326 | (42,820 | ) | |||||||
|
Proceeds
from long-term borrowings
|
- | 10,000,000 | 10,000,000 | |||||||||
|
Repayments
of long-term borrowings
|
(38,001 | ) | (35,423 | ) | (33,035 | ) | ||||||
|
Cash
dividends paid
|
(1,236,100 | ) | (1,344,344 | ) | (1,326,051 | ) | ||||||
|
Common
stock dividends reinvested
|
173,667 | 194,054 | 200,459 | |||||||||
|
Repurchase
and retirement of common stock
|
(2,835,709 | ) | (577,239 | ) | - | |||||||
|
Issuance
of common stock
|
- | - | 14,595 | |||||||||
|
Net
cash provided (used) by financing activities
|
20,105,531 | 25,215,206 | (13,103,543 | ) | ||||||||
|
(Decrease)
increase in cash and cash equivalents
|
(9,804,081 | ) | 6,442,843 | 1,475,082 | ||||||||
|
Cash
and cash equivalents, beginning of year
|
21,237,903 | 14,795,060 | 13,319,978 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 11,433,822 | $ | 21,237,903 | $ | 14,795,060 | ||||||
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-6
|
Glen
Burnie Bancorp and Subsidiaries
|
||||||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
(Continued)
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Supplementary
Cash Flow Information:
|
||||||||||||
|
Interest
paid
|
$ | 6,569,490 | $ | 6,248,728 | $ | 5,982,416 | ||||||
|
Income
taxes paid
|
1,125,000 | 600,000 | 886,156 | |||||||||
|
Total
increase in unrealized depreciation
|
||||||||||||
|
on
available for sale securities
|
(463,192 | ) | (551,125 | ) | (190,732 | ) | ||||||
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
F-7
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1. Summary of Significant Accounting Policies
The Bank
of Glen Burnie (the “Bank”) provides financial services to individuals and
corporate customers located in Anne Arundel County and surrounding areas of
Central Maryland, and is subject to competition from other financial
institutions. The Bank is also subject to the regulations of certain
Federal and State of Maryland (the “State”) agencies and undergoes periodic
examinations by those regulatory authorities. The accounting and
financial reporting policies of the Bank conform, in all material respects, to
accounting principles generally accepted in the United States and to general
practices within the banking industry.
Significant
accounting policies not disclosed elsewhere in the consolidated financial
statements are as follows:
Subsequent Events:
Glen
Burnie Bancorp (“Bancorp”) and its subsidiaries have evaluated subsequent events
through the date of issuance of the financial data included herein, March 12,
2010.
Principles of
Consolidation:
The
consolidated financial statements include the accounts of Glen Burnie Bancorp
and its subsidiaries, The Bank of Glen Burnie and GBB Properties, Inc., a
company engaged in the acquisition and disposition of other real
estate. Intercompany balances and transactions have been
eliminated. The Parent Only financial statements (see Note 20) of the
Company account for the subsidiaries using the equity method of
accounting.
The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity under accounting principles generally accepted in the United
States. Voting interest entities are entities, in which the total
equity investment at risk is sufficient to enable the entity to finance itself
independently and provides the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make decisions
about the entity’s activities. The Company consolidates voting
interest entities in which it has all, or at least a majority of, the voting
interest. As defined in applicable accounting standards, variable
interest entities (VIE’s) are entities that lack one or more of the
characteristics of a voting interest entity. A controlling financial
interest in an entity is present when an enterprise has a variable interest, or
a combination of variable interest, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s expected residual returns,
or both. The enterprise with a controlling financial interest, known
as the primary beneficiary, consolidates the VIE. The Company’s
wholly owned subsidiary, Glen Burnie Statutory Trust I, is a VIE for which the
Company is not the primary beneficiary. Accordingly, the accounts of
this entity are not included in the Company’s consolidated financial
statements.
Accounting Standards
Codification:
The
Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC”) became effective for interim and annual periods ending
after September 15, 2009. At that date, the ASC became FASB’s
officially recognized source of authoritative U.S. generally accepted accounting
principles (“GAAP”) applicable to all public and non-public non-governmental
entities, superseding existing FASB, American Institute of Certified Public
Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related
literatures. Rules and interpretive releases of the SEC under the
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. All other accounting literature is considered
non-authoritative. The switch to ASC affects the way companies refer
to U.S. GAAP in financial statements and accounting policies. Citing
particular content in the ASC involves specifying the unique numeric path to the
content through the Topic, Subtopic, Section and Paragraph
structure.
F-8
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of
Significant Accounting Policies
(continued)
Use of
Estimates:
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted within the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Securities Held to
Maturity:
Bonds,
notes, and debentures for which the Bank has the positive intent and ability to
hold to maturity are reported at cost, adjusted for premiums and discounts that
are recognized in interest income using the effective interest rate method over
the period to maturity. Securities transferred into held to maturity
from the available for sale portfolio are recorded at fair value at time of
transfer with unrealized gains or losses reflected in equity and amortized over
the remaining life of the security.
Securities
Available for Sale:
Marketable
debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale may be sold in response to
changes in interest rates, loan demand, changes in prepayment risk, and other
factors. Changes in unrealized appreciation (depreciation) on
securities available for sale are reported in other comprehensive income, net of
tax. Realized gains (losses) on securities available for sale are
included in other income (expense) and, when applicable, are reported as a
reclassification adjustment, net of tax, in other comprehensive
income. The gains and losses on securities sold are determined by the
specific identification method. Premiums and discounts are recognized
in interest income using the effective interest rate method over the period to
maturity. Additionally, declines in the fair value of individual
investment securities below their cost that are other than temporary are
reflected as realized losses in the consolidated statements of
income.
Other
Securities:
Federal
Home Loan Bank (“FHLB”) and Maryland Financial Bank (“MFB”) stocks are equity
interests that do not necessarily have readily determinable fair values for
purposes of the ASC Topic 320, formerly, Statement of Financial Accounting
Standards (“SFAS”) No 115,
Accounting for Certain Investments
in Debt and Equity Securities
, because their ownership is restricted and
they lack a market. FHLB stock can be sold back only at its par value
of $100 per share and only to the FHLB or another member
institution.
Loans and Allowance for Credit
Losses:
Loans are
generally carried at the amount of unpaid principal, adjusted for deferred loan
fees, which are amortized over the term of the loan using the effective interest
rate method. Interest on loans is accrued based on the principal
amounts outstanding. It is the Bank’s policy to discontinue the
accrual of interest when a loan is specifically determined to be impaired or
when principal or interest is delinquent for ninety days or
more. When a loan is placed on nonaccrual status all interest
previously accrued but not collected is reversed against current period interest
income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Cash
collections on such loans are applied as reductions of the loan principal
balance and no interest income is recognized on those loans until the principal
balance has been collected. Interest income on other nonaccrual loans
is recognized only to the extent of interest payments received. The
carrying value of impaired loans is based on the present value of the loan’s
expected future cash flows or, alternatively, the observable market price of the
loan or the fair value of the collateral.
F-9
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of
Significant Accounting Policies
(continued)
The
allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses inherent in the loan portfolio and is based
on the size and current risk characteristics of the loan portfolio, an
assessment of individual problem loans and actual loss experience, current
economic events in specific industries and geographical areas, including
unemployment levels, and other pertinent factors, including regulatory guidance
and general economic conditions. Determination of the allowance is
inherently subjective as it requires significant estimates, including the
amounts and timing of expected future cash flows on impaired loans, estimated
losses on pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends, all of which may be susceptible to
significant change. Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to
the allowance. A provision for loan losses is charged to operations
based on management’s periodic evaluation of the factors previously mentioned,
as well as other pertinent factors. Evaluations are conducted at
least quarterly and more often if deemed necessary.
The
allowance for loan losses typically consists of an allocated component and an
unallocated component. The components of the allowance for loan
losses represent an estimation done pursuant to either ASC Topic 450, formerly
SFAS No 5, Accounting for Contingencies, or ASC Topic 310, formerly SFAS No 114,
Accounting by Creditors for Impairment of a Loan. The allocated
component of the allowance for loan losses reflects expected losses resulting
from analyses developed through specific credit allocations for individual loans
and historical loss experience for each loan category. The specific
credit allocations are based on regular analyses of all loans over a
fixed-dollar amount where the internal credit rating is at or below a
predetermined classification. The historical loan loss element is
determined statistically using a loss migration analysis that examines loss
experience and the related internal gradings of loans charged
off. The loss migration analysis is performed quarterly and loss
factors are updated regularly based on actual experience. The
allocated component of the allowance for loan losses also includes consideration
of concentrations and changes in portfolio mix and volume.
Any
unallocated portion of the allowance reflects management’s estimate of probable
inherent but undetected losses within the portfolio due to uncertainties in
economic conditions, delays in obtaining information, including unfavorable
information about a borrower’s financial condition, the difficulty in
identifying triggering events that correlate perfectly to subsequent loss rates,
and risk factors that have not yet manifested themselves in loss allocation
factors. In addition, the unallocated allowance includes a component
that explicitly accounts for the inherent imprecision in loan loss migration
models. The historical losses used in the migration analysis may not
be representative of actual unrealized losses inherent in the
portfolio. At December 31, 2009, there was no unallocated component
of the allowance reflected in the allowance for credit losses.
Reserve for Unfunded
Commitments:
The
reserve for unfunded commitments is established through a provision for unfunded
commitments charged to other expenses. The reserve is calculated by
utilizing the same methodology and factors as the allowance for
credit losses. The reserve, based on evaluations of the
collectibiltiy of loans and prior loan loss experience, is an amount that
management believes will be adequate to absorb possible losses on unfunded
commitments (off-balance sheet financial instruments) that may become
uncollectible in the future.
Other
Real Estate Owned (“OREO”):
OREO
comprises properties acquired in partial or total satisfaction of problem
loans. The properties are recorded at the lower of cost or fair value
(appraised value) at the date acquired. Losses arising at the time of
acquisition of such properties are charged against the allowance for credit
losses. Subsequent write-downs that may be required and expenses of
operation are included in other income or expenses. Gains and losses
realized from the sale of OREO are included in other income or
expenses. Loans converted to OREO through foreclosure proceedings
totaled
$25,000
and
$550,000 for the years ended December 31, 2009 and 2008,
respectively. No loans were converted to OREO in 2007. The
Bank financed no sales of OREO for 2009, 2008, or 2007.
F-10
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of
Significant Accounting Policies
(continued)
Bank Premises and
Equipment:
Bank
premises and equipment are stated at cost less accumulated
depreciation. The provision for depreciation is computed using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lesser of the
terms of the leases or their estimated useful lives. Expenditures for
improvements that extend the life of an asset are capitalized and depreciated
over the asset’s remaining useful life. Gains or losses realized on
the disposition of premises and equipment are reflected in the consolidated
statements of income. Expenditures for repairs and maintenance are
charged to other expenses as incurred. Computer software is recorded
at cost and amortized over three to five years.
Long-Lived Assets:
The
carrying value of long-lived assets and certain identifiable intangibles,
including goodwill, is reviewed by the Bank for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, as prescribed in ASC Topic 360, formerly SFAS No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Asset
. As of December 31, 2009, 2008,
and 2007, certain loans existed which management considered impaired (See Note
4). During the years ended December 31, 2009 and 2008, management
deemed certain investment securities were impaired and recorded an impairment
loss on these securities (See Note 3).
Income
Taxes:
The
provision for Federal and state income taxes is based upon the results of
operations, adjusted for tax-exempt income. Deferred income taxes are
provided by applying enacted statutory tax rates to temporary differences
between financial and taxable bases.
Temporary
differences which give rise to deferred tax benefits relate principally to
accrued deferred compensation, accumulated impairment losses on investment
securities, allowance for credit losses, unused alternative minimum tax credits,
net unrealized depreciation on investment securities available for sale,
accumulated depreciation, and reserve for unfunded commitments.
Temporary
differences which give rise to deferred tax liabilities relate principally to
accumulated depreciation, and accumulated securities discount
accretion.
Credit Risk:
The Bank
has unsecured deposits and Federal funds sold with several other financial
institutions in excess of amounts insured by the Federal Deposit Insurance
Corporation (“FDIC”).
Cash and Cash Equivalents:
The Bank
has included cash and due from banks, interest-bearing deposits in other
financial institutions, and Federal funds sold as cash and cash equivalents for
the purpose of reporting cash flows.
F-11
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting
for Stock Options:
The
Company follows ASC Topic 718, formerly SFAS No. 123R,
Share-Based Payments
, for
accounting and reporting for stock-based compensation plans. ASC
Topic 718 defines a fair value at grant date based method of accounting for
measuring compensation expense for stock-based plans to be recognized in the
statement of income.
Earnings
per share:
Basic
earnings per common share are determined by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted
earnings per share are calculated including the average dilutive common stock
equivalents outstanding during the period. Dilutive common equivalent
shares consist of stock options, calculated using the treasury stock
method.
Financial
Statement Presentation:
Certain
amounts in the prior years’ financial statements have been reclassified to
conform to the current year’s presentation.
The
Federal Reserve requires the Bank to maintain noninterest-bearing cash reserves
against certain categories of average deposit liabilities. Such
reserves averaged approximately
$5,026,000
,
$4,781,000, and
$5,368,000 during the years ended December 31, 2009, 2008, and 2007,
respectively.
Note
3. Investment Securities
Investment
securities are summarized as follows:
|
Gross
|
Gross
|
|||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
December 31, 2009
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Available
for sale:
|
||||||||||||||||
|
U.S.
Government agencies
|
$ | 3,180,360 | $ | 14,060 | $ | 135,330 | $ | 3,059,090 | ||||||||
|
State
and municipal
|
30,073,170 | 335,146 | 664,647 | 29,743,669 | ||||||||||||
|
Corporate
trust preferred
|
2,080,282 | 33,521 | 1,102,874 | 1,010,929 | ||||||||||||
|
Mortgage-backed
|
50,849,527 | 368,642 | 569,252 | 50,648,917 | ||||||||||||
| $ | 86,183,339 | $ | 751,369 | $ | 2,472,103 | $ | 84,462,605 | |||||||||
|
Gross
|
Gross
|
|||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
December 31, 2008
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Available
for sale:
|
||||||||||||||||
|
U.S.
Government agencies
|
$ | 8,686,877 | $ | 191,455 | $ | 140,280 | $ | 8,738,052 | ||||||||
|
State
and municipal
|
31,466,012 | 235,128 | 979,935 | 30,721,205 | ||||||||||||
|
Corporate
trust preferred
|
2,168,928 | - | 971,426 | 1,197,502 | ||||||||||||
|
Mortgage-backed
|
16,884,368 | 413,682 | 6,164 | 17,291,886 | ||||||||||||
| $ | 59,206,185 | $ | 840,265 | $ | 2,097,805 | $ | 57,948,645 | |||||||||
F-12
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment
Securities
(continued)
|
December 31, 2007
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
|
Available
for sale:
|
||||||||||||||||
|
U.S.
Government agencies
|
$ | 8,489,126 | $ | 44,593 | $ | 761,906 | $ | 7,771,813 | ||||||||
|
State
and municipal
|
31,627,159 | 272,449 | 164,764 | 31,734,844 | ||||||||||||
|
Corporate
trust preferred
|
2,167,271 | 253,283 | - | 2,420,554 | ||||||||||||
|
Mortgage-backed
|
35,605,038 | 110,145 | 460,213 | 35,254,970 | ||||||||||||
| $ | 77,888,594 | $ | 680,470 | $ | 1,386,883 | $ | 77,182,181 | |||||||||
|
Held
to maturity:
|
||||||||||||||||
|
State
and municipal
|
$ | 683,832 | $ | 42,361 | $ | - | $ | 726,193 | ||||||||
| $ | 683,832 | $ | 42,361 | $ | - | $ | 726,193 | |||||||||
The gross
unrealized losses and fair value, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2009 are as follows:
Securities
available for sale:
|
Less
than 12 months
|
12
months or more
|
Total
|
|||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||
|
Obligations
of U.S. Government agencies
|
$ | 1,076,590 | $ | 103,770 | $ | 968,440 | $ | 31,560 | $ | 2,045,030 | $ | 135,330 | |||||||
|
State
and Municipal
|
6,126,763 | 205,869 | 3,328,682 | 458,778 | 9,455,445 | 664,647 | |||||||||||||
|
Corporate
trust preferred
|
- | - | 25,091 | 1,102,874 | 25,091 | 1,102,874 | |||||||||||||
|
Mortgaged-backed
|
31,403,867 | 569,252 | - | - | 31,403,867 | 569,252 | |||||||||||||
| $ | 38,607,220 | $ | 878,891 | $ | 4,322,213 | $ | 1,593,212 | $ | 42,929,433 | $ | 2,472,103 | ||||||||
At
December 31,2009, the Company owned one pooled trust preferred security issued
by Regional Diversified Funding, Senior notes with a Fitch credit rating of B,
which is included in the securities described above. The market for
these securities at December 31, 2009 was not active and markets for similar
securities were also not active.
The
market values for these securities (and any securities other than those issued
or guaranteed by the U.S. Treasury) are very depressed relative to historical
levels. Therefore, a low market price for a particular security may
only provide evidence of stress in the credit markets overall rather than being
an indicator of credit problems with a particular issuer.
F-13
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment
Securities
(continued)
During
2009, the Company took a write down of $76,779 on these securities to bring the
book value into alignment with the current and performing principal balance
outstanding, which we considered to be a prudent action to take in the current
environment based on defaults by three of the twenty-nine financial institutions
in the pool. In addition, cash flow testing was performed by an
unrelated third party in order to measure the extent of
other-than-temporary-impairment (“OTTI”). This testing, assumed a 15%
recovery with a two year lag on two of the previously defaulting financial
institutions, with future defaults on the currently performing financial
institutions of 150 basis points applied annually with no future
recovery. This testing resulted in a net present value of $1,142,047,
compared to the book value of $1,127,965 at December 31, 2009.
In
September 2008, Freddie Mac and Fannie Mae government sponsored entities entered
into conservatorship agreements with the U.S. Treasury
Department. This conservatorship precludes these entities from paying
preferred stock dividends. As a result, the market values declined
significantly and the Company recorded an impairment loss of $2,816,000 during
the year ended December 31, 2008. The write down represented 94% of
the initial investment in these securities.
Declines
in the fair value of held to maturity and available for sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
As of
December 31, 2009, management had the ability and intent to hold the securities
classified as available for sale for a period of time sufficient for a recovery
of cost. On December 31, 2009, the
Bank held
13 investment securities having continuous unrealized loss positions for more
than 12 months. Management has determined that all unrealized losses
are either due to increases in market interest rates over the yields available
at the time the underlying securities were purchased, current call features that
are nearing, and the effect the sub-prime market has had on all mortgaged-backed
securities. The Bank has no mortgaged-backed securities
collateralized by sub-prime mortgages. The fair value is expected to
recover as the bonds approach their maturity date or repricing date or if market
yields for such investments decline. Management does not believe any
of the securities are impaired due to reasons of credit
quality. Accordingly, as of December 31, 2009, management believes
the impairments detailed in the table above are temporary and no impairment loss
has been realized in the Company’s consolidated income
statement.
F-14
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment
Securities
(continued)
Contractual
maturities of investment securities at December 31, 2009, 2008, and 2007 are
shown below. Actual maturities may differ from contractual maturities
because debtors may have the right to call or prepay obligations with or without
call or prepayment penalties. Mortgage-backed securities have no
stated maturity and primarily reflect investments in various Pass-through and
Participation Certificates issued by the Federal National Mortgage Association
and the Government National Mortgage Association. Repayment of
mortgage-backed securities is affected by the contractual repayment terms of the
underlying mortgages collateralizing these obligations and the current level of
interest rates.
|
Available
for Sale
|
Held
to Maturity
|
|||||||||||||||
|
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
|
December 31, 2009
|
Cost
|
Value
|
Cost
|
Value
|
||||||||||||
|
Due
within one year
|
$ | 649,998 | $ | 650,982 | ||||||||||||
|
Due
over one to five years
|
1,825,146 | 1,850,726 | ||||||||||||||
|
Due
over five to ten years
|
565,946 | 571,123 | ||||||||||||||
|
Due
over ten years
|
32,292,722 | 30,740,857 | ||||||||||||||
|
Mortgage-backed,
due in monthly installments
|
50,849,527 | 50,648,917 | ||||||||||||||
| $ | 86,183,339 | $ | 84,462,605 | |||||||||||||
|
December 31, 2008
|
||||||||||||||||
|
Due
within one year
|
$ | - | $ | - | ||||||||||||
|
Due
over one to five years
|
4,577,077 | 4,560,487 | ||||||||||||||
|
Due
over five to ten years
|
5,563,224 | 5,685,637 | ||||||||||||||
|
Due
over ten years
|
32,181,516 | 30,410,635 | ||||||||||||||
|
Mortgage-backed,
due in monthly installments
|
16,884,368 | 17,291,886 | ||||||||||||||
| $ | 59,206,185 | $ | 57,948,645 | |||||||||||||
|
December 31, 2007
|
||||||||||||||||
|
Due
within one year
|
$ | 1,000,000 | $ | 996,094 | $ | - | $ | - | ||||||||
|
Due
over one to five years
|
9,638,992 | 9,635,177 | - | - | ||||||||||||
|
Due
over five to ten years
|
4,089,402 | 4,068,131 | - | - | ||||||||||||
|
Due
over ten years
|
27,555,162 | 27,227,809 | 683,832 | 726,193 | ||||||||||||
|
Mortgage-backed,
due in monthly installments
|
35,605,038 | 35,254,970 | - | - | ||||||||||||
| $ | 77,888,594 | $ | 77,182,181 | $ | 683,832 | $ | 726,193 | |||||||||
F-15
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Proceeds
from sales of available for sale securities prior to maturity totaled
$24,920,635
,
$25,977,280, and
$17,889,342 for the years ended December 31, 2009, 2008, and 2007,
respectively. The Bank realized gains of
$600,696
and losses of
$14,815
on those sales for
2009. The Bank realized gains of $195,780 and losses of $4,850 on
those sales for 2008. The Bank realized gains of $230,038 and losses
of $109,959 on those sales for 2007. Realized gains and losses were
calculated based on the amortized cost of the securities at the date of
trade. Income tax expense relating to net gains on sales of
investment securities totaled
$233,034
, $75,942, and $47,761
for the years ended December 31, 2009, 2008, and 2007,
respectively.
In July
2008, the Company sold its remaining two positions in securities classified as
held to maturity. Inasmuch as these positions were liquidated prior
to maturity in a manner which did not meet the prescribed requirements of ASC
Topic 320, the Company may be precluded for a period of time from classifying
any securities positions as held to maturity.
The Bank
has no derivative financial instruments required to be disclosed under ASC Topic
815, formerly SFAS No. 149,
Disclosure about Derivative
Financial Instruments and Fair Value of Financial
Instruments.
Note
4. Loans
Major categories of loans are as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Mortgage:
|
||||||||||||
|
Residential
|
$ | 95,683,441 | $ | 87,707,878 | $ | 76,780,857 | ||||||
|
Commercial
|
79,845,030 | 76,152,837 | 47,842,942 | |||||||||
|
Construction
and land development
|
1,742,515 | 6,589,673 | 5,876,285 | |||||||||
|
Demand
and time
|
9,800,625 | 6,974,607 | 5,184,349 | |||||||||
|
Installment
|
53,222,692 | 60,593,752 | 66,490,020 | |||||||||
| 240,294,303 | 238,018,747 | 202,174,453 | ||||||||||
|
Unearned
income on loans
|
(838,913 | ) | (864,436 | ) | (816,830 | ) | ||||||
| 239,455,390 | 237,154,311 | 201,357,623 | ||||||||||
|
Allowance
for credit losses
|
(3,572,528 | ) | (2,021,690 | ) | (1,604,491 | ) | ||||||
| $ | 235,882,862 | $ | 235,132,621 | $ | 199,753,132 | |||||||
The Bank
has an automotive indirect lending program where vehicle collateralized loans
made by dealers to consumers are acquired by the Bank. The Bank’s
installment loan portfolio included approximately
$37,092,000
,
$43,970,000, and
$49,260,000 of such loans at December 31, 2009, 2008, and 2007,
respectively.
The Bank
makes loans to customers located primarily in Anne Arundel County and
surrounding areas of Central Maryland. Although the loan portfolio is
diversified, its performance will be influenced by the economy of the
region.
Executive
officers, directors, and their affiliated interests enter into loan transactions
with the Bank in the ordinary course of business. These loans are
made on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with unrelated
borrowers. They do not involve more than normal risk of
collectibility or present other unfavorable terms. At December 31,
2009, 2008, and 2007, the amounts of such loans outstanding totaled
$5,137,397
, $4,344,974, and
$4,009,224, respectively. During 2009, loan additions and repayments
totaled
$1,112,700
and
$320,277
,
respectively.
F-16
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
allowance for credit losses is as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Balance,
beginning of year
|
$ | 2,021,690 | $ | 1,604,491 | $ | 1,839,094 | ||||||
|
Provision
for credit losses
|
2,442,976 | 1,145,649 | 50,000 | |||||||||
|
Recoveries
|
395,584 | 352,933 | 305,841 | |||||||||
|
Loans
charged off
|
(1,287,722 | ) | (1,081,383 | ) | (590,444 | ) | ||||||
|
Balance,
end of year
|
$ | 3,572,528 | $ | 2,021,690 | $ | 1,604,491 | ||||||
Loans on
which the accrual of interest has been discontinued totaled
$3,016,727
, $866,912, and
$212,416 at December 31, 2009, 2008, and 2007, respectively. Interest
that would have been accrued under the terms of these loans totaled
$105,365
, $29,807, and $20,037
for the years ended December 31, 2009, 2008, and 2007,
respectively. Loans past due 90 days or more and still accruing
interest totaled
$0
,
$22,551 and $639,982 at December 31, 2009, 2008 and 2007,
respectively.
Information
regarding loans classified by the Bank as impaired is summarized as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Loans
classified as impaired with a valuation allowance
|
$ | 9,513,637 | $ | 1,387,043 | $ | 212,416 | ||||||
|
Allowance
for credit losses on impaired loans
|
2,187,699 | 629,036 | 159,312 | |||||||||
|
Average
balance of impaired loans
|
10,111,516 | 1,458,245 | 95,605 | |||||||||
|
Following
is a summary of cash receipts on impaired loans and how they were
applied:
|
||||||||||||
|
Cash
receipts applied to reduce principal balance
|
$ | 2,604,832 | $ | 131,730 | $ | - | ||||||
|
Cash
receipts recognized as interest income
|
380,190 | 41,062 | - | |||||||||
|
Total
cash receipts
|
$ | 2,985,022 | $ | 172,792 | $ | - | ||||||
At
December 31, 2009, the recorded investment in new troubled debt restructurings
totaled $86,707. The allowance for credit losses relating to troubled
debt restructurings totaled $954 at December 31, 2009. The average
recorded investment in troubled debt restructurings totaled $100,747 for the
year ended December 31, 2009. The Bank recognized $7,552 in interest
income on troubled debt restructurings for cash payments received in
2009. All prior investments in troubled debt were performing under
the terms of the modified agreement.
No
troubled debt restructurings transpired in 2008. All prior
investments in troubled debt were performing under the terms of the modified
agreement.
At
December 31, 2007, the recorded investment in new troubled debt restructurings
totaled $578,345. The allowance for credit losses relating to
troubled debt restructurings totaled $0 at December 31, 2007. The
average recorded investment in troubled debt restructurings totaled $611,379 for
the year ended December 31, 2007. The Bank recognized $51,742 in
interest income on troubled debt restructurings for cash payments received in
2007. All prior investments in troubled debt were performing under
the terms of the modified agreement.
The Bank
has no commitments to loan additional funds to the borrowers of restructured,
impaired, or non-accrual loans.
F-17
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of premises and equipment is
as follows:
|
Useful
|
|||||||||||||
|
lives
|
2009
|
2008
|
2007
|
||||||||||
|
Land
|
$ | 684,977 | $ | 684,977 | $ | 684,977 | |||||||
|
Buildings
|
5-50
years
|
5,864,145 | 4,796,309 | 4,738,733 | |||||||||
|
Equipment
and fixtures
|
5-30
years
|
5,093,759 | 5,056,015 | 5,450,210 | |||||||||
|
Construction
in progress
|
322 | 121,973 | 60,226 | ||||||||||
| 11,643,203 | 10,659,274 | 10,934,146 | |||||||||||
|
Accumulated
depreciation
|
(7,522,606 | ) | (7,559,826 | ) | (7,846,238 | ) | |||||||
| $ | 4,120,597 | $ | 3,099,448 | $ | 3,087,908 | ||||||||
Depreciation
expense totaled
$334,465
, $347,040, and
$412,198 for the years ended December 31, 2009, 2008, and 2007,
respectively. Amortization of software and intangible assets totaled
$75,694
,
$96,312, and $109,797
for the years ended December 31, 2009, 2008, and 2007,
respectively.
The Bank
leases its Severna Park and Linthicum branches. Minimum lease
obligations under the Severna Park branch are $30,000 per year through September
2012. Minimum lease obligations under the Linthicum branch are
$104,335 per year through December 2014, adjusted annually on a pre-determined
basis, with one ten year extension option. The Bank is also required
to pay all maintenance costs under all these leasing
arrangements. Rent expense totaled
$227,479
, $257,467, and
$252,087 for the years ended December 31, 2009, 2008, and 2007,
respectively.
Note
6. Short-term borrowings
Short-term
borrowings are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Notes
payable - U.S. Treasury
|
$ | 81,290 | $ | 629,855 | $ | 502,529 | ||||||
Notes
payable to the U.S. Treasury represents Federal treasury tax and loan deposits
accepted by the Bank from its customers to be remitted on demand to the Federal
Reserve Bank. The Bank pays interest on these balances at or below
the Federal funds rate. This arrangement is secured by investment
securities with an amortized cost of approximately
$1,000,000
over each of the
years ended December 31, 2009, 2008, and 2007.
The Bank
owned 18,583 shares of common stock of the FHLB at December 31,
2009. The Bank is required to maintain an investment of .2% of total
assets, adjusted annually, plus 4.5% of total advances, adjusted for advances
and repayments. The credit available under this facility is
determined at 20% of the Bank’s total assets, or approximately $70,850,000 at
December 31, 2009. Long-term advances totaled $27,000,000 under this
credit arrangement at December 31, 2009 (see Note 7). This credit
facility is secured by a floating lien on the Bank’s residential mortgage loan
portfolio. Average short-term borrowings under this facility
approximated
$11,000
,
$1,924,000
and
$1,616,000
for 2009, 2008, and
2007, respectively.
F-18
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank
also has available $9,000,000 in a short-term credit facility, an unsecured line
of credit, from another bank for short-term liquidity needs, if
necessary. No outstanding borrowings existed under this credit
arrangement at December 31, 2009, 2008, and 2007.
Long-term borrowings are as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Federal
Home Loan Bank of Atlanta, convertible advances
|
$ | 27,000,000 | $ | 27,000,000 | $ | 17,000,000 | ||||||
|
Mortgage
payable-individual, interest at 7%, payments of $3,483, including
principal and interest, due monthly through
October 2010, secured
by real estate
|
33,711 | 71,712 | 107,135 | |||||||||
| $ | 27,033,711 | $ | 27,071,712 | $ | 17,107,135 | |||||||
The
Federal Home Loan Bank of Atlanta, convertible advances total includes the
following:
A
$7,000,000 convertible advance issued in 2000, which matures in September 2010,
with interest at 5.84%, payable quarterly. The Federal Home Loan Bank
of Atlanta has the option of converting the rate to a three-month LIBOR;
however, if converted, the borrowing can be repaid without
penalty. The proceeds of the convertible advance were used to
purchase higher yielding investment securities.
A
$10,000,000 convertible advance issued in 2007, which has a final maturity of
November, 1, 2017, but is callable monthly. This advance has a 3.28%
interest rate, with interest payable monthly. The proceeds of the
convertible advance were used to fund loans and purchase investment
securities.
A
$5,000,000 convertible advance issued in 2008, which has a final maturity of
July 23, 2018, but is callable quarterly starting July 23, 2009. This
advance has a 2.73% interest rate, with interest payable
quarterly. The proceeds of the convertible advance were used to fund
loans.
A
$5,000,000 convertible advance issued in 2008, which has a final maturity of
August 22, 2018, but is callable quarterly starting August 22,
2011. This advance has a 3.34% interest rate, with interest payable
quarterly. The proceeds of the convertible advance were used to fund
loans.
At December 31, 2009, the scheduled
maturities of long-term borrowings are approximately as follows:
|
2009
|
||||
|
2010
|
$ | 7,034,000 | ||
|
2015
and thereafter
|
20,000,000 | |||
| $ | 27,034,000 | |||
F-19
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Bancorp sponsored a trust, Glen Burnie Statutory Trust I, of which 100% of the
common equity is owned by the Company. The trust was formed for the
purpose of issuing Company-obligated mandatorily redeemable capital securities
(the capital securities) to third-party investors and investing the proceeds
from the sale of such capital securities solely in junior subordinated debt
securities of the Company (the debentures). The debentures held by
the trust are the sole assets of that trust. Distributions on the
capital securities issued by the trust are payable semi-annually at a 10.6% rate
per annum equal to the interest rate being earned by the trust on the debentures
held by that trust. The capital securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures. The Company has entered into agreements which, taken
collectively, fully and unconditionally guarantee the capital securities subject
to the terms of each of the guarantees. The debentures held by the
trust carry non-call provisions over the first 10 year period, and a declining
10 year premium call thereafter. Both the capital securities of the
statutory trust and the junior subordinated debentures are scheduled to mature
on September 7, 2030, unless called by the Bancorp not earlier than September 7,
2010. It is management’s intention to call these securities in September
2010.
Despite
the fact that the Trust I is not included in the Company’s consolidated
financial statements, the trust preferred securities issued by these subsidiary
trusts are included in the Tier 1 capital of the Company for regulatory capital
purposes. Federal Reserve Board rules limit the aggregate amount of
restricted core capital elements (which includes trust preferred securities,
among other things) that may be included in the Tier 1 capital of most bank
holding companies to 25% of all core capital elements, including restricted core
capital elements, net of goodwill less any associated deferred tax
liability. Amounts of restricted core capital elements in excess of
these limits generally may be included in Tier 2 capital. The current
quantitative limits do not preclude the Company from including the $5.0 million
in trust preferred securities outstanding in Tier 1 capital.
Note
9. Deposits
Major
classifications of interest-bearing deposits are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
NOW
and SuperNOW
|
$ | 22,353,053 | $ | 21,079,314 | $ | 23,154,540 | ||||||
|
Money
Market
|
15,284,223 | 12,764,167 | 12,948,342 | |||||||||
|
Savings
|
48,378,319 | 45,801,719 | 47,381,613 | |||||||||
|
Certificates
of Deposit, $100,000 or more
|
31,576,905 | 27,882,777 | 20,654,230 | |||||||||
|
Other
time deposits
|
108,957,638 | 98,700,862 | 80,017,668 | |||||||||
| $ | 226,550,138 | $ | 206,228,839 | $ | 184,156,393 | |||||||
F-20
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Interest expense on deposits is as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
NOW
and SuperNOW
|
$ | 27,702 | $ | 30,618 | $ | 47,885 | ||||||
|
Money
Market
|
57,280 | 62,475 | 103,472 | |||||||||
|
Savings
|
134,607 | 153,301 | 214,998 | |||||||||
|
Certificates
of Deposit, $100,000 or more
|
1,063,174 | 976,446 | 915,889 | |||||||||
|
Other
time deposits
|
3,654,519 | 3,557,345 | 3,542,181 | |||||||||
| $ | 4,937,282 | $ | 4,780,185 | $ | 4,824,425 | |||||||
At
December 31, 2009, the scheduled maturities of time deposits are approximately
as follows:
|
2009
|
||||
|
2010
|
$ | 84,136,000 | ||
|
2011
|
25,662,000 | |||
|
2012
|
7,061,000 | |||
|
2013
|
15,312,000 | |||
|
2014
|
7,123,000 | |||
|
2015
and thereafter
|
1,241,000 | |||
| $ | 140,535,000 | |||
Deposit
balances of executive officers and directors and their affiliated interests
totaled approximately
$2,215,000
,
$2,611,000, and
$2,213,000 at December 31, 2009, 2008, and 2007, respectively.
The Bank
had no brokered deposits at December 31, 2009, 2008, and 2007.
Note
10. Income Taxes
The
components of income tax expense for the years ended December 31, 2009, 2008,
and 2007 are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 268,693 | $ | 655,129 | $ | 646,449 | ||||||
|
State
|
156,773 | 271,112 | 199,611 | |||||||||
|
Total
current
|
425,466 | 926,241 | 846,060 | |||||||||
|
Deferred
income taxes (benefits):
|
||||||||||||
|
Federal
|
(509,545 | ) | (1,275,873 | ) | (80,277 | ) | ||||||
|
State
|
(149,174 | ) | (329,730 | ) | (7,443 | ) | ||||||
|
Total
deferred
|
(658,719 | ) | (1,605,603 | ) | (87,720 | ) | ||||||
|
Income
tax (benefit) expense
|
$ | (233,253 | ) | $ | (679,362 | ) | $ | 758,340 | ||||
F-21
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A
reconciliation of income tax expense computed at the statutory rate of 34% to
the actual income tax expense for the years ended December 31, 2009, 2008, and
2007 is as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
(loss) before income tax (benefit) expense
|
$ | 1,029,209 | $ | (275,400 | ) | $ | 3,540,481 | |||||
|
Taxes
computed at Federal income tax rate
|
$ | 349,925 | $ | (93,636 | ) | $ | 1,203,764 | |||||
|
Increase
(decrease) resulting from:
|
||||||||||||
|
Tax-exempt
income
|
(502,488 | ) | (547,038 | ) | (581,208 | ) | ||||||
|
State
income taxes, net of Federal income tax benefit
|
(80,690 | ) | (38,688 | ) | 126,832 | |||||||
|
Other
|
- | - | 8,952 | |||||||||
|
Income
tax (benefit) expense
|
$ | (233,253 | ) | $ | (679,362 | ) | $ | 758,340 | ||||
The
relationship between pre-tax loss and income tax benefits for 2008 is affected
by increased deferred tax benefits attributable to tax methodologies utilized
for loan loss provisions.
The
components of the net deferred income tax benefits as of December 31, 2009,
2008, and 2007 are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Deferred
income tax benefits:
|
||||||||||||
|
Accrued
deferred compensation
|
$ | 90,594 | $ | 82,049 | $ | - | ||||||
|
Impairment
loss on investment securities
|
1,072,662 | 1,110,771 | - | |||||||||
|
Allowance
for credit losses
|
1,206,604 | 563,737 | 80,300 | |||||||||
|
Nonaccrual
interest
|
11,849 | - | - | |||||||||
|
Alternative
minimum tax credits
|
- | 66,371 | 94,642 | |||||||||
|
Net
unrealized depreciation on investment securities available for
sale
|
684,422 | 500,186 | 272,816 | |||||||||
|
Accumulated
depreciation
|
35,692 | |||||||||||
|
Reserve
for unfunded commitments
|
78,890 | 78,890 | 78,890 | |||||||||
|
Total
deferred income tax benefits
|
3,180,713 | 2,402,004 | 526,648 | |||||||||
|
Deferred
income tax liabilities:
|
||||||||||||
|
Accumulated
depreciation
|
- | 41,113 | 15,769 | |||||||||
|
Accumulated
securities discount accretion
|
51,278 | 74,408 | 57,367 | |||||||||
|
Total
deferred income tax liabilities
|
51,278 | 115,521 | 73,136 | |||||||||
|
Net
deferred income tax benefits
|
$ | 3,129,435 | $ | 2,286,483 | $ | 453,512 | ||||||
Management
has determined that no valuation allowance is required as it believes it is more
likely then not that all of the deferred tax assets will be fully realizable in
the future. At December 31, 2009, 2008, and 2007, management believes
there are no uncertain tax positions under ASC Topic 740 Income Taxes (formerly
FIN 48, Accounting for Uncertainty in Income Taxes).
F-22
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank
has a money purchase pension plan, which provides for annual employer
contributions based on employee compensation, and covers substantially all
employees. Annual contributions, included in employee benefit
expense, totaled
$231,538
, $220,000 and
$201,321 for the years ended December 31, 2009, 2008 and 2007,
respectively. The Bank is also making additional contributions under
this plan for the benefit of certain employees, whose retirement funds were
negatively affected by the termination of a prior defined benefit pension
plan. These additional contributions, also included in employee
benefit expense, totaled
$26,992
,
$33,452, and
$37,105
for the years ended
December 31, 2009, 2008, and 2007, respectively.
The Bank
also has a defined contribution retirement plan qualifying under Section 401(k)
of the Internal Revenue Code that is funded through a profit sharing agreement
and voluntary employee contributions.
The plan
provides for discretionary employer matching contributions to be determined
annually by the Board of Directors. The plan covers substantially all
employees. The Bank’s contributions to the plan, included in employee
benefit expense, totaled
$200,858
,
$116,027, and $340,254
for the years ended December 31, 2009, 2008, and 2007,
respectively.
The Bank
has life insurance contracts on several officers and is the sole owner and
beneficiary of the policies. Cash value totaled
$7,702,656
, $7,434,573, and
$7,161,403 at December 31, 2009, 2008, and 2007, respectively. Income
on their insurance investment totaled
$268,083
, $273,170, and
$268,948 for 2009, 2008, and 2007, respectively.
The Bank
has an unfunded grantor trust, as part of a change in control severance plan,
covering substantially all employees. Participants in the plan are
entitled to cash severance benefits upon termination of employment, for any
reason other than just cause, should a “change in control” of the Company
occur.
Other operating expenses include the
following:
|
2009
|
2008
|
2007
|
||||||||||
|
Professional
services
|
$ | 489,485 | $ | 485,685 | $ | 479,877 | ||||||
|
Stationery,
printing and supplies
|
189,446 | 214,815 | 225,709 | |||||||||
|
Postage
and delivery
|
162,782 | 187,017 | 222,642 | |||||||||
|
FDIC
assessment
|
549,716 | 35,544 | 31,605 | |||||||||
|
Directors
fees and expenses
|
200,765 | 198,939 | 210,097 | |||||||||
|
Marketing
|
246,947 | 255,921 | 236,917 | |||||||||
|
Data
processing
|
82,743 | 100,562 | 109,797 | |||||||||
|
Correspondent
bank services
|
87,249 | 60,706 | 95,407 | |||||||||
|
Telephone
|
173,550 | 160,242 | 157,811 | |||||||||
|
Liability
insurance
|
67,264 | 71,497 | 67,959 | |||||||||
|
Losses
and expenses on real estate owned (OREO)
|
64,790 | 8,343 | 2,905 | |||||||||
|
Other
ATM expense
|
155,818 | 232,670 | 242,429 | |||||||||
|
Other
|
518,646 | 396,749 | 293,770 | |||||||||
| $ | 2,989,201 | $ | 2,408,690 | $ | 2,376,925 | |||||||
F-23
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments:
The Bank
is a party to financial instruments in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit, which involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the consolidated financial statements.
Outstanding
loan commitments, unused lines of credit and letters of credit are as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Loan
commitments:
|
||||||||||||
|
Construction
and land development
|
$ | 1,155,200 | $ | 400,000 | $ | - | ||||||
|
Other
mortgage loans
|
2,270,000 | 2,590,000 | 685,000 | |||||||||
| $ | 3,425,200 | $ | 2,990,000 | $ | 685,000 | |||||||
|
Unused
lines of credit:
|
||||||||||||
|
Home-equity
lines
|
$ | 6,404,113 | $ | 6,395,182 | $ | 7,507,778 | ||||||
|
Commercial
lines
|
11,335,335 | 13,380,292 | 18,335,771 | |||||||||
|
Unsecured
consumer lines
|
805,479 | 785,487 | 815,960 | |||||||||
| $ | 18,544,927 | $ | 20,560,961 | $ | 26,659,509 | |||||||
|
Letters
of credit:
|
$ | 79,250 | $ | 196,530 | $ | 197,000 | ||||||
Loan
commitments and lines of credit are agreements to lend to customers as long as
there is no violation of any conditions of the contracts. Loan
commitments generally have interest rates fixed at current market amounts, fixed
expiration dates, and may require payment of a fee. Lines of credit
generally have variable interest rates. Many of the loan commitments
and lines of credit are expected to expire without being drawn upon;
accordingly, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral or
other security obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation. Collateral held
varies but may include deposits held in financial institutions, U.S. Treasury
securities, other marketable securities, accounts receivable, inventory,
property and equipment, personal residences, income-producing commercial
properties, and land under development. Personal guarantees are also
obtained to provide added security for certain commitments.
Letters
of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to guarantee the installation of real property improvements and
similar transactions. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral and obtains personal guarantees
supporting those commitments for which collateral or other securities is deemed
necessary.
The
Bank’s exposure to credit loss in the event of nonperformance by the customer is
the contractual amount of the commitment. Loan commitments, lines of
credit, and letters of credit are made on the same terms, including collateral,
as outstanding loans. As of December 31, 2009, the Bank has accrued
$200,000
as a reserve
for losses on unfunded commitments related to these financial instruments with
off balance sheet risk, which is included in other liabilities.
F-24
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
15. Stockholders’ Equity
Restrictions on dividends:
Banking
regulations limit the amount of dividends that may be paid without prior
approval of the Bank’s regulatory agencies. Regulatory approval is
required to pay dividends that exceed the Bank’s net profits for the current
year plus its retained net profits for the preceding two years.
Retained
earnings from which dividends may not be paid without prior approval totaled
approximately
$13,813,000
,
$12,430,000, and
$11,363,000 at December 31, 2009, 2008, and 2007, respectively, based on the
earnings restrictions and minimum capital ratio requirements noted
below.
Stock
repurchase program:
In
February 2008, the Company instituted a Stock Repurchase Program which expired
in December 2009. Under the program, as extended and increased, the
Company could spend up to $4,127,309 to repurchase its outstanding
stock. The repurchases may be made from time to time at a price not
to exceed $12.50 per share. During 2009, the Company repurchased
305,083 shares at an average price of $9.29. During 2008, the Company
repurchased 50,300 shares at an average price of $11.48.
Employee
stock purchase benefit plans:
The
Company has a stock-based compensation plan, which is described
below. As determined under ASC Topic 718 utilizing the Black-Scholes
option pricing model, management of the Company has not recorded any
compensation expense for options issued during the year ended December 31, 2007,
as there would be no material impact in the reported net
income. There were no options issued during the years ended December
31, 2009 and 2008.
Employees
who have completed one year of service are eligible to participate in the
employee stock purchase plan. The number of shares of common stock
granted under options will bear a uniform relationship to
compensation. The plan allows employees to buy stock under options
granted at 85% of the fair market value of the stock on the date of
grant. Options are vested when granted and will expire no later than
27 months from the grant date or upon termination of
employment. Activity under this plan is as follows:
|
Grant
|
||||||||
|
Shares
|
Price
|
|||||||
|
Outstanding
December 31, 2006
|
- | |||||||
|
Granted
on August 9, 2007, expiring December 10, 2007
|
3,126 | $ | 14.02 | |||||
|
Exercised
|
(1,041 | ) | ||||||
|
Expired
|
(2,085 | ) | $ | 14.02 | ||||
|
Outstanding
December 31, 2007
|
- | |||||||
At
December 31, 2009, shares of common stock reserved for issuance under the plan
totaled
48,011
.
The Board
of Directors may suspend or discontinue the plan at its discretion.
Dividend
reinvestment and stock purchase plan:
The
Company’s dividend reinvestment and stock purchase plan allows all participating
stockholders the opportunity to receive additional shares of common stock in
lieu of cash dividends at 95% of the fair market value on the dividend payment
date.
F-25
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Stockholders’
Equity
(continued)
During
2009, 2008, and 2007, shares of common stock purchased under the plan
totaled
20,371
, 20,003, and 12,791,
respectively. At December 31, 2009, shares of common stock reserved
for issuance under the plan totaled
125,473
.
The Board
of Directors may suspend or discontinue the plan at its discretion.
Stockholder
purchase plan:
The
Company’s stockholder purchase plan allows participating stockholders an option
to purchase newly issued shares of common stock. The Board of
Directors shall determine the number of shares that may be purchased pursuant to
options. Options granted will expire no later than three months from
the grant date. Each option will entitle the stockholder to purchase
one share of common stock, and will be granted in proportion to stockholder
share holdings. At the discretion of the Board of Directors,
stockholders may be given the opportunity to purchase unsubscribed
shares.
There was no activity under this plan
for the years ended December 31, 2009, 2008, and 2007.
At
December 31, 2009, shares of common stock reserved for issuance under the plan
totaled
313,919.
The Board
of Directors may suspend or discontinue the plan at its discretion.
Under all
three plans, options granted, exercised, and expired, shares issued and
reserved, and grant prices have been restated for the effects of any stock
dividends or stock splits.
Regulatory capital
requirements:
The
Company and Bank are subject to various regulatory capital requirements
administered by Federal and State banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company’s financial statements. The
Company and Bank must meet specific capital guidelines that involve quantitative
measures of their respective assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting principles. The
Company’s and Bank’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and Bank to maintain minimum amounts and ratios (as defined in the
regulations) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31,
2009, 2008, and 2007, that both the Company and Bank meet all capital adequacy
requirements to which they are subject.
The Bank
has been notified by its regulator that, as of its most recent regulatory
examination, it is regarded as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios. There have been no conditions or events since that notification
that management believes have changed the Bank’s category.
As
discussed in Note 8, the capital securities held by the Glen Burnie Statutory
Trust I qualifies as Tier I capital for the Company under Federal Reserve Board
guidelines.
F-26
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Stockholders’
Equity
(continued)
A
comparison of capital as of December 31, 2009, 2008, and 2007 with minimum
requirements is approximately as follows:
|
To
Be Well Capitalized
|
||||||||||||||||||||||||
|
For
Capital
|
Under
Prompt Corrective
|
|||||||||||||||||||||||
|
Actual
|
Adequacy
Purposes
|
Action
Provisions
|
||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
|
As
of December 31, 2009
|
||||||||||||||||||||||||
|
Total
Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
$ | 34,048,000 | 14.5 | % | $ | 18,798,000 | 8.0 | % | N/A | |||||||||||||||
|
Bank
|
33,745,000 | 14.4 | % | 18,786,000 | 8.0 | % | $ | 23,483,000 | 10.0 | % | ||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
31,100,000 | 13.2 | % | 9,403,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
30,799,000 | 13.1 | % | 9,390,000 | 4.0 | % | 14,085,000 | 6.0 | % | |||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Average Assets)
|
||||||||||||||||||||||||
|
Company
|
31,100,000 | 8.9 | % | 14,041,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
30,799,000 | 8.7 | % | 14,193,000 | 4.0 | % | 14,741,000 | 5.0 | % | |||||||||||||||
|
As
of December 31, 2008
|
||||||||||||||||||||||||
|
Total
Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
$ | 35,687,000 | 14.9 | % | $ | 19,122,000 | 8.0 | % | N/A | |||||||||||||||
|
Bank
|
35,707,000 | 15.0 | % | 19,107,000 | 8.0 | % | $ | 23,884,000 | 10.0 | % | ||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
33,665,000 | 14.1 | % | 9,564,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
33,485,000 | 14.0 | % | 9,553,000 | 4.0 | % | 14,330,000 | 6.0 | % | |||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Average Assets)
|
||||||||||||||||||||||||
|
Company
|
33,665,000 | 10.5 | % | 12,825,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
33,485,000 | 10.2 | % | 13,196,000 | 4.0 | % | 16,495,000 | 5.0 | % | |||||||||||||||
F-27
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
To
Be Well Capitalized
|
||||||||||||||||||||||||
|
For
Capital
|
Under
Prompt Corrective
|
|||||||||||||||||||||||
|
Actual
|
Adequacy
Purposes
|
Action
Provisions
|
||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
|
As
of December 31, 2007
|
||||||||||||||||||||||||
|
Total
Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
$ | 36,774,000 | 17.6 | % | $ | 16,744,000 | 8.0 | % | N/A | |||||||||||||||
|
Bank
|
36,592,000 | 17.5 | % | 16,728,000 | 8.0 | % | $ | 20,910,000 | 10.0 | % | ||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Risk Weighted Assets)
|
||||||||||||||||||||||||
|
Company
|
35,170,000 | 16.8 | % | 8,374,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
34,788,000 | 16.6 | % | 8,363,000 | 4.0 | % | 12,544,000 | 6.0 | % | |||||||||||||||
|
Tier
I Capital
|
||||||||||||||||||||||||
|
(to
Average Assets)
|
||||||||||||||||||||||||
|
Company
|
35,170,000 | 11.3 | % | 12,494,000 | 4.0 | % | N/A | |||||||||||||||||
|
Bank
|
34,788,000 | 11.3 | % | 12,271,000 | 4.0 | % | 15,339,000 | 5.0 | % | |||||||||||||||
Earnings
per common share are calculated as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Basic:
|
||||||||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Weighted
average common shares outstanding
|
2,734,524 | 2,981,124 | 2,988,796 | |||||||||
|
Basic
net income per share
|
$ | 0.46 | $ | 0.14 | $ | 0.93 | ||||||
Diluted
earnings per share calculations were not required for 2009, 2008, and 2007 as
there were no options outstanding at December 31, 2009, 2008, and
2007.
In
January 2008, the Company declared a six for five stock split effected in the
form of a 20% stock dividend.
Note
17. Fair Values of Financial Instruments
ASC Topic
825,
Disclosure about Fair
Value of Financial Instruments
, formerly SFAS No. 107, requires the
disclosure of the estimated fair values of financial
instruments. Quoted market prices, where available, are shown as
estimates of fair values. Because no quoted market prices are
available or a significant part of the Company’s financial instruments, the fair
values of such instruments have been derived based on the amount and timing of
future cash flows and estimated discount rates.
Present
value techniques used in estimating the fair value of the Company’s financial
instruments are significantly affected by the assumptions used. Fair
values derived from using present value techniques are not substantiated by
comparisons to independent markets, and in many cases, could not be realized in
immediate settlement of the instruments.
F-28
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Fair Values of
Financial Instruments
(continued)
ASC Topic
825 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
The
following table shows the estimated fair value and the related carrying values
of the Company’s financial instruments as December 31, 2009, 2008, and
2007. Items that are not financial instruments are not
included.
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||||||||
|
Amount
|
Value
|
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||||||||
|
Financial
assets:
|
||||||||||||||||||||||||
|
Cash
and due from banks
|
$ | 6,993,811 | $ | 6,993,811 | $ | 6,960,377 | $ | 6,960,377 | $ | 8,220,582 | $ | 8,220,582 | ||||||||||||
|
Interest-bearing
deposits in other financial institutions
|
3,748,387 | 3,748,387 | 7,883,816 | 7,883,816 | 5,847,562 | 5,847,562 | ||||||||||||||||||
|
Federal
funds sold
|
691,624 | 691,624 | 6,393,710 | 6,393,710 | 726,916 | 726,916 | ||||||||||||||||||
|
Investment
securities available for sale
|
84,462,605 | 84,462,605 | 57,948,645 | 57,948,645 | 77,182,181 | 77,182,181 | ||||||||||||||||||
|
Investment
securities held to maturity
|
- | - | - | - | 683,832 | 726,193 | ||||||||||||||||||
|
Federal
Home Loan Bank Stock
|
1,858,300 | 1,858,300 | 1,767,600 | 1,767,600 | 1,381,900 | 1,381,900 | ||||||||||||||||||
|
Maryland
Financial Bank Stock
|
100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | ||||||||||||||||||
|
Common
stock-Statutory Trust I
|
155,000 | 155,000 | 155,000 | 155,000 | 155,000 | 155,000 | ||||||||||||||||||
|
Ground
rents
|
184,900 | 184,900 | 184,900 | 184,900 | 202,900 | 202,900 | ||||||||||||||||||
|
Loans,
less allowance for credit losses
|
235,882,862 | 239,915,000 | 235,132,621 | 239,446,000 | 199,753,132 | 203,326,000 | ||||||||||||||||||
|
Accrued
interest receivable
|
1,626,792 | 1,626,792 | 1,680,392 | 1,680,392 | 1,508,640 | 1,508,640 | ||||||||||||||||||
|
Financial
liabilities:
|
||||||||||||||||||||||||
|
Deposits
|
294,357,837 | 267,358,000 | 269,767,598 | 272,091,000 | 252,916,766 | 251,088,000 | ||||||||||||||||||
|
Short-term
borrowings
|
81,290 | 81,290 | 629,855 | 629,855 | 502,529 | 502,529 | ||||||||||||||||||
|
Long-term
borrowings
|
27,033,711 | 25,979,000 | 27,071,712 | 27,162,000 | 17,107,135 | 16,982,135 | ||||||||||||||||||
|
Dividends
payable
|
230,285 | 230,285 | 385,794 | 385,794 | 385,010 | 385,010 | ||||||||||||||||||
|
Accrued
interest payable
|
112,599 | 112,599 | 139,579 | 139,579 | 134,274 | 134,274 | ||||||||||||||||||
|
Accrued
interest payable on junior subordinated debentures
|
171,518 | 171,518 | 171,518 | 171,518 | 171,518 | 171,518 | ||||||||||||||||||
|
Junior
subordinated debentures owed to unconsolidated subsidiary
trust
|
5,155,000 | 5,707,615 | 5,155,000 | 5,281,827 | 5,155,000 | 6,031,097 | ||||||||||||||||||
|
Unrecognized
financial instruments:
|
||||||||||||||||||||||||
|
Commitments
to extend credit
|
21,970,127 | 21,970,127 | 23,550,961 | 23,550,961 | 27,344,509 | 27,344,509 | ||||||||||||||||||
|
Standby
letters of credit
|
79,250 | 79,250 | 196,530 | 196,530 | 197,000 | 197,000 | ||||||||||||||||||
For
purposes of the disclosures of estimated fair value, the following assumptions
were used.
Loans:
The
estimated fair value for loans is determined by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
F-29
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Investment
securities:
Estimated
fair values are based on quoted market prices.
Deposits:
The
estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, NOW accounts and money
market accounts, is equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair value of
certificates of deposit is based on the rates currently offered for deposits of
similar maturities. The fair value estimates do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the
market.
Borrowings:
The
estimated fair value approximates carrying value for short-term
borrowings. The fair value of long-term fixed rate borrowings is
estimated by discounting future cash flows using current interest rates
currently offered for similar financial instruments.
Junior
Subordinated Debentures:
Fair
value is estimated based on quoted market prices of similar
instruments.
Other
assets and liabilities:
The
estimated fair values for cash and due from banks, interest-bearing deposits in
other financial institutions, Federal funds sold, accrued interest receivable
and payable, and short-term borrowings are considered to approximate cost
because of their short-term nature.
Other
assets and liabilities of the Bank that are not defined as financial instruments
are not included in the above disclosures, such as property and
equipment. In addition, non-financial instruments typically not
recognized in the financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items,
the estimated earnings power of core deposit accounts, the trained work force,
customer goodwill, and similar items.
Note
18. Fair Value Measurements
Effective
January 1, 2008, the Company adopted ASC Topic 820, formerly SFAS No. 157,
Fair Value Measurements
which
provides a framework for measuring and disclosing fair value under generally
accepted accounting principles. ASC Topic 820 requires disclosures
about the fair value of assets and liabilities recognized in the balance sheet
in periods subsequent to initial recognition, whether the measurements are made
on a recurring basis or on a nonrecurring basis.
ASC Topic
820 defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. ASC Topic 820 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be
used to measure fair value.
F-30
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value Hierarchy
Level 1 –
Quoted prices in active markets for identical assets or liabilities
Level 2 –
Other significant observable inputs (including quoted prices in active markets
for similar assets or liabilities)
Level 3 –
Significant unobservable inputs (including the Bank’s own assumptions in
determining the fair value of assets or liabilities)
In
determining the appropriate levels, the Company performs a detailed analysis of
assets and liabilities that are subject to ASC Topic 820.
Fair
value measurements on a recurring basis at December 31, 2009 are as
follows:
|
Fair
|
||||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
Value
|
|||||||||||||
|
Securities
available for sale
|
$ | - | $ | 84,462,605 | $ | - | $ | 84,462,605 | ||||||||
Securities
available-for-sale are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
The Bank
may also be required, from time to time, to measure certain other financial
assets and liabilities at fair value on a non-recurring basis in accordance with
GAAP. Fair value measurements on a non-recurring basis at December
31, 2009 are as follows:
|
Fair
|
||||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
Value
|
|||||||||||||
|
Impaired
loans
|
$ | - | $ | - | $ | 7,325,938 | $ | 7,325,938 | ||||||||
|
OREO
|
- | 25,000 | - | 25,000 | ||||||||||||
| $ | - | $ | 25,000 | $ | 7,325,938 | $ | 7,350,938 | |||||||||
The Bank
is predominantly a cash flow lender with real estate serving as collateral on a
majority of loans. Loans which are deemed to be impaired and
foreclosed real estate assets are primarily valued on a nonrecurring basis at
the fair values of the underlying real estate collateral. The Bank
determines such fair values from independent appraisals.
Non-Financial
Assets and Non-Financial Liabilities:
Application
of ASC Topic 820 to non-financial assets and non-financial liabilities became
effective January 1, 2009. The Corporation has no non-financial
assets or non-financial liabilities measured at fair value on a recurring
basis. Certain non-financial assets and non-financial liabilities
typically measured at fair value on a non-recurring basis include foreclosed
assets (upon initial recognition or subsequent impairment), non-financial assets
and non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, and intangible assets and other non-financial
long-lived assets measured at fair value for impairment assessment.
Foreclosed
real estate were adjusted to their fair values, resulting in an impairment
charge, which was included in earnings for the year. Foreclosed real
estate, which are considered to be non-financial assets, have been valued using
a market approach. The values were determined using market prices of
similar real estate assets, which the Bank considers to be level 2
inputs.
F-31
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
19. Recently Issued Accounting Pronouncements
In June
2009, the FASB issued Accounting Standard Update (ASU) 2009-01 – Topic 105
Generally Accepted Accounting
Principles-amendments based on
SFAS No. 168
- The FASB Accounting Standards
Codification™ and the Hierarchy of Generally Accepted Accounting Principles
(formerly FASB Statement No. 168).
Under the ASU, the ASC
became the source of authoritative U.S. GAAP recognized by the FASB (see Note
1).
On
January 12, 2009, the FASB amended Topic 820 -
Fair Value Measurement and
Disclosures
of the ASC to reduce complexity and achieve more consistent
determinations as to whether other-than-temporary impairments of available for
sale or held to maturity debt securities have occurred. The ASU was
effective for interim and annual reporting periods ending after December 15,
2008. The adoption of this ASU did not have an impact on the
Company’s consolidated financial statements. This ASU was formerly
FASB Staff Position EITF 99-20-1,
Amendments to the Impairment
Guidance of EITF Issue No. 99-20
(FSP).
In August
2009 the FASB amended Topic 820 -
Fair Value Measurements and
Disclosures
by issuance of ASU No. 2009-05. The update
addresses measuring liabilities at fair value. The update provides
clarification that in circumstances in which a quoted price is an active market
for the identical liability is not available, other specified techniques may be
used to measure fair value. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.
In April
2009, the FASB issued three amendments to provide additional guidance and
disclosures regarding fair value measurements and impairments of
securities. These three amendments were effective for interim and
annual periods ending after June 15, 2009. The adoption of these
amendments did not have a material impact on the Company’s consolidated
financial statements. These amendments were formerly:
FSP FAS
157-4.
“Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly”
, provides guidance for estimating fair value when the volume and
level of activity for an asset or liability have significantly
decreased. This amendment is included in ASC 820-10-35.
FSP FAS
115-2 and FAS 124-2
Recognition and Presentation of Other-Than-Temporary Impairment
provided
guidance for impaired debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments
on debt and equity securities in financial statements
.
This amendment is included
in ASC 320-10-25.
FSP FAS
107-1 and APB 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
, required
disclosure about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements. This amendment is included in ASC 825-10-50.
In May
2009, the FASB issued FASB Statement No. 165,
Subsequent Events,
which
established general standards of and accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This FASB was effective for
interim and annual periods ending after June 15, 2009. The Company
has complied with the requirements of FASB 165. This amendment is
included in ASC 855-10-50 and 55.
F-32
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In June
2009, the FASB issued FASB Statement No. 166,
Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140
to improve the
reporting for the transfer of financial assets resulting from 1) practices that
have developed since the issuance of FASB Statement No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
that
are not consistent with the original intent and key requirements of that
Statement and (2) concerns of financial statement users that many of the
financial assets (and related obligations) that have been derecognized should
continue to be reported in the financial statements of
transferors. This Statement must be applied as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. Earlier application is
prohibited. The adoption of this Statement did not have a material impact
on the Company’s consolidated financial statements. This amendment is
included in ASU 2009-16, an amendment to ASC 860-10.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation
No. 46(R)
to amend certain requirements of FASB Interpretation No. 46
(revised December 2003),
Consolidation of Variable Interest
Entities
to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. The Statement is effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The Company
will review the requirements of FASB No. 167 and comply with its
requirements. The adoption of this Statement is not expected to have
a material impact on the Company’s consolidated financial
statements. This amendment is included in ASC 942-810.
In
January 2010, the FASB issued ASU No. 2010-06-
Fair Value Measurements and
Disclosures
amending Topic 820. The ASU provides for
additional disclosures of transfers between assets and liabilities valued under
Level 1 and 2 inputs as well as additional disclosures regarding those assets
and liabilities valued under Level 3 inputs. The new disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009 except for those provisions addressing Level 3 fair value measurements
which provisions are effective for fiscal years, and periods therein, beginning
after December 15, 2010.
F-33
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
20. Parent Company Financial Information
The
Balance Sheets, Statements of Income, and Statements of Cash Flows for Glen
Burnie Bancorp (Parent Only) are presented below:
|
Balance
Sheets
|
||||||||||||
|
December
31,
|
2009
|
2008
|
2007
|
|||||||||
|
Assets
|
||||||||||||
|
Cash
|
$ | 348,515 | $ | 338,902 | $ | 532,222 | ||||||
|
Investment
in The Bank of Glen Burnie
|
29,848,797 | 32,727,244 | 34,354,422 | |||||||||
|
Investment
in GBB Properties, Inc.
|
260,184 | 261,999 | 263,787 | |||||||||
|
Investment
in the Glen Burnie Statutory Trust I
|
155,000 | 155,000 | 155,000 | |||||||||
|
Due
from subsidiaries
|
43,996 | 22,878 | 22,709 | |||||||||
|
Other
assets
|
49,433 | 114,541 | 119,542 | |||||||||
|
Total
assets
|
$ | 30,705,925 | $ | 33,620,564 | $ | 35,447,682 | ||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||||
|
Dividends
payable
|
$ | 230,285 | $ | 385,794 | $ | 385,010 | ||||||
|
Accrued
interest payable on borrowed funds
|
171,518 | 171,518 | 171,518 | |||||||||
|
Other
liabilities
|
- | - | - | |||||||||
|
Borrowed
funds from subsidiary
|
5,155,000 | 5,155,000 | 5,155,000 | |||||||||
|
Total
liabilities
|
5,556,803 | 5,712,312 | 5,711,528 | |||||||||
|
Stockholders’
equity:
|
||||||||||||
|
Common
stock
|
2,683,015 | 2,967,727 | 2,498,465 | |||||||||
|
Surplus
|
9,190,911 | 11,568,241 | 11,921,129 | |||||||||
|
Retained
earnings
|
14,311,508 | 14,129,637 | 15,750,156 | |||||||||
|
Accumulated
other comprehensive loss, net of benefits
|
(1,036,312 | ) | (757,353 | ) | (433,596 | ) | ||||||
|
Total
stockholders’ equity
|
25,149,122 | 27,908,252 | 29,736,154 | |||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 30,705,925 | $ | 33,620,564 | $ | 35,447,682 | ||||||
The
borrowed funds from subsidiary balance represents the junior subordinated debt
securities payable to the wholly-owned subsidiary trust that was deconsolidated
as a result of applying the provisions of ASC Topic 810, formerly FIN
46. The Company continues to guarantee the capital securities issued
by the trust, which totaled
$5,000,000
at December 31,
2009 (See Note 8).
F-34
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Statements
of Income
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Dividends
and distributions from subsidiaries
|
$ | 4,269,844 | $ | 1,902,239 | $ | 1,565,000 | ||||||
|
Other
income
|
16,430 | 16,430 | 16,430 | |||||||||
|
Interest
expense on junior subordinated debentures
|
(546,430 | ) | (546,180 | ) | (546,430 | ) | ||||||
|
Other
expenses
|
(122,096 | ) | (69,468 | ) | (62,271 | ) | ||||||
|
Income
before income tax benefit and equity in undistributed net income of
subsidiaries
|
3,617,748 | 1,303,021 | 972,729 | |||||||||
|
Income
tax benefit
|
246,018 | 226,356 | 224,002 | |||||||||
|
Change
in undistributed equity of subsidiaries
|
(2,601,304 | ) | (1,125,415 | ) | 1,585,410 | |||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Statements
of Cash Flows
|
||||||||||||
|
Years
Ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 1,262,462 | $ | 403,962 | $ | 2,782,141 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Decrease
in other assets
|
65,108 | 5,001 | 458 | |||||||||
|
(Increase)
decrease in due from subsidiaries
|
(21,118 | ) | (169 | ) | 4,111 | |||||||
|
Change
in undistributed equity of subsidiaries
|
2,601,304 | 1,125,415 | (1,585,410 | ) | ||||||||
|
Net
cash provided by operating activities
|
3,907,756 | 1,534,209 | 1,201,300 | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from dividend reinvestment plan
|
173,667 | 194,054 | 200,459 | |||||||||
|
Proceeds
from issuance of common stock
|
- | - | 14,595 | |||||||||
|
Repurchase
and retirement of common stock
|
(2,835,709 | ) | (577,239 | ) | - | |||||||
|
Dividends
paid
|
(1,236,101 | ) | (1,344,344 | ) | (1,326,051 | ) | ||||||
|
Net
cash used in financing activities
|
(3,898,143 | ) | (1,727,529 | ) | (1,110,997 | ) | ||||||
|
Increase
(decrease) in cash
|
9,613 | (193,320 | ) | 90,303 | ||||||||
|
Cash,
beginning of year
|
338,902 | 532,222 | 441,919 | |||||||||
|
Cash,
end of year
|
$ | 348,515 | $ | 338,902 | $ | 532,222 | ||||||
F-35
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of consolidated unaudited quarterly results of
operations:
|
2009
|
||||||||||||||||
|
(Dollars
in thousands,
|
Three
months ended,
|
|||||||||||||||
|
except
per share amounts)
|
December
31
|
September
30
|
June
30
|
March
31
|
||||||||||||
|
Interest
income
|
$ | 4,673 | $ | 4,749 | $ | 4,689 | $ | 4,533 | ||||||||
|
Interest
expense
|
1,570 | 1,649 | 1,655 | 1,668 | ||||||||||||
|
Net
interest income
|
3,103 | 3,100 | 3,034 | 2,865 | ||||||||||||
|
Provision
for credit losses
|
1,747 | 337 | 209 | 150 | ||||||||||||
|
Net
securities gains
|
402 | 135 | 51 | (2 | ) | |||||||||||
|
Income
before income taxes
|
(699 | ) | 648 | 570 | 510 | |||||||||||
|
Net
income
|
(210 | ) | 527 | 490 | 455 | |||||||||||
|
Net
income per share (basic and diluted)
|
$ | (0.08 | ) | $ | 0.20 | $ | 0.18 | $ | 0.16 | |||||||
|
2008
|
||||||||||||||||
|
(Dollars
in thousands,
|
Three
months ended,
|
|||||||||||||||
|
except
per share amounts)
|
December
31
|
September
30
|
June
30
|
March
31
|
||||||||||||
|
Interest
income
|
$ | 4,604 | $ | 4,667 | $ | 4,492 | $ | 4,413 | ||||||||
|
Interest
expense
|
1,661 | 1,546 | 1,499 | 1,548 | ||||||||||||
|
Net
interest income
|
2,943 | 3,121 | 2,993 | 2,865 | ||||||||||||
|
Provision
for credit losses
|
700 | 239 | 152 | 55 | ||||||||||||
|
Net
securities gains
|
50 | 86 | 48 | 7 | ||||||||||||
|
Income
before income taxes
|
272 | (1,915 | ) | 743 | 625 | |||||||||||
|
Net
income
|
1,382 | (2,118 | ) | 604 | 536 | |||||||||||
|
Net
income per share (basic and diluted)
|
$ | 0.47 | $ | (0.71 | ) | $ | 0.20 | $ | 0.18 | |||||||
|
2007
|
||||||||||||||||
|
(Dollars
in thousands,
|
Three
months ended,
|
|||||||||||||||
|
except
per share amounts)
|
December
31
|
September
30
|
June
30
|
March
31
|
||||||||||||
|
Interest
income
|
$ | 4,487 | $ | 4,476 | $ | 4,465 | $ | 4,409 | ||||||||
|
Interest
expense
|
1,506 | 1,441 | 1,507 | 1,517 | ||||||||||||
|
Net
interest income
|
2,981 | 3,035 | 2,958 | 2,892 | ||||||||||||
|
Provision
for credit losses
|
- | - | 20 | 30 | ||||||||||||
|
Net
securities gains
|
- | 115 | 4 | 1 | ||||||||||||
|
Income
before income taxes
|
903 | 1,049 | 873 | 715 | ||||||||||||
|
Net
income
|
700 | 785 | 691 | 606 | ||||||||||||
|
Net
income per share (basic and diluted)
|
$ | 0.23 | $ | 0.27 | $ | 0.23 | $ | 0.20 | ||||||||
F-36
TABLE OF CONTENTS
Part IItem 1 . BusinessItem 2 . PropertiesItem 3 . Legal ProceedingsPart IIItem 4 . Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 1. BusinessItem 5 . Selected Financial DataItem 6. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7 . Financial Statements and Supplementary DataItem 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8a(t) . Controls and ProceduresItem 8a(t)Item 8B . Other InformationPart IIIItem 9 . Directors, Executive Officers and Corporate GovernanceItem 10 . Executive CompensationItem 11. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12 . Certain Relationships and Related Transactions and Director IndependenceItem 13 . Principal Accountant Fees and ServicesPart IVItem 14 . Exhibits and Financial Statement SchedulesNote 1. Summary Of Significant Accounting PoliciesNote 1. Summary Of Significant Accounting Policies (continued)Note 2. Restrictions on Cash and Due From BanksNote 3. Investment SecuritiesNote 3. Investment Securities (continued)Note 4. LoansNote 4. Loans (continued)Note 5. Premises and EquipmentNote 6. Short-term BorrowingsNote 6. Short-term Borrowings (continued)Note 7. Long-term BorrowingsNote 8. Junior Subordinated Debentures Owed To Unconsolidated Subsidiary TrustNote 9. DepositsNote 9. Deposits (continued)Note 10. Income TaxesNote 10. Income Taxes (continued)Note 11. Pension and Profit Sharing PlansNote 12. Other Benefit PlansNote 13. Other Operating ExpensesNote 14. Commitments and ContingenciesNote 15. Stockholders EquityNote 15. Stockholders Equity (continued)Note 16. Earnings Per Common ShareNote 17. Fair Values Of Financial InstrumentsNote 17. Fair Values Of Financial Instruments (continued)Note 18. Fair Value MeasurementsNote 18. Fair Value Measurements (continued)Note 19. Recently Issued Accounting PronouncementsNote 19. Recently Issued Accounting Pronouncements (continued)Note 20. Parent Company Financial InformationNote 20. Parent Company Financial Information (continued)Note 21. Quarterly Results Of Operations (unaudited)