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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File No. 33-62278
GLEN BURNIE BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1782444
--------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
101 CRAIN HIGHWAY, S.E., GLEN BURNIE, MARYLAND 21061
- ---------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 766-3300
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 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 statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of June 30, 1997, the aggregate market value of the registrant's voting stock
held by non-affiliates was approximately $13,632,625 based on the closing sales
price of $25.00 per share of the registrant's Common Stock on such date as
quoted on the OTC Bulletin Board. For purposes of this calculation only, it is
assumed that directors, officers and beneficial owners of more than 5% of the
registrant's outstanding voting stock are deemed affiliates.
Number of shares of Common Stock outstanding as of June 30, 1997: 883,858
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PART I
Item 1. Business
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 Anne Arundel County and surrounding areas from its main office in Glen
Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville and
Severn, Maryland. The Bank is engaged in the commercial and retail banking
business as authorized by the banking statutes of the State of Maryland,
including receiving of demand and time deposits, and the making of loans to
individuals, associations, partnerships and corporations. 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'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.
Market Area
The Bank considers its principal market area for lending and deposit
products to consist of Northern Anne Arundel County, Maryland. Northern Anne
Arundel County is a mature suburb of the City of Baltimore which in recent years
has experienced modest population growth and is 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 the nearby
Baltimore Washington International airport. Anne Arundel County is generally
considered to have more affordable housing than other suburban Baltimore areas
and has begun to attract younger persons and minorities on this basis. This
inflow, however, has not been sufficient to affect current population trends.
Risk of Continued Losses
During the years ended December 31, 1996 and 1995, the Company
reported consolidated net losses of $1.020 million and $1.727 million,
respectively. These results included substantial provisions for credit losses of
$6.596 million made in 1996 and $7.925 million made in 1995 to bolster the
Company's consolidated allowance for credit losses which was being depleted due
to substantial loan quality deterioration. Net charge-offs were $5.233 million
during 1996 and $6.991 million during 1995.
The ability of the Company to recover from its consolidated net loss
position is largely dependent on the quality and level of the Bank's earning and
nonperforming assets, the interest rate environment and the adequacy of the
provision for credit losses. The real estate market in Anne Arundel County,
Maryland, the area where the Bank conducts its business, and the overall economy
in such area is likely to continue to have a significant effect on the quality
and level of the Bank's assets in the future. While the consolidated allowance
for credit losses of $5.061 million at the end of 1996 represented less than
3.9% of the Bank's gross loans, it represented 85.0% of its impaired loans.
Although this allowance is intended to cover known and inherent risks in the
loan portfolio, the allowance is an estimate which is inherently uncertain and
depends on the outcome of future events. There can be no assurance that
substantial future provisions for credit losses will not be required, or that
such provisions will not adversely impact the Bank's results of operations in
any given reporting period or over a longer period of time. Moreover, there can
be no assurance that the Bank will not continue to make loan charge-offs in the
future or that the allowance for credit losses will be sufficient to cover
future loan charge-offs.
1
Recent Loan Loss Experience Involving Significant Borrowers
The Bank had outstanding loans to Mr. Brian Davis and various entities
and persons affiliated with him aggregating approximately $6.0 million. The
major borrowers in the affiliated group have filed bankruptcy proceedings and
significant recovery by the Bank on these loans is unlikely. As a result of the
foregoing, all but $30,000 of these loans have been charged-off.
Mr. Davis has pled guilty to committing fraud against the Bank and
various other banks. The Bank's former chief lending officer, Steven G. Boyd,
has pled guilty to accepting bribes from Mr. Davis in return for approving loans
to Mr. Davis and related entities and to straw borrowers. The Federal grand jury
indictment against Mr. Boyd alleged, among other things, that he approved and
recommended loans for Mr. Davis and his affiliates and in addition approved
loans from the Bank of approximately $500,000 to "straw men" the proceeds of
which he knew were for the benefit of Mr. Davis in violation of the Bank's limit
on the amount that could be lent to related borrowers. The United States
Attorney's Office has stated that the investigation which led to Mr. Boyd's
indictment and Mr. Davis's conviction is continuing.
At December 31, 1996, an equipment and automobile leasing entity and
its affiliates had approximately $6,218,000 in outstanding lease loans on which
approximately $700,000 in charge-offs had been taken during 1996. The Bank has
ceased approving new loans for these customers due to concerns about the quality
of certain of the loans and leases.
Memoranda of Understanding
Effective June 13, 1996, the Board of Directors, the FDIC and the
Maryland State Bank Commissioner (the "Commissioner") entered into a Memorandum
of Understanding ("M.O.U.") which required the Bank to establish written
programs to reduce classified assets and contingent liabilities and to report to
the FDIC and the Commissioner quarterly on the status of such assets and
liabilities, to collect or charge-off certain classified loans, to maintain
ratios relating to capital and to delinquent and non-accrual loans, to provide
the FDIC and the Commissioner with thirty days notice prior to dividend
declaration, to develop an internal loan review and grading system, policies for
loan underwriting and administration, a strategic plan for improving operations
and budgets, and policies and monitoring systems for liquidity and interest rate
risk, to evaluate the allowance for loan and lease losses quarterly, to engage a
chief lending officer, to cease any violations of law or regulations cited by
the FDIC or the Commissioner, and to establish a committee of three directors to
monitor compliance with the M.O.U.
Effective July 10, 1997, the Board of Directors entered into a revised
Memorandum of Understanding (the "Revised M.O.U.") with the FDIC and the
Commissioner which supersedes the June 13, 1996 M.O.U. Under the Revised M.O.U.,
the Bank may not declare or pay any dividends to the Company without the prior
written consent of the FDIC and the Commissioner if the ratio of the Bank's Tier
1 capital to assets would be less than 6.0%. Dividends to the Company may not
exceed 50% of net operating income after taxes for the period declared without
the prior written consent of the FDIC and the Commissioner. Within 360 days of
the Effective Date of the Revised M.O.U., the Bank is required to reduce its
classified assets to 25% of Tier 1 Capital plus its Allowance for Loan and Lease
Losses and to reduce its ratio of non-accrual loans and loans 30 days or more
past due to no more than 3.5% of gross loans. Additionally, the Bank will adopt
and implement an internal loan review and grading system meeting certain
criteria and make certain changes in existing policies and in its strategic
plan.
Should the Bank fail to comply with the provisions of the M.O.U., the
FDIC or the Commissioner could seek to impose greater sanctions on the Bank.
Enforcement actions may include the issuance of formal and informal agreements,
the imposition of civil money penalties and the issuance of a cease-and-desist
order that can be judicially enforced. Neither the FDIC nor the Commissioner has
sought to initiate any such measures.
2
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, equipment and
automobile lease financing, commercial loans and consumer installment 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 Bank 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 lease financing portfolio consists
of loans purchased from third party originators.
During the last fiscal year, the Bank's loan portfolio significantly
decreased in size primarily due to declines in the size of construction and land
development portfolio and in its lease financing and demand and time loan
portfolio. The declines in the construction and land development portfolio
reflect the significant increase in such lending in fiscal year 1994 which was
not sustained in subsequent years. The Bank has decided to decrease its
equipment and automobile lease-based lending because of the difficulties
encountered in monitoring the financial condition of borrowers on purchased
leases. The declines in the demand and time loan portfolio reflect in part the
substantial charge-offs which the Bank has taken during the past two fiscal
years.
3
The following table provides information on the composition of the
loan portfolio at the indicated dates.
At December 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
$ % $ % $ % $ % $ %
-------- ------ -------- ------ -------- ------ -------- ------- -------- ------
(Dollars in thousands)
Real estate.......... $ 88,923 68.54% $ 98,422 63.84% $ 94,715 60.49% $ 85,313 59.07% $ 77,855 59.92%
Installment.......... 22,281 17.17 27,898 18.10 32,352 20.66 27,537 19.07 21,706 16.70
Credit card.......... 1,434 1.11 1,484 0.96 1,233 0.79 953 0.66 264 0.20
Commercial........... 17,095 13.18 26,366 17.10 28,278 18.06 30,615 21.20 30,130 23.18
-------- ------ -------- ------ -------- ------ -------- ------- -------- ------
129,733 100.00% 154,170 100.00% 156,578 100.00% 144,418 100.00% 129,955 100.00%
Allowance for
credit losses ..... 5,061 3,698 2,764 2,552 1,756
-------- -------- -------- -------- --------
Loans, net .......... $124,672 $150,472 $153,814 $141,866 $128,199
======== ======== ======== ======== ========
The following table sets forth the maturities for various categories
of the loan portfolio at December 31, 1996. Demand loans and loans which have no
stated maturity are treated as due in one year or less. At December 31, 1996,
the Company had $14,654,857 in loans due after one year with variable rates and
$103,876,394 in such loans with fixed rates. The Bank's long-term real estate
loans allow the Bank to call the loan after three years in order to adjust the
interest rate if necessary. The Bank has generally not exercised its call option
and the following table assumes no exercise of the Bank's call option.
Due Over
Due Within One to Five Due Over
One Year Years Five Years Total
-------- ----- ---------- -----
(In thousands)
Real Estate........ $ 5,546 $10,802 $72,575 $ 88,923
Installment........ 1,095 18,557 2,629 22,281
Credit Card........ 1,434 -- -- 1,434
Commercial......... 3,127 13,475 493 17,095
------- ------- ------- --------
$11,202 $42,834 $75,697 $129,733
======= ======= ======= =========
4
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. At December 31, 1996, the Bank had $35.6 million in
residential mortgages, $47.8 million in commercial mortgages and $5.5 million in
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. The Bank's
long-term, fixed-rate mortgages include a provision allowing the Bank to call
the loan after three years in order to adjust the interest rate. The Bank,
however, has never exercised this right. 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 75%. The maximum permissible loan-to-value ratio for
residential and commercial 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.
Commercial Lending. The Bank's commercial loan portfolio consists
principally of demand and time loans for commercial purposes and purchased lease
financings. The Bank's business demand and time lending includes various working
capital loans, lines of credit and letters of credit for commercial customers.
Demand loans require the payment of interest until called while time loans
require a single payment of principal and interest at maturity. 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. The Bank's lease financing portfolio includes leases on various
types of commercial equipment that have been purchased from various vendors. The
Bank has determined to de-emphasize lease financing because of the difficulties
encountered in monitoring the financial condition of borrowers on purchased
leases.
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, 1996, approximately $9,834,381, or 44%, of the installment loans in
the Bank's portfolio had been originated for commercial purposes and
$12,446,283, or 56%, had been originated for consumer purposes.
Credit Card and Related Loans. Credit card and related loans consist
of outstanding balances on credit cards and overdraft lines of credit. The Bank
offers no annual fee VISA(R) and MasterCard(R) credit cards to qualified
customers. Credit card billing and payment processing is done for the Bank by an
unaffiliated third party which receives a fee for such services. The Bank's
overdraft protection line of credit is offered as a convenience to qualified
customers.
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 cost of production,
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 are affected primarily by domestic 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.
5
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 Senior Credit Officer to identify potential underperforming
credits, estimate loss exposure and to ascertain compliance with the Bank's
policies. On a quarterly basis, the internal auditor performs an independent
loan review. For significant problem loans, management review consists of
evaluation of the financial strengths of the borrower and the 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 lending authority granted by the Bank
to any one individual is $500,000. A combination of approvals from certain
officers may be used to lend up to an aggregate of $750.000. The Bank's
Executive Committee is authorized to approve loans up to $1,000,000. 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 reserve for possible
loan losses. Under this authority, the Bank would have been permitted to lend up
to $2.1 million to any one borrower at December 31, 1996. By interpretive ruling
of the Commissioner, 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 would have been permitted to
lend up to $3.4 million to any one borrower at December 31, 1996. It is
currently the Bank's policy to limit its exposure to any one borrower to no more
than $1.8 million in the aggregate unless the loan is approved by a 75% vote of
the Board of Directors. At December 31, 1996, the largest amount outstanding to
any one borrower and their related interests was $3.2 million.
Non-Performing Loans
It is the current policy of the Bank to discontinue the accrual of
interest when a loan becomes 90 days or more delinquent and circumstances
indicate that collection is doubtful. For fiscal years prior to the 1996 fiscal
year, the Bank's policy was to consider real estate loans on a case-by-case
basis subject to collateral. For the year ended December 31, 1996, interest of
approximately $457,035 would have been accrued on non-accrual loans if such
loans had been current in accordance with their original terms. During that
time, $28,822 in interest on such loans was included in income.
6
The following table sets forth the amount of the Bank's non-accrual
loans and accruing loans 90 days or more past due at the dates indicated. At
each of the dates indicated, the Bank did not have any troubled debt
restructurings within the meaning of Statement of Financial Accounting Standards
No. 15.
At December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- ------
(Dollars in thousands)
Non-accrual Loans:
Real estate.................................... $ 4,000 $ 1,086 $ 556 $ 800 $ 925
Installment.................................... 168 165 25 15 39
Credit card & related ......................... 0 4 0 0 0
Commercial..................................... 378 1,120 74 299 43
-------- --------- --------- ---------- ----------
Total Nonaccrual Loans...................... 4,546 2,375 655 1,114 1,007
-------- --------- --------- ---------- ----------
Accruing Loans Past Due 90 Days or More:
Real Estate.................................... 87 2,967 2,604 1,602 1,702
Installment.................................... 0 300 0 0 0
Credit card & related ......................... 0 28 5 19 0
Commercial..................................... 0 610 310 424 0
-------- --------- --------- ---------- ----------
Total Accruing Loans Past Due 90 days
or More.................................. 87 3,905 2,919 2,045 1,702
-------- --------- --------- ---------- ----------
Total Non-Performing Loans.................. $ 4,633 $ 6,280 $ 3,574 $ 3,159 $ 2,709
======== ========= ========= ========== ==========
Non-Performing Loans to Total Loans......... 3.72% 4.17% 2.32% 2.23% 2.11%
======== ========= ========= ========== ==========
Allowance for Credit Losses to
Non-Performing Loans .................... 109.24% 58.89% 77.39% 80.79% 64.78%
======== ========= ========= ========== ==========
Approximately $3,454,234, or 74.6% of the Bank's non-accrual loans at
December 31, 1996 were attributable to ten borrowers. Charge-offs of $528,805
have previously been taken on these loans. Five of these borrowers with loans
totaling $1,501,490 were 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. Each of these loans is secured by collateral with a
value well in excess of the principal amount of the Bank's loan.
At December 31, 1996, there were $1,408,000 in loans outstanding not
reflected in the above table as to which known information about possible credit
problems of borrowers caused management to have serious doubts as to the ability
of such borrowers to comply with present loan repayment terms. Such loans
consist of loans which were not 90 days or more past due but where the borrower
is in bankruptcy or has a history of delinquency or the loan to value ratio is
considered excessive due to deterioration of the collateral or other factors.
At December 31, 1996 and 1995, the Company had $602,000 and $432,926,
respectively, in real estate acquired in partial or total satisfaction of debt.
As of December 31, 1996, a subsidiary of the Company, GBB Properties, Inc.
("GBB"), owned two parcels of real estate obtained from foreclosures by the
Bank. The book values of these properties were $143,000. One was a residential
property which could be used for certain commercial purposes which was
subsequently sold for $155,000 ($25,500 over its book value). The other
consisted of office condominiums. GBB also intends to sell this property. At
December 31, 1996, the Bank owned three foreclosed real estate properties having
a book value of $329,785. They consisted of residential property which the Bank
was holding for sale. 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 of 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.
7
Allowance for Credit Losses
The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the allowance for
credit losses when management believes that the collectibility of the principal
is unlikely. The allowance, based on evaluations of the collectibility of loans
and prior loan loss experience, is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and trends
that may affect the borrowers' ability to pay.
Transactions in the allowance for credit losses during the last five
fiscal years were as follows:
Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
(Dollars in thousands)
Beginning balance.............................. $ 3,698 $ 2,764 $ 2,552 $ 1,755 $ 993
----------- ----------- ----------- ---------- ----------
Loans charged off
Real estate............................... 1,047 1,541 425 98 193
Installment............................... 786 270 29 41 25
Credit card & related .................... 182 194 1 1 7
Commercial................................ 3,453 5,056 520 194 73
----------- ----------- ----------- ---------- ----------
Total................................ 5,468 7,061 975 334 298
----------- ----------- ----------- ---------- ----------
Recoveries
Real estate............................... 103 33 18 1 41
Installment............................... 57 11 20 19 16
Credit card & related .................... 2 0 0 0 0
Commercial................................ 73 26 29 31 3
----------- ----------- ----------- ---------- ----------
Total................................. 235 70 67 51 60
----------- ----------- ----------- ---------- ----------
Net charge-offs................................ 5,233 6,991 908 385 238
Provisions charged to operations............... 6,596 7,925 1,120 1,080 1,000
----------- ----------- ----------- ---------- ----------
Ending balance................................. $ 5,061 $ 3,698 $ 2,764 $ 2,552 $ 1,755
=========== =========== =========== ========== ==========
Average loans.................................. $ 146,922 $ 156,219 $ 151,933 $ 139,280 $ 116,783
Net charge-offs to average loans............... 3.56% 4.48% 0.60% 0.20% 0.19%
The Bank's high level of loan charge-offs during the last two fiscal
years is primarily attributable to its lending relationships with Mr. Brian
Davis and various affiliated entities. See " -- Recent Loan Loss Experience
Involving Significant Borrowers." Such loans primarily consisted of loans for
purchases of trucks and other non-real estate secured loans which are
categorized under commercial loans in the above table. In addition, during
fiscal year 1996, the Bank began charging off all non-real estate secured loans
upon 90 days delinquency which contributed to a continued high level of
charge-offs.
8
The following table shows the allowance for credit losses broken down
by loan category as of December 31, 1996. Such information for earlier periods
is not available.
At December 31, 1996
-----------------------------------------
Reserve Percent of Loans
for Each in Each Category
Portfolio Category to Total Loans
--------- -------- --------------
(Dollars in thousands)
Real Estate............. $2,109 68.54%
Installment............. 448 17.17
Credit Card............. 49 1.11
Commercial.............. 2,455 13.18
Unallocated............. -- --
------ ------
Total............. $5,061 100.00%
====== ======
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 U.S. Treasury securities as well as
securities issued by U.S. government agencies including mortgage-backed
securities. The Bank also invests in obligations of certain states and their
political subdivisions.
The following table presents at amortized cost the composition of the
investment portfolio by major category at the dates indicated.
At December 31,
------------------------------
1996 1995 1994
------- ------- -------
(In thousands)
U.S. Treasury securities .................. $13,061 $15,071 $17,099
U.S. Government agencies and
mortgage-backed securities............. 56,607 30,235 22,162
Obligations of states and political
subdivisions........................... 25,726 27,380 20,471
Other securities and stock................. 748 699 685
------- ------- -------
Total investment securities................ $96,142 $73,385 $60,417
======= ======= =======
9
The following table sets forth the scheduled maturities, book values
and weighted average yields for the Company's investment securities portfolio at
December 31, 1996. Weighted average yields for obligations of states and
political subdivisions are presented on a tax-equivalent basis.
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total
----------------- ----------------- ----------------- ------------------- ----------------
Weighted Weighted Weighted Weighted Weighted
Book Average Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield Value Yield
------ ----- ----- ----- ----- ----- ----- ----- ------- -----
(Dollars in thousands)
U.S. Treasury securities $3,999 5.89% $ 6,342 6.00% $ 2,720 6.08% $ -- --% $13,061 5.99%
U.S. Government agencies and
mortgage-backed securities -- -- 22,318 6.61 20,885 7.16 13,404 7.16 56,607 6.84
Obligations of states and political
subdivisions 231 8.47 2,179 9.09 8,873 8.68 14,443 7.70 25,726 8.16
Other securities and stock 748 7.25 -- -- -- -- -- -- 748 7.25
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Total investment securities $4,978 6.21% $30,839 6.66% $32,478 7.48% $27,847 7.44% $96,142 7.08%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
At December 31, 1996, 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 other than its investments in Maryland State,
County and Municipal securities which had an aggregate book value of $17.0
million and aggregate market value of $17.5 million at that date and its
investments in Pennsylvania State, County and Municipal securities which had a
book value of $8.7 million and a market value of $8.8 million at that date. The
foregoing totals include securities payable from or secured by different sources
of revenue or taxing authorities.
Deposits and Sources of Funds
The funds needed by the Bank to make loans are generated by deposit
accounts solicited from the communities surrounding its main office and five
branches in northern Anne Arundel county. Consolidated total deposits were
$232,745,975 as of December 31, 1996. In addition, the Bank may borrow up to $26
million under a line of credit from the Federal Home Loan Bank of Atlanta.
The Bank's deposit products include regular savings accounts
(statements), money market deposit accounts, demand deposit accounts, NOW
checking accounts, IRA accounts and certificates of deposit accounts. 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, automated teller machines, telephone
banking, and a customer call center.
The Bank obtains deposits principally through its network of six
offices. The Bank does not solicit brokered deposits. At December 31, 1996, the
Bank had approximately $12.1 million in certificates of deposit and other time
deposits of $100,000 including IRA accounts. The following table provides
information as to the maturity of all time deposits of $100,000 or more at
December 31, 1996.
Amount
--------------
(In thousands)
Three months or less $ 1,614
Over three through six months 1,757
Over six through 12 months 2,366
Over 12 months 6,423
-----------
Total $ 12,130
===========
10
Competition
The Bank faces competition from other community banks and financial
institutions and larger intrastate and interstate banks and financial
institutions compete vigorously (currently, twelve financial institutions
operate within two miles of the Bank's headquarters). Former directors of the
Bank, including its former Chief Executive Officer, have established a new bank
with a main office in Glen Burnie close to the Bank's headquarters. The Bank
anticipates that this new bank will solicit a significant number of its
customers.
The Bank's interest rates, loan and deposit terms, and offered
products and services are governed, 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, it believes, would welcome personal
service and flexibility. While it believes it is the sixth largest deposit
holder in Anne Arundel County, Maryland, with an estimated 5.74% market share as
of June 1996 (the latest date for which the Bank has relevant data available),
it believes its greatest competition comes from smaller community banks which
offer similar personalized services.
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. No branch expansion occurred in 1996.
Employees
At December 31, 1996, the Bank had 151 employees. Neither the Company
nor GBB currently has any employees.
SUPERVISION AND REGULATION
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 (i) 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.
11
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency of 1994 (the "Riegle-Neal Act") authorized 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 Reigle-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 Reigle-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 Reigle-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
Commissioner.
Additionally, beginning on June 1, 1997, 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 Reigle-Neal Act by adopting a law
after the date of enactment of the Reigle-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.
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."
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
12
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 Commissioner 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
$100,000 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 credit terms and
discrimination in credit transactions.
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 with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less all
intangible assets, except for certain purchased mortgage servicing rights and
13
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.
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,
1996, 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 Reigle-Neal Act
authorizes the FDIC to approve interstate branching de novo by state banks, only
in states which specifically allow for such branching. The Reigle-Neal Act also
requires the appropriate federal banking agencies to prescribe regulations by
June 1, 1997 which prohibit any out-of-state bank from using the interstate
branching authority primarily for the purpose of deposit production. These
regulations must include guidelines to ensure that interstate branches operated
by an out-of-state bank in a host state are reasonably helping to meet the
credit needs of the communities which they serve.
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
14
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. Under the MOU, the Bank may not pay a
dividend without prior notice to the Commissioner and the FDIC if its ratio of
Tier 1 capital to assets would be less than 6.0%. In addition, dividends may not
exceed 50% of net operating income after taxes for the period declared without
the prior written consent of the FDIC and the Commissioner.
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 are required to pay an assessment to the FDIC in an amount equal
to 1.3 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, is controlled by or is
under common control with the state non-member bank. In a holding company
context, the parent holding company of a state nonmember bank (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the state nonmember 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.
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 stockholder 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,
15
executive officers and principal stockholders, and their respective affiliates,
in excess of the greater of $25,000 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.
* * * * *
Item 3. Legal Proceedings
McCafferty's Restaurant ("McCafferty's") had commenced an adversary
proceeding (McCafferty's, Inc. v. Bank of Glen Burnie Adversary Case, Case No.
96-5137-ESD, U.S. Bankr. Ct., D. Md.) on March 20, 1996 in McCafferty's pending
Chapter 11 bankruptcy case (In re McCafferty's, Inc., Case No. 96-5-2444-SD,
U.S. Bankr. Ct., D. Md.). The United States District Court for the District of
Maryland has assumed jurisdiction (Bank of Glen Burnie v. McCafferty's, Inc.,
Civil Action No. MJG-96-3656, D-Md, 1996). McCafferty's alleges that the Bank,
acting in concert with Brian Davis (McCafferty's former treasurer and chief
financial officer who has pled guilty to fraud against the Bank and various
other banks), defrauded McCafferty's through alleged forgery of loan documents,
improper payment of checks, wrongful diversion of loan proceeds, illegal
overbilling and conspiracy to conceal illegal acts. McCafferty's seeks
$5,000,000 in compensatory damages, $50,000,000 in punitive damages and
declaratory and injunctive relief under numerous counts, including one count
pled under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). On
December 4, 1997, the U.S. District Court dismissed McCafferty's claims under
RICO but denied the Bank's motion to dismiss McCafferty's other claims. The Bank
denies any wrongdoing and any liability, and intends to continue contesting the
litigation vigorously. The Company does not believe that the outcome of this
litigation will have a material adverse effect on its business.
In addition to the foregoing litigation, the Bank is a defendant in
three suits filed in the Circuit Court for Baltimore County by creditors of a
company controlled by Mr. Davis alleging in each case that the Bank improperly
negotiated checks for loan proceeds over forged endorsements. The aggregate
damages sought in First National Bank of Maryland v. The Bank of Glen Burnie
(Case No. 03-C-96-001925 filed February 28, 1996), Elkridge National Bank v. The
Bank of Glen Burnie (Case No.03-C-96-002064 filed March 4, 1996) and Commercial
and Farmers Bank v. The Bank of Glen Burnie (Case No. 03-C-96-002941 filed March
25, 1996) total approximately $2,000,000. In Elkridge National Bank, a judgment
in the amount of $284,000 has been rendered in favor of plaintiffs which the
Bank has appealed. The Bank denies liability in each of these suits. In
addition, the Bank has filed a counter-claim in the First National Bank of
Maryland suit seeking damages in excess of the amounts sought by the plaintiff.
Accordingly, the Bank does not believe that the outcome of these suits will have
a material adverse effect on the Bank.
The Bank is also a defendant in Beal GMC v. The Bank of Glen Burnie
(Case No. C96-32383OC filed October 2, 1996 in Anne Arundel County Circuit
Court) in which it is alleged that employees of the Bank falsely represented to
a third party that checks drawn on Mr. Davis's account and payable to plaintiff
had cleared the Bank. Plaintiff seeks compensatory damages of $500,000 and
punitive damages of $5.0 million. The Bank does not believe that this claim has
merit and is vigorously defending this action.
The Bank is involved in various other legal actions relating to its
business activities. These actions involve claims for money damages which do not
exceed 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. The Company does not believe that any ultimate liability or risk of loss
with respect to these actions will materially affect its consolidated financial
position.
* * * * *
16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's stock is traded in the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol "GLBZ." There is not currently
an active trading market for the Common Stock. The following table sets forth
the high and low sales prices for the Common Stock for each full quarterly
period during 1995 and 1996, based on trades reported on the OTC Bulletin Board
or by Legg Mason Wood Walker, Inc., the principal market maker for the Company's
stock. Prices have been adjusted to give retroactive effect to a six-for-five
stock split effected through a stock dividend paid on January 3, 1996.
1996 1995
--------------- ------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31, $37.500 $34.000 $32.917 $28.750
June 30, 36.250 33.000 32.917 31.042
September 30, 33.500 33.000 32.917 32.083
December 31, 34.000 25.000 34.375 28.854
As of June 30, 1997, the latest date for which the Company was able to
obtain information on a reported sale of the Common Stock, the last reported
sales price for the Common Stock on the OTC Bulletin Board was $25.00 per share.
As of June 30, 1997, the number of record holders of the Common Stock
was 481.
Since its inception, the Company has paid quarterly cash dividends on
its Common Stock. Per share cash dividends declared for each full quarter during
last two fiscal years and the current year to date, giving retroactive effect to
a six-for-five stock split effected through a stock dividend paid on January 3,
1996, were as follows:
Quarter Ended 1996 1995
--------------- ---- ----
March 31, $0.300 $0.208
June 30, 0.300 0.250
September 30, 0.300 0.250
December 31, 0.050 0.250
The Company intends to pay dividends equal to 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 Bank's payment of dividends is further restricted by
the M.O.U. which requires prior approval of the FDIC and the Commissioner for
the payment of dividends by the Bank in excess of 50% of its net operating
income or if the Bank's Tier 1 capital ratio would be reduced below 6.0%. See
"Item 1. Business -- Memoranda of Understanding."
17
Item 6. Selected Financial Data
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 stock
splits and stock dividends accounted for as stock splits.
At December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
------- -------- -------- ------- --------
(In thousands, except per share data)
Operations Data:
Net Interest Income............................... $ 10,884 $ 11,339 $ 11,868 $ 10,736 $ 8,788
Provision for Credit Losses....................... 6,596 7,925 1,120 1,080 1,000
Other Income...................................... 2,230 1,904 1,515 1,408 1,360
Other Expense..................................... 9,019 8,740 7,139 6,716 5,954
Net Income (Loss)................................. (1,020) (1,727) 3,517 3,047 2,284
Share Data:
Net Income (Loss) Per Share....................... $ (1.16) $ (2.01) $ 4.22 $ 3.69 $ 2.79
Cash Dividends Declared Per Common Share.......... 0.95 0.96 0.80 0.75 0.72
Weighted Average Common Shares Outstanding........ 881,211 861,116 833,849 826,244 817,324
Financial Condition Data:
Total Assets...................................... $254,325 $246,165 $232,935 $223,422 $203,573
Loans Receivable, net............................. 124,672 150,472 153,814 141,866 128,199
Total Deposits.................................... 232,746 221,121 208,566 202,911 186,358
Total Stockholders' Equity........................ 18,507 20,537 21,677 18,617 15,716
Performance Ratios:
Return on Average Assets.......................... (0.41)% (0.73)% 1.53% 1.40% 1.23%
Return on Average Equity.......................... (5.29) (7.42) 17.24 17.70 15.23
Net Interest Margin(1)............................ 5.04 5.42 5.88 5.67 5.46
Dividend Payout Ratio............................. * * 19.24 20.38 25.89
Capital Ratios:
Average Equity to Average Assets.................. 7.82% 9.89% 8.86% 7.92% 8.05%
Leverage Ratio(2)................................. 7.00 8.20 9.40 8.60 8.40
Total Risk-Based Capital Ratio(2)................. 12.50 13.62 15.35 14.30 13.30
Asset Quality Ratios:
Allowance for Credit Losses to Gross Loans........ 3.90% 2.40% 1.77% 1.77% 1.35%
Non-performing Loans to Total Loans............... 3.72 4.17 2.32 2.23 2.11
Allowance for Credit Losses to Non-performing
Loans........................................... 109.24 58.89 77.34 80.79 64.78
Net Loan Charge-offs to Average Loans............. 3.56 4.48 0.60 0.20 0.19
- --------------------
* Not meaningful
(1) Presented on a tax-equivalent basis.
(2) Bank only.
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company recorded net losses of $1,020,177 and $1,726,748 for the
years ended December 31, 1996 and 1995. The Company's recent results of
operations have been significantly affected by charge-offs related to loans
outstanding to Mr. Brian Davis and affiliated entities. During the 1995 fiscal
year, the Bank's aggregate outstanding loans to these entities totaled as much
as $6.0 million and these entities represented the Bank's largest single group
of borrowers. Included in total outstandings were loans made to various
borrowers who allegedly funneled the proceeds to Mr. Davis. Mr. Davis has since
pled guilty to defrauding the Bank and other financial institutions and the
Bank's former Chief Lending Officer has pled guilty to accepting bribes from Mr.
Davis in connection with these loans. See "Item 1. Business -- Recent Loan
Losses Involving Significant Borrowers." The Board of Directors of the Bank has
entered into Memoranda of Understanding with the FDIC and the Maryland
Commissioner of Banking to address certain factors relating to its recent
losses. See "Item 1. Business -- Memoranda of Understanding."
The Bank continues to be involved in litigation related to Mr. Davis'
activities including suits by entities affiliated with Mr. Davis. See "Item 1.
Business -- Legal Proceedings." Although the Company does not believe that
outcome of this litigation will have a material adverse effect on the Bank,
these lawsuits have required the Company to incur considerable legal and
professional fees which have significantly increased the Company's other
expense. Adverse publicity related to these lawsuits is also believed to have
also hurt the Bank's competitive position in its market place.
In 1995, the Company also underwent a change in management as a slate
of nominees proposed by F. William Kuethe, Jr. and John E. Demyan, members of
two of the Bank's founding families, defeated management's nominees in a proxy
contest at the 1995 annual meeting of stockholders. Expenses related to this
contest resulted in a $687,841 restructuring charge during 1995. The Bank's
current management has been focused on addressing the Bank's asset quality and
other operating problems and resolving the litigation in which the Bank is
involved while maintaining the Bank as the locally owned and oriented community
bank which it has historically been.
Forward-Looking Statements
When used in this discussion and elsewhere in the Prospectus, the
words or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "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 to advise readers 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.
19
Comparison of Results of Operations For the Years Ended December 31, 1996, 1995
and 1994
General. For fiscal year 1996, the Company had a consolidated net loss
of $1,020,177 ($1.16 per share) compared to a 1995 consolidated net loss of
$1,726,748 ($2.01 per share) and a 1994 consolidated net income of $3,516,593
($4.22 per share). The losses during 1996 and 1995 were primarily due to a
significant increase in the provision for credit losses to $6,596,000 for 1996
and $7,925,000 for 1995 compared to $1,120,000 for 1994. The increase resulted
from provisions being made to charge-off delinquent and non-performing loans.
The collectibility of certain loans, significant in aggregate amount, became
doubtful during 1996 and the Bank charged-off a significant amount of such
loans. Charge-offs in 1996 amounted to $5,468,293 following the $7,060,650
charged off in 1995.
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 expense paid on deposits and borrowings used to fund them.
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.
Consolidated net interest income prior to provision for credit losses
decreased by $454,884 (4.0%) from $11,339,137 in 1995 to $10,884,253 in 1996.
Net interest income had decreased by $528,822 (4.5%) in 1995 from $11,867,959 in
1994. The 1996 decrease was primarily due to an increase in interest expense on
deposits and a decrease in total interest revenues from lending activities for
such period. The 1995 decrease is primarily due to an increase in interest
expense on deposits which exceeded a slight increase in total interest revenues
from lending activities for such period. The movement of deposits from lower
yielding savings and money market accounts to higher yielding certificates of
deposit resulted in an increase in the Bank's cost of deposits during 1996 and
1995. In addition, loans on which accrual of interest has been discontinued
amounted to $4,545,581 at December 31, 1996. Interest that would have accrued
under the terms of these loans was $457,035. Interest income on loans fell
$1,394,512 (9.6%) from $14,475,876 at the end of 1995 to $13,081,364 at the end
of 1996, after increasing $390,234 (2.8%) during 1995 from $14,085,642 at the
end of 1994. In addition to increased loan charge offs, the Bank made fewer
loans during 1996 than 1995.
During 1996 and 1995, the Bank shifted investments from U.S. Treasury
securities to U.S. government agency and state and municipal securities because
they have offered higher yields. Interest from Federal funds sold almost doubled
during 1996, increasing from $138,678 in 1995 to $261,423 in 1996 as Federal
funds sold increased significantly. Significant gains in investment securities
($506,695) occurred in 1995 as a result of a restructuring of the Bank's
investment securities portfolio. The gains were much smaller in 1996 after the
restructuring was complete.
20
The following table allocates changes in income and expense
attributable to the Bank'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,
--------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------- -------------------------------
Change Due to Change Due to
Increase/ ------------------ Increase/ -----------------
Decrease Rate Volume Decrease Rate Volume
-------- ---- ------ -------- ---- ------
(In thousands)
Assets
Interest-earning assets:
Federal funds sold ...................................... $ 122 $ (37) $ 159 $ 38 $ 52 $ (14)
------- ------- ------- ------- ------- -------
Interest-bearing deposits ............................... (31) (17) (14) 62 0 62
------- ------- ------- ------- ------- -------
Investment securities:
U.S. Treasury securities and obligations
of U.S. government agencies ........................ 1,082 234 848 99 (20) 119
Obligations of states and
political subdivisions(1) .......................... 472 (74) 546 52 (57) 109
All other investment securities ...................... 2 (1) 3 23 6 17
------- ------- ------- ------- ------- -------
Total investment securities ....................... 1,556 159 1,397 174 (71) 245
------- ------- ------- ------- ------- -------
Loans, net of unearned income
Demand, time and lease ............................... (613) (56) (557) 88 145 (57)
Mortgage and construction ............................ (269) (604) 335 301 (41) 342
Installment and credit card .......................... (517) 31 (548) 4 (122) 126
------- ------- ------- ------- ------- -------
Total gross loans(2) .............................. (1,399) (629) (770) 393 (18) 411
------- ------- ------- ------- ------- -------
Allowance for credit losses
Total net loans ................................... (1,399) (629) (770) 393 (18) 411
------- ------- ------- ------- ------- -------
Total interest-earning assets .............................. $ 248 $ (524) $ 772 $ 667 $ (37) $ 704
======= ======= ======= ======= ======= =======
Liabilities
Interest-bearing deposits:
Savings and NOW ......................................... $ (112) $ (191) $ 79 $ (302) $ (12) $ (290)
Money market ............................................ (111) (42) (69) (147) 43 (190)
Other time deposits ..................................... 762 7 755 1,613 902 711
------- ------- ------- ------- ------- -------
Total interest-bearing deposits ...................... 539 (226) 765 1,164 933 231
Non-interest-bearing deposits .............................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Borrowed funds ............................................. (39) (9) (30) 21 22 (1)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities ......................... $ 500 $ (235) $ 735 $ 1,185 $ 955 $ 230
======= ======= ======= ======= ======= =======
- --------------------
(1) Tax equivalent basis.
(2) Non-accrual loans included in average balances.
21
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,
-------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------------------------ --------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Federal funds sold................... $ 5,185 $ 261 5.03% $ 2,416 $ 139 5.75% $ 2,799 $ 101 3.61%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Interest-bearing deposits............ 1,267 54 4.26 1,526 85 5.57 415 $ 23 5.54
-------- ------- ---- -------- ------- ---- -------- ------- ----
Investment securities:
U.S. Treasury securities and
obligations of U.S. government
agencies ....................... 53,454 3,669 6.86 40,263 2,587 6.43 38,430 2,488 6.47
Obligations of States and
political subdivisions(1)....... 27,875 2,307 8.28 21,479 1,835 8.54 20,240 1,783 8.81
All other investment securities... 737 54 7.33 696 52 7.47 443 29 6.55
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total investment securities.... 82,066 6,030 7.35 62,438 4,474 7.12 59,113 4,300 7.28
-------- ------- ---- -------- ------- ---- -------- ------- ----
Loans, net of unearned income
Demand, time and lease............... 22,343 1,944 8.70 28,559 2,557 8.95 29,232 2,469 8.45
Mortgage and construction............ 97,777 8,886 9.07 94,322 9,135 9.68 90,804 8,834 9.73
Installment and credit card.......... 26,802 2,278 8.50 33,338 2,795 8.38 31,897 2,791 8.75
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total gross loans(2)........... 146,922 13,088 8.91 156,219 14,487 9.27 151,933 14,094 9.45
Allowance for credit losses.... 3,835 2,766 2,762
-------- -------- --------
Total net loans................. 143,087 13,088 9.15 153,453 14,487 9.44 149,171 14,094 9.45
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets... 231,605 19,433 8.39 219,833 19,185 8.73 211,498 18,518 8.76
------- ---- ------- ---- ------- ----
Cash and due from banks................. 7,936 7,152 9,769
Other assets............................ 7,318 8,471 8,817
-------- -------- --------
Total assets................... $246,859 $235,456 $230,084
======== ======== ========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Savings and NOW....................... $ 71,455 $ 2,075 2.90% $ 68,957 $ 2,187 3.17% $ 78,067 $ 2,489 3.19%
Money market.......................... 26,911 818 3.04 29,081 929 3.19 35,301 1,076 3.05
Other time deposits................... 83,486 4,819 5.77 70,382 4,057 5.76 54,524 2,444 4.48
-------- ------- ---- -------- ------- ---- -------- -------
Total interest-bearing deposits..... 181,852 7,712 4.24 168,420 7,173 4.26 167,892 6,009 3.58
Borrowed funds.......................... 1,029 50 4.86 1,549 89 5.75 1,573 68 4.32
-------- ------- ---- -------- ------- ---- -------- -------
Total interest-bearing liabilities.. 182,881 7,762 4.24 169,969 7,262 4.27 169,465 6,077 3.59
------- ------- -------
Non-interest-bearing deposits........... 44,570 41,500 39,585
Other liabilities....................... 110 699 639
Stockholders' equity.................... 19,298 23,288 20,395
-------- -------- --------
Total liabilities and equity............ $235,456 $230,084
======== ========
Net interest income..................... $11,671 $11,923 $12,441
======= ======= =======
Net interest spread..................... 4.15% 4.46% 5.17%
==== ==== ====
Net interest margin..................... 5.04% 5.42% 5.88%
==== ==== ====
- --------------------
(1) Tax equivalent basis. The incremental tax rate applied was 37.04% for 1996
and 38.62% for 1995 and 1994.
(2) Non-accrual loans included in average balance.
22
Provision for Credit Losses. During fiscal year 1996, the Company
provided $6,596,000 for credit losses compared to $7,925,000 in such provisions
during 1995 and $1,120,000 in provisions during 1994. The higher provisions
during fiscal years 1996 and 1995 reflect the amount determined by the Company
to be necessary to maintain the allowance for credit losses to an adequate level
after significant increases in loan charge-offs during these years. See "Item 1.
Business -- Recent Loan Loss Experience Involving Significant Borrowers."
Other Income. Other income for fiscal year 1996 was $2,230,457, an
increase of $326,174, or 17.1%, over fiscal year 1995 and an increase of
$715,626, or 47.2%, over fiscal year 1994. The improvement in other income
reflects increased service charges on deposit accounts attributable to growth in
deposits and $560,000 in proceeds from an insurance settlement with the Bank's
fidelity bond company relating to the reimbursement of legal fees expended by
the Bank in defending certain actions. These improvements in other income offset
a decline in gains on sales of securities following a restructuring of the
Bank's securities portfolio.
Other Expenses. Salary and employee benefit expenses increased
$497,732 (12.0%) during the year ended December 31, 1996 rising from $4,137,232
in 1995 to $4,634,964 in 1996. They rose only $149,014 (3.7%) during 1995 from
$3,988,218 in 1994. During 1996 the Bank staff was increased in the credit
analysis and loan collection areas to deal with the Bank's troubled loans.
Increased other expenses of the Company and its subsidiaries in 1996 primarily
resulted from increased legal fees and other continuing costs of litigation. See
"Item 1. Business -- Legal Proceedings." The Bank has obtained insurance
reimbursement for approximately $560,000 of its 1995 restructuring and
litigation charges which is included in other income.
Income Taxes. For the years ended December 31, 1996 and 1995, the
Company recognized $1,480,192 and $1,694,444 in tax benefits compared to an
income tax expense of $1,606,761 during the 1994 fiscal year. Due primarily to
its holdings of tax-exempt state, county and municipal securities, the Company
recorded tax losses during the two prior fiscal years. These net operating
losses have been applied to prior years' earnings resulting in tax benefits in
each of the periods. The Company has recently reduced its holdings of tax-exempt
state, county and municipal securities and reinvested the proceeds in U.S.
Government agency securities the income on which is not exempt from federal
taxation. Accordingly, the Company anticipates an increase in taxable income
which may reduce the availability of future tax benefits.
Comparison of Financial Condition at December 31, 1996 and 1995
The Company's total assets increased to $254,324,701 at December 31,
1996 from $246,164,736 at December 31, 1995 and from $232,934,732 at December
31, 1994. Although the loan portfolio had declined to $124,672,414 at December
31, 1996 from $150,471,768 at December 31, 1995 and $153,814,422 at December 31,
1994, total assets grew due to an expansion of the investment securities
portfolio.
The declines in the loan portfolio during fiscal years 1996 and 1995
were principally due to a decrease in construction and land development loans
which had substantially increased during the preceding year but declined during
the most recent fiscal years due to decreased origination activity and loan
charge-offs. Commercial mortgage loans increased during 1995 and again slightly
in 1996. Residential mortgages increased in 1995 but fell in 1996, as did demand
and time loans. The decline in demand and time loans reflects decreased lending
activity and increased charge-offs. Lease financing and installment loans
decreased in both 1995 and 1996. The Bank has decided to decrease its equipment
and automobile lease based lending because of the difficulties in monitoring the
financial condition of the clients of lease company borrowers.
During fiscal year 1996, the total investment securities portfolio
grew by $21,975,153, or 29.46%, after growing by $14,197,134, or 23.50% during
fiscal year 1995 to $74,598,847. The increases in the investment securities
portfolio during fiscal years 1996 and 1995 reflects increases in deposits
23
coupled with a decline in new lending activity and increased loan amortization
primarily in the shorter term construction and land development, lease financing
and installment portfolios. The Bank has allowed some run-off in the investment
securities portfolio as deposits have declined during the current fiscal year.
Total deposits increased from $221,120,763 at the end of 1995 to
$232,745,975 at the end of 1996, an increase of $11,625,212 (5.3%). Total
deposits increased by $12,555,110 (6.0%) during 1995 from $208,565,653 at the
end of 1994. While deposits increased during the past two fiscal years, the Bank
believes that a general downward trend in interest rates paid on deposit
accounts has resulted in a trend away from lower yielding deposit products
toward higher yielding long term deposits. NOW accounts totaled $22,792,376 at
year end 1996, an increase of $502,527 (2.3%) from the 1995 year end total of
$22,289,849, which was a $17,141 (0.1%) increase over the 1994 year end total of
$22,272,708. Money market accounts declined $1,391,386 (5.0%) during 1996
falling from $27,602,041 at the end of 1995 to $26,210,655 at the end of 1996.
They had declined $5,278,782 (16.1%) during 1995 from $32,880,823 at the end of
1994. Over the same period, savings deposits, after decreasing from $52,830,352
in 1994 to $46,752,665 in 1995, a decrease of $6,077,687 (11.5%), increased by
$1,440,302 (3.1%) to end 1996 at $48,192,967. Meanwhile, certificates of deposit
over $100,000 decreased from $9,844,841 at the end of 1995 to $8,620,096 at the
end of 1996, a decline of $1,224,745 (12.4%). The foregoing does not include IRA
accounts in excess of $100,000. During 1995 these balances had increased by
$2,040,197 (26.1%) from the 1994 year end balance of $7,804,644. Other time
deposits (made up of certificates of deposit less than $100,000 and individual
retirement accounts) increased by $8,032,607 (11.6%) in 1996 and by $17,788,337
(34.4%) in 1995, rising from $51,696,007 at the end of 1994 to year end totals
of $69,484,344 for 1995 and $77,516,951 for 1996.
Operating losses during 1995 and 1996 significantly affected retained
earnings which fell $4,007,822 (43.8%) during 1995 from $9,154,546 at year end
1994 to $5,146,724 at year end 1995, and another $1,856,647 (36.1%) during 1996
to end 1996 at $3,290,077. Surplus steadily increased, however, rising $466,191
(8.6%) during 1995 from $5,450,852 at the end of 1994 to $5,917,043 at the end
of 1995, and $275,857 (4.7%) during 1995 to end 1996 at $6,192,900. The increase
in the surplus account was primarily a result of the reinvestment of dividends
pursuant to the Dividend Reinvestment Plan.
Asset/Liability Management
Net interest income, the primary component of the Company's net
income, arises from the difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities and the relative amounts of such
assets and liabilities. The Company manages its assets and liabilities by
coordinating the levels of and gap between interest-rate sensitive assets and
liabilities to minimize changes in net interest income and in the economic value
of its equity despite changes in market interest rates. The Bank's
Asset/Liability and Risk Management Committee meets on a monthly basis to
monitor compliance with the Board's objectives. Among other tools used by the
Asset/Liability and Risk Management Committee to monitor interest rate risk is a
"gap" report which measures the dollar difference between the amount of
interest-earning assets and interest-bearing liabilities subject to repricing
within a given time period. Generally, during a period of rising interest rates,
a negative gap position would adversely affect net interest income, while a
positive gap would result in an increase in net interest income, while,
conversely, during a period of falling interest rates, a negative gap would
result in an increase in net interest income and a positive gap would adversely
affect net interest income.
During recent periods, the Company has maintained a negative gap
position that has benefitted earnings as interest rates have fallen. In order to
reduce its negative gap position, the Company has recently begun investing in
mortgage-backed and other securities which have rates that adjust to market
rates. The Company also maintains a significant portfolio of available-for-sale
securities that can be quickly converted to more liquid assets if needed.
24
The following table sets forth the Bank's interest-rate sensitivity at
December 31, 1996.
Over Over 1
3 through through Over
0-3 Months 12 Months 5 Years 5 Years Total
------------- ------------- ------------- ------------- -------------
Assets:
Cash and due from banks ................. $ -- $ -- $ -- $ -- $ 10,665,679
Federal funds and overnight deposits .... 12,011,981 -- -- -- 12,011,981
Securities .............................. 2,481,893 3,286,000 28,912,000 61,894,000 96,573,893
Loans ................................... 27,021,000 12,082,000 35,318,000 50,251,414 124,672,414
Fixed assets ............................ -- -- -- -- 4,145,464
Other assets ............................ -- -- -- -- 3,482,390
------------- ------------- ------------- ------------- -------------
Total assets ......................... $ 41,514,874 $ 15,368,000 $ 64,230,000 $ 112,145,414 $ 251,560,821
============= ============= ============= ============= =============
Liabilities:
Demand deposit accounts ................. $ -- $ -- $ -- $ -- $ 49,375,582
NOW and money market deposit accounts ... 49,003,029 -- -- -- 49,003,029
Savings and IRA Accounts ................ 51,139,000 5,421,000 15,329,000 (474,038) 71,414,962
Certificates of deposit ................. 14,233,000 30,278,000 17,191,000 940,917 62,642,917
Other liabilities ....................... -- -- -- -- 1,015,224
Stockholders' equity ................. -- -- -- -- 18,109,107
------------- ------------- ------------- ------------- -------------
Total liabilities and capital ........ $ 114,375,029 $ 35,699,000 $ 32,520,000 $ 466,879 $ 251,560,821
============= ============= ============= ============= =============
GAP ........................................ $ (72,860,155) $ (20,331,000) $ 31,710,000 $ 111,678,535
Cumulative GAP ............................. (72,860,155) (93,191,155) (61,481,155) 50,197,380
Cumulative GAP as a % of total assets ...... (28.96)% (37.05)% (24.44)% 19.95%
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 within three months although it is the Company's experience that such
accounts may be less sensitive to changes in market rates.
Liquidity and Capital Resources
The Company currently has no business other than that of the Bank and
does not currently have any material funding commitments. The Company's
principal sources of liquidity are cash on hand and dividends received from the
Bank. The Bank is subject to various regulatory restrictions on the payment of
dividends.
The Bank's principal sources of funds for investments and operations
are net income, deposits from its primary market area, principal and interest
payments on loans, interest received on investment securities and proceeds from
maturing investment securities. Its principal funding commitments are for the
origination or purchase of loans and the payment of maturing deposits. Deposits
are considered a primary source of funds supporting the Bank's lending and
investment activities.
The Bank's most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold 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.
25
Cash and cash equivalents (cash due from banks, interest-bearing
deposits in other financial institutions, and Federal funds sold) as of December
31, 1996 were $22,677,661, an increase of $13,227,640 (140.0%) from the December
31, 1995 total of $9,450,021. Most of this increase was in Federal funds sold
which were at a $-0- balance at the end of 1995 and totaled $10,175,000 at the
end of 1996. The large balance in Federal funds sold at the end of 1996 was a
result of recent increases in non-personal money market demand accounts and
business checking accounts immediately before year end combined with a higher
average balance maintained during the year. The 1995 year end total was a slight
$156,295 (1.6%) decrease from the $9,606,316 1994 year end total. Short-term
borrowings decreased as cash and cash equivalents rose. Short-term borrowings
fell $468,846 (21.0%) during 1995 from $2,226,568 at the end of 1994 to
$1,757,722 at the end of 1995 and by another $1,209,785 (68.8%) during 1995 to
end 1996 at $547,937.
The Bank may draw on a $26,000,000 line of credit from the Federal
Home Loan Bank of Atlanta. Borrowings under the line are secured by a lien on
the Bank's residential mortgage loans. As of December 31, 1996, however, no
amounts were outstanding under this line. In addition the Bank has a secured
line of credit in the amount of $2.0 million from another commercial bank.
Recently Adopted Accounting Standards
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This Statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per Share,"
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented. Management believes
that adoption of this pronouncement will not impact any previously reported
earnings per share information.
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.
26
Item 8. Financial Statements and Supplementary Data
Report of Independent Auditors
The Board of Directors
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland
We have audited the accompanying consolidated balance sheet of Glen Burnie
Bancorp and Subsidiaries as of December 31, 1996, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The consolidated
financial statements of Glen Burnie Bancorp and Subsidiaries as of December 31,
1995 and 1994 were audited by other auditors whose report dated March 8, 1996
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 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, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Note 9 to the Consolidated Financial Statements, the Company
changed its method of accounting for post-retirement health care benefits in
1995.
Trice & Geary LLC
Salisbury, Maryland
February 12, 1997
27
Report of Independent Auditors
The Board of Directors and
Stockholders
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, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 11 to the financial statements, the Company
changed its method of accounting for postretirement health care benefits in
1995.
/s/ ROWLES & COMPANY, LLP
Baltimore, Maryland
March 8, 1996
28
Glen Burnie Bancorp and Subsidiaries
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks ................................................... $ 10,665,680 $ 7,992,328 $ 6,768,528
Interest bearing deposits in other financial institutions ................. 1,836,981 1,457,693 1,037,788
Federal funds sold ........................................................ 10,175,000 -- 1,800,000
Investment securities available for sale, at fair value ................... 54,906,836 68,597,172 3,273,076
Investment securities held to maturity (fair value
1996 $41,998,402; 1995 $6,092,901; 1994 $55,751,053) ................... 41,667,057 6,001,675 57,128,637
Ground rents, at cost ..................................................... 267,974 269,825 269,825
Loans, less allowance for credit losses
1996 $5,060,592; 1995 $3,698,271; 1994 $2,763,874 ...................... 124,672,414 150,471,768 153,814,422
Premises and equipment, at cost, less
accumulated depreciation .............................................. 4,154,465 4,248,830 4,661,344
Accrued interest receivable ............................................... 1,937,928 2,154,599 2,236,803
Prepaid income taxes ...................................................... 1,055,974 3,164,915 277,636
Deferred income taxes ..................................................... 1,380,966 263,860 778,818
Other real estate owned ................................................... 602,285 432,926 417,993
Other assets .............................................................. 1,001,141 1,109,145 469,862
------------- ------------- -------------
Total assets ..................................................... $ 254,324,701 $ 246,164,736 $ 232,934,732
============= ============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Non-interest-bearing demand ............................................ $ 49,412,930 $ 45,147,023 $ 41,081,119
Interest-bearing ....................................................... 183,333,045 175,973,740 167,484,534
------------- ------------- -------------
Total deposits ................................................... 232,745,975 221,120,763 208,565,653
Short-term borrowings ..................................................... 547,937 1,757,722 2,226,568
Dividends payable ......................................................... 44,193 218,208 169,987
Accrued interest payable on deposits ...................................... 214,977 229,715 186,823
Other liabilities ......................................................... 2,185,249 2,300,942 108,668
------------- ------------- -------------
Total liabilities ................................................ 235,738,331 225,627,350 211,257,699
------------- ------------- -------------
Commitments and contingencies
Stockholders' equity
Common stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1996 883,858 shares;
1995 872,838 shares; 1994 708,083 shares .............................. 8,838,588 8,728,383 7,080,834
Surplus ................................................................. 6,192,900 5,917,043 5,450,852
Retained earnings ....................................................... 3,290,077 5,146,724 9,154,546
Net unrealized appreciation (depreciation) on securities
available for sale, net of income taxes .............................. 264,805 745,236 (9,199)
------------- ------------- -------------
Total stockholders' equity ....................................... 18,586,370 20,537,386 21,677,033
------------- ------------- -------------
Total liabilities and stockholders' equity ....................... $ 254,324,701 $ 246,164,736 $ 232,934,732
============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
29
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Income
- --------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Interest income on
Loans, including fees .......................... $ 13,081,364 $ 14,475,876 $ 14,085,642
U.S. Treasury securities ....................... 822,215 987,119 1,037,453
U.S. Government agency securities .............. 2,846,357 1,599,850 1,450,536
State and municipal securities ................. 1,517,827 1,261,886 1,218,119
Federal funds sold ............................. 261,423 138,678 101,537
Other .......................................... 116,708 137,296 51,814
------------ ------------ ------------
Total interest income .................... 18,645,894 18,600,705 17,945,101
------------ ------------ ------------
Interest expense on
Deposits ....................................... 7,711,989 7,172,845 6,008,866
Short-term borrowings .......................... 49,652 88,723 68,276
------------ ------------ ------------
Total interest expense ................... 7,761,641 7,261,568 6,077,142
------------ ------------ ------------
Net interest income ...................... 10,884,253 11,339,137 11,867,959
Provision for credit losses ....................... 6,596,000 7,925,000 1,120,000
------------ ------------ ------------
Net interest income after
provision for credit losses .......... 4,288,253 3,414,137 10,747,959
------------ ------------ ------------
Other income
Service charges on deposit accounts ............ 1,042,355 948,021 956,643
Other fees and commissions ..................... 483,537 449,567 480,019
Gains on investment securities ................. 144,565 506,695 78,169
Proceeds from insurance settlement ............. 560,000 -- --
------------ ------------ ------------
Total other income ....................... 2,230,457 1,904,283 1,514,831
------------ ------------ ------------
Other expenses
Salaries ....................................... 3,346,927 2,954,742 2,831,455
Employee benefits .............................. 1,288,037 1,182,490 1,156,763
Occupancy ...................................... 528,528 465,732 484,738
Furniture and equipment ........................ 739,115 741,602 645,707
Restructuring and litigation charges ........... -- 1,407,641 --
Other expenses ................................. 3,116,472 1,987,405 2,020,773
------------ ------------ ------------
Total other expenses ..................... 9,019,079 8,739,612 7,139,436
------------ ------------ ------------
Income (loss) before income taxes ................. (2,500,369) (3,421,192) 5,123,354
Federal and state income taxes (benefits) ......... (1,480,192) (1,694,444) 1,606,761
------------- ------------- ------------
Net income (loss) ................................. $ (1,020,177) $ (1,726,748) $ 3,516,593
============= ============= ============
Net income (loss) per share of common stock ....... $ (1.16) $ (2.01) $ 4.22
============= ============= ============
Weighted-average shares of common stock outstanding 881,211 861,116 833,849
============= ============= ============
The Notes to Consolidated Financial Statements are an integral part
of these financial statements.
30
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
Net Unrealized
Appreciation
(Depreciation)
on
Common Stock Securities
----------------------- Retained Available
Shares Par Value Surplus Earnings For Sale
------ --------- ------- -------- -------------
Balances, December 31, 1993 583,402 $5,834,024 $5,290,979 $7,491,574 $ --
Unrealized appreciation on securities
available for sale at January 1, 1994 -- -- -- -- 132,529
Net income -- -- -- 3,516,593 --
Stock split effected in the form of 20%
stock dividend 117,705 1,177,053 -- (1,177,053) --
Issuance of shares for employee and
director stock purchase plans 4,605 46,050 96,247 -- --
Shares retired (10,558) (105,580) (237,574) -- --
Cash dividends, $.80 per share -- -- -- (676,568) --
Dividends reinvested 12,929 129,287 301,200 -- --
Net change in unrealized depreciation
on securities available for sale -- -- -- -- (141,728)
------- ---------- ---------- ----------- ----------
Balances, December 31, 1994 708,083 7,080,834 5,450,852 9,154,546 (9,199)
Net loss -- -- -- (1,726,748) --
Stock split effected in the form of 20%
stock dividend 145,472 1,454,719 -- (1,454,719) --
Issuance of shares for employee and
director stock purchase plans 8,488 84,880 191,174 -- --
Cash dividends, $.96 per share -- -- -- (826,355) --
Dividends reinvested 10,795 107,950 275,017 -- --
Net change in unrealized appreciation
on securities available for sale -- -- -- -- 754,435
-------- ---------- ----------- ---------- ---------
Balances, December 31, 1995 872,838 8,728,383 5,917,043 5,146,724 745,236
Net loss -- -- -- (1,020,177) --
Issuance of shares for employee and
director stock purchase plans 200 2,000 3,384 -- --
Cash dividends, $.95 per share -- -- -- (836,470) --
Dividends reinvested 10,820 108,205 272,473 -- --
Net change in unrealized appreciation
on securities available for sale -- -- -- -- (480,431)
-------- ---------- ---------- ----------- ---------
Balances, December 31, 1996 883,858 $8,838,588 $6,192,900 $ 3,290,077 $ 264,805
======== ========== ========== =========== =========
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
31
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (1,020,177) $(1,726,748) $ 3,516,593
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation, amortization, and accretion 606,650 564,533 529,474
Provision for credit losses 6,596,000 7,925,000 1,120,000
Losses on other real estate owned 13,192 136,800 123,000
Deferred income taxes (benefits) (814,821) 40,272 56,559
Gains on disposal of assets, net (144,318) (509,982) (139,646)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable 216,671 82,204 (278,740)
(Increase) decrease in prepaid income taxes and
other assets 2,108,195 (2,943,020) (356,943)
Increase (decrease) in accrued interest payable (14,738) 42,892 5,310
Increase (decrease) in other liabilities (115,693) 266,301 (182,651)
------------ ----------- ----------
Net cash provided by operating activities 7,430,961 3,878,252 4,392,956
------------ ----------- ----------
Cash flows from investing activities:
Proceeds from disposals of investment securities:
Maturities of held to maturity investment securities 4,984,661 10,266,038 11,405,887
Maturities of available for sale investment securities 9,707,289 500,000 --
Sales of available for sale investment securities 10,103,956 20,109,830 2,530,156
Purchases of held to maturity investment securities (40,650,194) (493,391) (12,512,137)
Purchases of available for sale investment securities (6,711,564) (41,033,354) (3,282,257)
(Increase) decrease in loans, net 19,203,353 (4,794,585) (13,617,098)
Proceeds from sales of other real estate -- 588,747 553,922
Purchases of other real estate (182,551) -- --
Purchases of premises and equipment (449,275) (600,331) (478,025)
Purchase of intangibles -- (544,652) --
------------ ----------- -----------
Net cash used in investing activities (3,994,325) (16,001,698) (15,399,552)
------------ ----------- -----------
Cash flows from financing activities:
Increase in deposits, net 11,625,212 12,555,110 5,654,923
Increase (decrease) in short-term borrowings (1,209,785) (468,846) 957,307
Cash dividends paid (1,010,485) (778,134) (663,965)
Common stock dividends reinvested 380,678 382,967 430,487
Issuance of common stock 5,384 276,054 142,297
Common stock retired -- -- (343,154)
------------ ----------- -----------
Net cash provided by financing activities 9,791,004 11,967,151 6,177,895
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents 13,227,640 (156,295) (4,828,701)
Cash and cash equivalents, beginning of year 9,450,021 9,606,316 14,435,017
------------ ----------- -----------
Cash and cash equivalents, end of year $22,677,661 $ 9,450,021 $ 9,606,316
============ =========== ===========
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
32
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
- ---------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Supplementary Cash Flow Information:
Interest paid $ 7,776,379 $7,218,676 $6,071,832
Income taxes paid (refunded) $(1,718,184) 1,152,564 1,691,297
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
33
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
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 agencies and undergoes periodic examinations by those
regulatory authorities. The accounting policies of the Bank conform to
generally accepted accounting principles and to general practices
within the banking industry.
Significant accounting policies not disclosed elsewhere in the
consolidated financial statements are as follows:
Principles of Consolidation:
The consolidated financial statements include the accounts of Glen
Burnie Bancorp (the Company) and its subsidiaries, The Bank of Glen
Burnie (the Bank) 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 of the Company account for the subsidiaries using the equity
method of accounting.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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
straight-line 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 and equity 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. Securities available for
sale are carried at fair value, with unrealized gains or losses based
on the difference between amortized cost and fair value reported as a
separate component of stockholders' equity, net of deferred tax.
Realized gains and losses, using the specific identification method,
are included as a separate component of non-interest income. Premiums
and discounts are recognized in interest income using the straight-line
method over the period to maturity.
Loans and Allowance for Credit Losses:
On January 1, 1995, the Bank adopted Financial Accounting Standards
Board (FASB) Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by FASB Statement No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and
Disclosures." Statement No. 114, as amended, requires that the
measurement of a loan's impairment be 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. The
effect of adopting Statement No. 114 was not material.
Loans are carried at the amount of unpaid principal, adjusted for
deferred loan fees and origination costs. 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 a 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.
34
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 1. Summary of Significant Accounting Policies (continued)
The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the
allowance for credit losses when management believes that the
collectibility of the principal is unlikely. The allowance, based on
evaluations of the collectibility of loans and prior loan loss
experience, is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible.
The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and
trends that may affect the borrower's ability to pay.
While management believes it has established the allowance for credit
losses in accordance with generally accepted principles and has taken
into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's
regulators or its economic environment will not require further
increases in the allowance.
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 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 non-interest expense. Gains and losses realized from
the sale of OREO are included in non-interest income or expense.
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of assets.
Intangible Assets:
Costs incurred in the organization of the Company are being amortized
over five years. Computer software is recorded at cost, and amortized
over three to five years. A deposit acquisition premium is recorded at
cost, and is being amortized over 10 years on the straight-line method.
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 income.
Temporary differences which give rise to deferred tax assets relate
principally to the allowance for credit losses, unearned income on
loans, other real estate owned, accrued compensation and benefits, tax
deduction carryovers, and alternative minimum tax credit carryovers.
Temporary differences which give rise to deferred tax liabilities
relate principally to accumulated depreciation, accretion of discount
on investment securities, and prepaid pension expense.
35
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 1. Summary of Significant Accounting Policies (continued)
Credit Risk:
The Bank has deposits in other financial institutions in excess of
amounts insured by the Federal Deposit Insurance Corporation.
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. The
Federal Reserve Board requires the Bank to maintain noninterest-bearing
cash reserves against certain categories of average deposit
liabilities. Such reserves averaged approximately $2,200,000 during the
year ended December 31, 1996.
Net Income Per Share:
Net income per share of common stock has been computed on the
weighted-average shares of common stock outstanding, giving retroactive
effect to stock dividends declared. Shares issued under stock option
plans are excluded from the computation, since the effect of those
shares is immaterial.
Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
36
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 2. Investment Securities
Investment securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
----------------- ---------- ---------- ---------- ----------
Available for sale
U.S. Treasury $ 6,575,244 $ 54,518 $ 7,793 $ 6,621,969
U.S. Government agency 20,625,552 43,627 199,626 20,469,553
Mortgage-backed 1,913,804 24,355 25,673 1,912,486
State and municipal 24,612,517 568,919 26,908 25,154,528
----------- ---------- -------- -----------
53,727,117 691,419 260,000 54,158,536
Federal Home Loan Bank stock 748,300 -- -- 748,300
----------- ---------- -------- -----------
$54,475,417 $ 691,419 $260,000 $54,906,836
=========== ========== ======== ===========
Held to maturity
U.S. Treasury $ 6,485,244 $ 59,711 $ 19,992 $ 6,524,963
U.S. Government agency 34,067,907 270,302 23,166 34,315,043
Mortgage-backed -- -- -- --
State and municipal 1,113,906 44,490 -- 1,158,396
----------- ---------- -------- -----------
$41,667,057 $ 374,503 $ 43,158 $41,998,402
=========== ========== ======== ===========
December 31, 1995
Available for sale
U.S. Treasury $10,067,337 $ 142,506 $ 7,845 $10,201,998
U.S. Government agency 26,187,078 287,223 3,601 26,470,700
Mortgage-backed 3,049,947 92,520 -- 3,142,467
State and municipal 27,379,975 732,408 29,076 28,083,307
----------- ---------- -------- -----------
66,684,337 1,254,657 40,522 67,898,472
Federal Home Loan Bank stock 698,700 -- -- 698,700
----------- ---------- -------- -----------
$67,383,037 $1,254,657 $ 40,522 $68,597,172
=========== ========== ======== ===========
Held to maturity
U.S. Treasury $ 5,003,789 $ 84,106 $ 3,750 $ 5,084,145
U.S. Government agency 997,886 10,870 -- 1,008,756
----------- ---------- -------- -----------
$ 6,001,675 $ 94,976 $ 3,750 $ 6,092,901
=========== ========== ======== ===========
37
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 2. Investment Securities (continued)
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
----------------- --------- --------- ---------- -----------
Available for sale
U.S. Treasury $ 1,494,530 $ 4,272 $ 24,102 $ 1,474,700
U.S. Government agency 500,000 -- -- 500,000
State and municipal 608,832 5,678 834 613,676
----------- -------- ---------- -----------
2,603,362 9,950 24,936 2,588,376
Federal Home Loan Bank stock 684,700 -- -- 684,700
----------- -------- ---------- -----------
$ 3,288,062 $ 9,950 $ 24,936 $ 3,273,076
=========== ======== ========== ===========
Held to maturity
U.S. Treasury $15,604,747 $ 18,616 $ 590,301 $15,033,062
U.S. Government agency 19,767,888 40,982 700,178 19,108,692
Mortgage-backed 1,894,261 19,336 45,941 1,867,656
State and municipal 19,861,741 414,704 534,802 19,741,643
----------- -------- ---------- -----------
$57,128,637 $493,638 $1,871,222 $55,751,053
=========== ======== ========== ===========
In 1995, the FASB granted a one-time opportunity to reclassify
securities. The Bank reclassified securities with amortized cost
approximating $41.2 million and net unrealized gains approximating $1.2
million from held to maturity to available for sale.
Contractual maturities of investment securities at December 31, 1996,
1995, and 1994, 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.
Available for Sale Held to Maturity
------------------------ ---------------------------
Amortized Fair Amortized Fair
December 31, 1996 Cost Value Cost Value
----------------- ----------- ----------- ------------- -----------
Due within one year $ 2,728,910 $ 2,733,114 $ 1,500,791 $ 1,506,090
Due over one to five years 10,870,162 10,969,608 19,969,083 20,087,636
Due over five to ten years 12,578,991 12,838,012 15,113,223 15,265,730
Due over ten years 25,635,252 25,705,658 5,083,960 5,138,946
Mortgage-backed, due in monthly
installments 1,913,802 1,912,144 -- --
----------- ----------- ------------ -----------
$53,727,117 $54,158,536 $ 41,667,057 $41,998,402
=========== =========== ============ ===========
38
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 2. Investment Securities (continued)
Available for Sale Held to Maturity
-------------------------- -----------------------------
Amortized Fair Amortized Fair
December 31, 1995 Cost Value Cost Value
----------------- ---------- ----------- ------------- -----------
Due within one year $ 6,239,463 $ 6,272,876 $ -- $ --
Due over one to five years 16,130,873 16,449,969 5,258,197 5,328,052
Due over five to ten years 15,308,097 15,747,636 743,478 764,849
Due over ten years 25,955,957 26,285,524 -- --
Mortgage-backed, due in monthly
installments 3,049,947 3,142,467 -- --
----------- ----------- ---------- ----------
$66,684,337 $67,898,472 $ 6,001,675 $6,092,901
=========== =========== =========== ==========
Available for Sale Held to Maturity
------------------------- -----------------------------
Amortized Fair Amortized Fair
December 31, 1994 Cost Value Cost Value
----------------- ---------- ----------- ------------- -----------
Due within one year $ 499,490 $ 503,750 $ 6,598,185 $ 6,604,743
Due over one to five years 1,495,040 1,470,950 34,059,243 33,071,197
Due over five to ten years -- -- 9,926,296 9,730,426
Due over ten years 608,832 613,676 4,650,652 4,477,031
Mortgage-backed, due in monthly
installments -- -- 1,894,261 1,867,656
---------- ---------- ------------ -----------
$2,603,362 $2,588,376 $57,128,637 $55,751,053
========== ========== =========== ===========
Proceeds from sales of investment securities prior to maturity were
$10,103,956, $20,109,830, and $2,530,156 for the years ended December
31, 1996, 1995 and 1994, respectively. Gains of $154,119 and losses of
$9,554 were realized on those sales for 1996. Gains of $563,764 and
losses of $72,482 were realized on those sales for 1995. Gains of
$62,385 and losses of $18,738 were realized on those sales for 1994.
Income tax expense relating to net gains on sales of investment
securities was $55,831, $189,733, and $16,856 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Securities with amortized cost of approximately $4,999,000,
$6,008,000, and $3,000,000 were pledged as collateral for short-term
borrowings and financial instruments with off-balance sheet risk at
December 31, 1996, 1995 and 1994, respectively.
Investment securities include obligations of the State of Maryland and
its subdivisions with an amortized cost of $16,982,447, $18,839,735,
and $20,217,039 at December 31, 1996, 1995, and 1994, respectively.
39
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 3. Loans
Major categories of loans are as follows:
1996 1995 1994
----------- ------------ ------------
Mortgage
Residential $36,504,904 $ 38,142,356 $ 35,078,486
Commercial 47,757,381 46,888,141 39,397,909
Construction and land development 5,514,565 14,264,761 21,014,457
Lease financing 7,537,563 13,241,832 15,597,789
Demand and time 9,557,470 13,123,542 12,680,512
Installment 23,714,889 29,382,484 33,584,949
----------- ------------ -----------
130,586,772 155,043,116 157,354,102
Unearned income on loans (853,766) (873,077) (775,806)
----------- ------------ -----------
129,733,006 154,170,039 156,578,296
Allowance for credit losses (5,060,592) (3,698,271) (2,763,874)
----------- ------------ -----------
$124,672,414 $150,471,768 $153,814,422
============ ============ ============
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. At December 31, 1996, 1995, and 1994,
the amounts of such loans outstanding were $2,587,122, $2,878,742, and
$685,613, respectively. During 1996 loan additions and repayments were
$10,000 and $301,620, respectively.
The allowance for credit losses is as follows:
1996 1995 1994
----------- ------------ ------------
Balance, beginning of year $ 3,698,271 $ 2,763,874 $ 2,552,355
Provision for credit losses 6,596,000 7,925,000 1,120,000
Recoveries 234,614 70,047 67,663
Loans charged off (5,468,293) (7,060,650) (976,144)
----------- ----------- -----------
Balance, end of year $ 5,060,592 $ 3,698,271 $ 2,763,874
=========== =========== ===========
Loans on which the accrual of interest has been discontinued amounted
to $4,545,581, $2,374,643, and $654,568 at December 31, 1996, 1995,
and 1994, respectively. Interest that would have been accrued under
the terms of these loans was $457,035, $191,200, and $38,469 for the
years ended December 31, 1996, 1995, and 1994, respectively.
40
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 3. Loans (continued)
Information regarding loans classified by the Bank as impaired as of
and for the year ended December 31, 1996 follows:
Loans classified as impaired $5,953,621
Allowance for credit losses on impaired loans 1,232,366
Average balance of impaired loans 6,563,679
Following is a summary of cash receipts for 1996 on impaired loans and
how they were applied:
Cash receipts applied to reduce principal balance $ 194,535
Cash receipts recognized as interest income 182,795
-----------
Total cash receipts $ 377,330
===========
The Bank has no commitments to loan additional funds to the borrowers
of impaired or non-accrual loans.
The Bank identified impaired loans of $407,597 as of December 31, 1995.
No specific allowance for credit losses related to impaired loans was
provided. These loans were identified as impaired near the end of 1995,
and no payments were received on these loans since they were classified
as impaired.
Outstanding loan commitments, unused lines of credit and letters of
credit are as follows:
1996 1995 1994
----------- ----------- -----------
Loan commitments
Construction and land development $ 1,865,000 $ 3,145,000 $ 2,354,000
Other mortgage loans 185,000 703,000 1,181,900
Lease financing -- 395,000 750,000
----------- ----------- -----------
$ 2,050,000 $ 4,243,000 $ 4,285,900
=========== =========== ===========
Unused lines of credit
Home-equity lines $ 2,944,867 $ 2,678,990 $ 2,561,861
Commercial lines 8,030,635 13,430,907 18,424,323
Unsecured consumer lines 3,434,501 2,419,052 1,886,600
----------- ----------- -----------
$14,410,003 $18,528,949 $22,872,784
=========== =========== ===========
Letters of credit $ 3,132,661 $ 4,297,760 $ 4,467,523
=========== =========== ===========
41
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 3. Loans (continued)
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.
Letters of credit are commitments issued to guarantee the performance
of a customer to a third party.
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,
1996 and 1995, $139,382 and $108,000, respectively, has been provided
as an allowance for credit losses related to these financial
instruments with off-balance sheet risk, which is reflected as a
reduction of loans.
Note 4. Premises and Equipment
A summary of premises and equipment is as follows:
Useful
lives 1996 1995 1994
----- ---------- ---------- -----------
Land $ 509,803 $ 509,803 $ 896,170
Buildings 5-50 years 3,713,427 3,494,122 3,467,732
Equipment and fixtures 5-30 years 3,640,241 3,430,771 3,037,146
Construction in progress 46,505 29,019 65,024
----------- ---------- -----------
7,909,976 7,463,715 7,466,072
Accumulated depreciation (3,755,511) (3,214,885) (2,804,728)
----------- ---------- ----------
$ 4,154,465 $ 4,248,830 $ 4,661,344
=========== =========== ===========
Depreciation expense was $543,393, $533,197, and $511,919 for the years
ended December 31, 1996, 1995, and 1994, respectively. Amortization of
software and intangible assets was $110,602, $50,332, and $24,686 for
the years ended December 31, 1996, 1995, and 1994, respectively.
The Bank leases its South Crain Highway branch. Minimum obligations
under the lease are $23,460 per year until the lease expires in June
2000. The Bank is also required to pay maintenance costs. Rent expense
totaled $37,188 and $11,681 for the years ended December 31, 1996 and
1995, respectively.
Note 5. Short-Term Borrowings
Short-term borrowings are as follows:
1996 1995 1994
---------- ---------- ---------
Notes payable - U.S. Treasury $ 547,937 $ 282,722 $ 726,568
Federal funds purchased -- 975,000 --
Securities sold under repurchase agreement -- 500,000 --
Federal Home Loan Bank notes -- -- 1,500,000
---------- ---------- ----------
$ 547,937 $1,757,722 $2,226,568
========== ========== ==========
42
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 5. Short-Term Borrowings (continued)
The Bank may borrow up to $26 million under a line of credit with the
Federal Home Loan Bank. The line of credit is secured by a floating
lien on the Bank's residential mortgage loans and by investment
securities with an amortized cost of $2,001,304 at December 31, 1996.
Notes payable to the U.S. Treasury are 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 a slight discount to the Federal funds rate. The note
payable is secured by investment securities with an amortized cost of
approximately $1,497,000 at December 31, 1996.
The Bank also has available $2,000,000 in short-term secured credit and
a $1,000,000 letter of credit facility from another bank.
Note 6. Deposits
Major classifications of interest-bearing deposits are as follows:
1996 1995 1994
------------ ------------ ------------
NOW and SuperNOW $ 22,792,376 $ 22,289,849 $ 22,272,708
Money market 26,210,655 27,602,041 32,880,823
Savings 48,192,967 46,752,665 52,830,352
Certificates of deposit,
$100,000 or more 8,620,096 9,844,841 7,804,644
Other time deposits 77,516,951 69,484,344 51,696,007
------------ ------------ ------------
$183,333,045 $175,973,740 $167,484,534
============ ============ ============
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
1996
1997 $ 54,112,139
1998 9,679,941
1999 8,444,168
2000 8,895,663
2001 and thereafter 5,005,136
-------------
$ 86,137,047
=============
Interest expense on certificates of deposit of $100,000 or more was
$484,267, $394,092, and $312,993, for the years ended December 31,
1996, 1995, and 1994, respectively.
Deposit balances of executive officers and directors and their
affiliated interests totaled approximately $1,067,000 at December 31,
1996.
The Bank had no brokered deposits as of and for the years ended
December 31, 1996, 1995, and 1994.
43
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 7. Income Taxes
The components of income tax expense (benefits) for the years ended
December 31, 1996, 1995, and 1994 are as follows:
1996 1995 1994
----------- ----------- -----------
Current
Federal $ (936,608) $(1,494,542) $1,204,547
State (266,880) (240,172) 345,654
----------- ----------- -----------
(1,203,488) (1,734,714) 1,550,201
Deferred (276,704) 40,270 56,560
----------- ----------- -----------
Income tax expense (benefits) $(1,480,192) $(1,694,444) $1,606,761
=========== =========== ===========
A reconciliation of income tax expense (benefits) computed at the
statutory rate of 34 percent to the actual income tax expense for the
years ended December 31, 1996, 1995, and 1994 is as follows:
1996 1995 1994
------------ ------------ -----------
Income (loss) before income taxes $(2,500,369) $(3,421,192) $ 5,123,354
=========== =========== ===========
Taxes computed at Federal income
tax rate $ (850,125) $(1,163,205) $ 1,741,940
Increase (decrease) resulting from
Tax-exempt income (541,681) (384,915) (377,591)
State income taxes, net of
Federal benefit (90,739) (154,710) 237,724
Non-deductible expenses 2,353 8,386 4,688
----------- ----------- -----------
Income tax expense (benefits) $(1,480,192) $(1,694,444) $ 1,606,761
=========== =========== ===========
Sources of deferred income taxes and the tax effects of each for the
years ended December 31, 1996, 1995, and 1994 are as follows:
1996 1995 1994
--------- -------- ---------
Depreciation $ (30,990) $ (5,786) $ (1,155)
Securities discount accretion 9,380 (7,465) 4,714
Provision for credit losses (241,077) 149,670 (107,971)
Unearned income on loans 106,816 (16,343) 150,535
Deferred compensation and benefit
plans (56,096) (79,806) 10,437
Charitable contributions (35,987) -- --
Write-downs on other real estate owned (28,192) -- --
Deferred rent (558) -- --
--------- --------- ---------
Deferred income tax expense (benefits) $(276,704) $ 40,270 $ 56,560
========= ========= =========
44
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 7. Income Taxes (Continued)
The components of the net deferred tax asset as of December 31, 1996,
1995, and 1994 are as follows:
1996 1995 1994
---------- --------- ----------
Deferred tax assets:
Allowance for credit losses $1,078,459 $ 837,381 $ 987,052
Unearned income on loans 31,469 138,285 121,942
Deferred compensation and benefit plans 122,116 87,543 7,443
Other real estate owned 28,192 -- --
Charitable contributions 35,987 -- --
Alternative minimum tax credits 538,117 -- --
Deferred rent 558 -- --
Net unrealized depreciation on investment
securities available for sale -- -- 5,788
---------- ---------- ----------
1,834,898 1,063,209 1,122,225
---------- ---------- ----------
Deferred tax liabilities:
Accumulated depreciation 214,211 245,201 250,987
Securities discount accretion 34,750 25,370 32,835
Prepaid pension contributions 38,357 59,879 59,585
Net unrealized appreciation on investment
securities available for sale 166,614 468,899 --
---------- ---------- ----------
453,932 799,349 343,407
---------- ---------- ----------
Net deferred tax asset $ 1,380,966 $ 263,860 $ 778,818
=========== ========== ==========
45
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 8. Pension and Profit Sharing Plans
The Bank has a defined benefit pension plan covering substantially all
of its employees. Benefits are based on the employee's average rate of
earnings for the five consecutive years before retirement. The Bank's
funding policy is to contribute annually an amount between the minimum
and maximum actuarially determined contribution, using the frozen entry
age actuarial cost method. Assets of the plan are held in a trust fund
principally comprised of growth and income mutual funds managed by
another bank.
The following table sets forth the financial status of the plan at
December 31, 1996, 1995, and 1994:
1996 1995 1994
----------- ----------- -----------
Accumulated benefit obligation
Vested $ 2,244,790 $ 2,183,088 $ 2,003,059
Nonvested 280,661 63,366 98,277
----------- ----------- -----------
$ 2,525,451 $ 2,246,454 $ 2,101,336
=========== =========== ===========
Plan assets at fair value $ 3,720,145 $ 3,399,653 $ 2,767,215
Projected benefit obligation (3,804,330) (3,365,078) (3,085,573)
----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation (84,185) 34,575 (318,358)
Unrecognized prior service cost 174,327 199,924 225,521
Unrecognized net (gain) loss 70,020 (6,440) 332,303
Unamortized net asset from transition (60,843) (73,012) (85,181)
----------- ----------- -----------
Prepaid pension expenses included in other assets $ 99,319 $ 155,047 $ 154,285
=========== =========== ===========
Net pension expense includes the following:
Service cost $ 208,566 $ 177,998 $ 175,424
Interest cost 286,590 256,958 232,123
Actual return on assets (284,900) (577,586) 96,951
Net amortization and deferral 15,472 364,911 (314,269)
----------- ----------- -----------
Net pension expense $ 225,728 $ 222,281 $ 190,229
=========== =========== ===========
Assumptions used in the accounting for net pension expense were:
Discount rates 8.5% 8.5% 8.5%
Rate of increase in compensation levels 6.5% 6.5% 6.5%
Long-term rate of return on assets 8.5% 8.5% 8.5%
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 Bank's contributions to the plan are determined
annually by the Board of Directors. The plan covers substantially all
employees. The Bank's contributions to the plan included in expense
were $165,100 and $154,900 for the years ended December 31, 1995 and
1994, respectively. No contributions were made for 1996.
46
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 9. Post-Retirement Health Care Benefits
The Bank provides health care benefits to employees who retire at age
65. The plan is funded only by the Bank's monthly payments of insurance
premiums due. The following table sets forth the financial status of
the plan at December 31, 1996 and 1995:
1996 1995
--------- ---------
Accumulated post-retirement benefit obligation
Retirees $ 229,258 $ 185,057
Other active participants, not fully eligible 648,414 482,922
--------- ---------
877,672 667,979
Unrecognized net gain 23,715 --
Unrecognized transition obligation (601,181) (535,126)
--------- ---------
Accrued post-retirement benefit cost $ 300,206 $ 132,853
========= =========
Net post-retirement benefit expense for the years ended December 31,
1996 and 1995 includes the following:
Service cost $ 71,381 $ 55,885
Interest cost 69,792 56,778
Amortization of unrecognized transition obligation 33,399 33,399
--------- ---------
Net post-retirement benefit expense $ 174,572 $ 146,062
========= =========
Assumptions used in the accounting for net post-retirement benefit
expense were:
Health care cost trend rate 8.0% 8.0%
Discount rate 8.5% 8.5%
If the assumed health care cost trend rate were increased to 9.0%, the
total of the service and interest cost components of net periodic
post-retirement health care benefit cost would increase by $36,816 and
$28,808, for the years ended December 31, 1996 and 1995, respectively,
and the accumulated post-retirement benefit obligation would increase
by $200,496 and $161,117 as of December 31, 1996 and 1995,
respectively.
47
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 10. Other Operating Expenses
Other operating expenses include the following:
1996 1995 1994
---------- -------- ----------
Professional services $1,454,449 $329,849 $ 245,932
Stationery, printing and supplies 218,397 278,366 235,500
Postage and delivery 271,050 253,253 201,094
FDIC assessment 33,595 237,565 455,250
Directors fees and expenses 196,622 133,202 159,518
Marketing 124,897 118,948 97,671
Data processing 129,449 97,608 92,237
Correspondent bank services 115,864 78,631 53,285
Telephone 59,808 49,021 38,598
Liability insurance 71,015 45,075 48,405
Losses and expenses on real estate owned 45,445 23,733 107,553
Other 395,881 342,154 285,730
---------- ---------- ----------
$3,116,472 $1,987,405 $2,020,773
========== ========== ==========
Note 11. Litigation and Restructuring Charges
In 1995, two opposing groups ran for election to the Board of
Directors. The Company incurred legal expenses and entered into a
severance agreement with a former executive officer in connection with
this restructuring at costs totaling $687,841. The Company also
incurred losses of $719,800 to settle the claim of a borrower who
asserted damages for discrimination. These nonrecurring charges are
included as a separate line item in operating expenses for 1995.
Note 12. Contingencies
The Bank is a defendant in certain claims and legal actions arising in
the course of business. The Bank is being sued for a total of
approximately $4,000,000 in five separate cases for allegedly honoring
checks with invalid endorsements. The Bank is also being sued for
alleged fraud by a customer in bankruptcy seeking $5,000,000 in
compensatory damages and $50,000,000 in punitive damages. Legal counsel
has advised the Bank that this plaintiff has failed to produce any
evidence to support these claims. The Bank has also filed a claim with
a former insurance provider seeking to recover in excess of $5,000,000
from loan losses sustained over the prior two years. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters is not known at this time.
48
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 13. Stockholders' Equity
At December 31, 1996, the Company had two types of stock-based
compensation plans, which are described below. The bank applies
Accounting Principles Board Opinion ("APB") No. 25 and related
Interpretations in accounting for these plans. No compensation cost has
been recognized in the accompanying Consolidated Financial Statements
for those plans. If compensation cost for the Company's two types of
stock-based compensation plans had been determined based on the fair
value at the grant dates for awards under those plans consistent with
the methods outlined in SFAS No. 123, "Accounting for Stock-Based
Compensation," there would be no change to 1996 net income, as no
options were granted during 1996.
Employees who have completed one year of service are eligible to
participate in the employee stock option purchase plan. The plan allows
employees to buy stock at 85 percent of the fair market value on the
date the option is granted. The director stock purchase plan allows
directors to buy stock at the fair market value on the date the option
is granted. Activity under these plans is as follows:
Employees Directors
----------------- ------------------
Shares Prices Shares Prices
------ ------ ------ ------
January 1, 1994 2,245 $24.17 -- $ --
Granted 7,625 24.08 2,850 28.33
Exercised (3,426) (2,100)
------ ------
December 31, 1994 6,444 24.08 750 28.33
Granted 6,479 26.92 3,300 31.67
Expired (1,782) (150)
Exercised (6,586) (3,600)
------ ------
December 31, 1995 4,555 26.92 300 31.67
Expired (4,355) --
Exercised (200) (300)
------ ------
December 31, 1996 -- --
====== ======
Shares reserved for issuance under the plans:
December 31, 1994 8,566 21,300
December 31, 1995 31,980 17,700
December 31, 1996 31,780 17,700
The number of shares and prices per share for 1995 and 1994 have been
retroactively adjusted for the stock dividend declared December 14,
1995.
Purchase options granted on July 1, 1994 and 1995 expired on October 1,
1995 and 1996, respectively.
The Company's dividend reinvestment and stock purchase plan allows
participating stockholders to invest their cash dividends in stock at
95 percent of the fair market value on the dividend payment date.
During 1996 and 1995, 10,820 and 10,795 shares of common stock,
respectively, were purchased under the plan. At December 31, 1996,
there were 94,370 shares of common stock reserved for issuance under
the plan.
In October 1996, Glen Burnie Bancorp suspended participation in the
dividend reinvestment and stock purchase plans until the Company
completes additional filings with the Securities and Exchange
Commission.
The Board of Directors may suspend or discontinue any of the plans at
its discretion.
In 1994, an institutional holder of Glen Burnie Bancorp stock desired
to dispose of a large block of shares it held in trust. The Company
purchased and retired the 10,558 shares from this block that were not
promptly sold in the open market.
Note 14. Regulatory Capital Requirements
The Bank is 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 Bank's financial
statements. The Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
principles. The 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 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, 1996, 1995, and 1994, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank 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, Tier I
leverage ratios. There are no conditions or events since that
notification that management believes have changed the institution's
category.
49
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 14. Regulatory Capital Requirements (Continued)
A comparison of the Bank's capital as of December 31, 1996, 1995, and
1994 with its minimum requirements is approximately as follows:
For Capital
Actual Adequacy Purposes
------------------ ------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
As of December 31, 1996
Total Capital $18,109,000 12.5% $11,590,000 8.0%
(to Risk-Weighted Assets)
Tier I Capital 17,367,000 12.0% 5,789,000 4.0%
(to Risk-Weighted Assets)
Tier I Capital 17,367,000 7.0% 14,886,000 6.0%
(to Average Assets)
As of December 31, 1995
Total Capital 21,168,000 13.6% 12,437,000 8.0%
(to Risk-Weighted Assets)
Tier I Capital 19,203,000 12.4% 6,218,000 4.0%
(to Risk-Weighted Assets)
Tier I Capital 19,203,000 8.2% 9,367,000 4.0%
(to Average Assets)
As of December 31, 1994
Total Capital
(to Risk-Weighted Assets) 23,677,000 15.3% 12,341,000 8.0%
Tier I Capital
(to Risk-Weighted Assets) 21,728,000 14.1% 6,171,000 4.0%
Tier I Capital
(to Average Assets 21,728,000 9.4% 9,246,000 4.0%
50
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 15. Regulatory Matters
In June, 1996 the Bank entered into a Memorandum of Understanding with
the Federal Deposit Insurance Corporation and the State Bank
Commissioner of the State of Maryland to accomplish corrective actions
regarding matters including violations of law, loan collection and
delinquencies, loan administration, methodology for allowance for
credit loss calculations, management reporting, strategic planning, and
maintenance of capital.
Note 16. Fair Values of Financial Instruments
The following table shows the estimated fair value and the related
carrying values of the Company's financial instruments at December 31,
1996. Items which are not financial instruments are not included.
1996
---------------------------
Carrying Fair
Amount Value
------------ ------------
Financial assets:
Cash and due from banks $ 10,665,680 $ 10,665,680
Interest-bearing deposits in other financial
institutions 1,836,981 1,836,981
Federal funds sold 10,175,000 10,175,000
Investment securities available for sale 54,906,836 54,906,836
Investment securities held to maturity 41,667,057 41,993,324
Loans, less allowance for credit losses 124,672,414 120,992,000
Ground rents 267,974 267,974
Accrued interest receivable 1,937,928 1,937,928
Financial liabilities:
Deposits 232,745,975 232,702,000
Short-term borrowings 547,937 547,937
Accrued interest payable 214,977 214,977
Unrecognized financial instruments:
Commitments to extend credit 16,460,003 16,460,003
Standby letters of credit 3,132,661 3,132,661
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.
Investment securities:
Estimated fair values are based on quoted market prices.
51
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 16. Fair Values of Financial Instruments (continued)
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.
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. Also, 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.
The estimated fair values of the Company's financial instruments for
1995 and 1994 are as follows:
December 31, 1995 December 31, 1994
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
Financial assets
Cash and due from banks $ 9,450,021 $ 9,450,021 $ 7,806,316 $ 7,806,316
Federal funds sold -- -- 1,800,000 1,800,000
Investment securities 74,598,847 74,690,073 60,401,713 59,024,129
Variable rate loans 35,148,040 35,148,040 40,448,637 40,448,637
Accrued interest receivable 2,154,599 2,154,599 2,236,803 2,236,803
Financial liabilities
Noninterest-bearing deposits 45,147,023 45,147,023 41,081,119 41,081,119
Variable rate deposits 96,644,555 96,644,555 107,983,883 107,983,883
Short-term borrowings 1,757,722 1,757,722 2,226,568 2,226,568
Interest and dividends payable 447,923 447,923 356,810 356,810
The fair values of investment securities were estimated using a matrix
that considers yield to maturity, credit quality, and marketability.
This method of valuation is permitted by the FASB, but may not be
indicative of net realizable or liquidation values.
It was not practicable to estimate the fair value of loans with fixed
maturities, deposit liabilities with fixed maturities, or outstanding
credit commitments. The Company did not have available resources to
estimate fair values based on quoted prices or discounted cash flows
for individual accounts or groups of accounts.
52
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 16. Fair Values of Financial Instruments (continued)
Maturities and weighted-average interest rates on loans and deposits
with fixed maturities were as follows:
December 31, 1995 December 31, 1994
---------------------- --------------------
Amount Rate Amount Rate
------ ---- ------ ----
Loans
Maturing within one year $ 21,326,466 8.7% $ 20,520,984 8.7%
Maturing over one to five years 48,258,718 9.0% 48,715,788 8.8%
Maturing over five years 50,309,892 9.1% 47,668,693 9.3%
------------ ------------
$119,895,076 $116,905,465
============ ============
Deposits
Maturing within three months $ 17,035,145 5.7% $ 13,342,709 4.0%
Maturing over three to six months 16,598,147 5.8% 12,985,504 4.8%
Maturing over six months to one year 13,014,695 5.7% 12,643,752 5.0%
Maturing over one to five years 32,681,198 6.5% 20,528,686 5.8%
------------ ------------
$ 79,329,185 $ 59,500,651
============ ============
Note 17. Adoption of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (SFAS No. 121), requires that certain long-lived assets be
reviewed for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. An impairment
loss is recognized if the sum of expected future cash flows is less
than the carrying amount of the asset and its face value. An impairment
loss is measured based on the difference between the carrying amount of
the asset and its fair value. The Bank adopted this pronouncement in
1996, and there are no asset impairment adjustments reflected in the
1996 consolidated financial statements.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" (SFAS No. 122), requires that rights to
serviced mortgage loans be recognized as an intangible asset when the
underlying loans are sold and the servicing rights related to these
loans are retained. The standard also requires that capitalized
mortgage servicing rights be assessed for impairment based on the fair
value of such rights. The Bank has not sold any loans for which it has
maintained servicing rights and, accordingly, the adoption of this
pronouncement has no effect on the 1996 consolidated financial
statements.
53
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 18. 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, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Assets
Cash $ 122,167 $ 264,757 $ --
Investment in The Bank of Glen Burnie 18,109,107 20,478,884 21,718,390
Investment in GBB Properties, Inc. 373,357 -- 1,899
Land -- -- 384,700
Other assets 25,932 27,142 16,582
------------ ------------ ------------
Total assets $ 18,630,563 $ 20,770,783 $ 22,121,571
============ ============ ============
Liabilities and Stockholders' Equity
Dividend payable $ 44,193 $ 218,208 $ 169,987
Due to affiliates -- 15,189 274,551
------------ ------------ ------------
Total liabilities 44,193 233,397 444,538
------------ ------------ ------------
Stockholders' equity
Common Stock 8,838,588 7,273,664 7,080,834
Stock dividend to be distributed -- 1,454,719 --
Surplus 6,192,900 5,917,043 5,450,852
Retained earnings 3,290,077 5,146,724 9,154,546
Net unrealized appreciation (depreciation) on
securities available for sale, net of
income taxes 264,805 745,236 (9,199)
------------ ------------ ------------
Total stockholders' equity 18,586,370 20,537,386 21,677,033
------------ ------------ ------------
Total liabilities and stockholders'
equity $ 18,630,563 $ 20,770,783 $ 22,121,571
============ ============ ============
Statements of Income
- -------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Dividend from subsidiaries $ 885,000 $ 315,000 $ --
Expenses 6,632 61,775 7,060
----------- ----------- ----------
Income (loss) before income taxes and equity in
undistributed net income (losses) of subsidiaries 878,368 253,225 (7,060)
Income tax benefit 2,255 21,056 5,970
Equity in undistributed net income (losses)
of subsidiaries (1,900,800) (2,001,029) 3,517,683
----------- ----------- ----------
Net income (loss) $(1,020,177) $(1,726,748) $3,516,593
=========== =========== ==========
54
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 18. Parent Company Financial Information (Continued)
Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(1,020,177) $(1,726,748) $ 3,516,593
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
(Increase) decrease in other assets 1,210 (10,560) (3,588)
(Decrease) increase in due to subsidiaries (10,000) (264,551) 274,551
Equity in net (income) losses of subsidiaries 1,900,800 2,001,029 (3,517,684)
---------- ----------- ----------
Net cash provided (used) by operating activities 871,833 (830) 269,872
---------- ----------- ----------
Cash flows from investing activities:
Disposal of land -- 384,700 --
Capital contributed (390,000) -- (10,000)
---------- ----------- ----------
Net cash provided (used) in investing activities (390,000) 384,700 (10,000)
---------- ----------- ----------
Cash flows from financing activities:
Proceeds from dividend reinvestment plan 380,678 382,967 430,487
Proceeds from sales of common stock 5,384 276,054 142,297
Shares retired -- -- (343,154)
Dividends paid (1,010,485) (778,134) (663,965)
---------- ----------- ----------
Net cash used in financing activities (624,423) (119,113) (434,335)
----------- ----------- ----------
Increase (decrease) in cash (142,590) 264,757 (174,463)
Cash, beginning of year 264,757 -- 174,463
----------- ----------- ------------
Cash, end of year $ 122,167 $ 264,757 $ --
=========== =========== ============
55
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 19. Quarterly Results of Operations (Unaudited)
The following is a summary of the Company's unaudited quarterly results
of operations:
1996 Three months ended
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
Interest income $ 4,567 $ 4,789 $ 4,466 $ 4,824
Interest expense 1,925 1,947 1,917 1,973
Net interest income 2,642 2,842 2,549 2,851
Provision for credit losses 3,771 375 2,075 375
Net securities gains 50 6 2 87
Income (loss) before income taxes (2,599) 585 (1,342) 856
Net income (loss) (1,436) 450 (671) 637
Net income (loss) per share $ (1.64) $ .51 $ (.76) $ .73
1995 Three months ended
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
Interest income $ 4,667 $ 4,739 $ 4,661 $ 4,534
Interest expense 1,973 1,874 1,768 1,647
Net interest income 2,694 2,865 2,893 2,887
Provision for credit losses 7,275 150 225 275
Net securities gains 377 16 106 8
Income (loss) before income taxes (6,987) 1,262 1,214 1,090
Net income (loss) (4,185) 855 847 756
Net income (loss) per share $ (4.87) $ .99 $ .99 $ .88
1994 Three months ended
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
Interest income $4,701 $4,589 $4,422 $4,233
Interest expense 1,595 1,533 1,489 1,460
Net interest income 3,106 3,056 2,933 2,773
Provision for credit losses 300 370 225 225
Net securities gains 5 49 1 23
Income before income taxes 1,215 1,359 1,386 1,163
Net income 838 927 947 805
Net income per share $1.00 $1.11 $1.14 $ .97
56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Documents Filed as Part of this Report
(1) Financial Statements. The following consolidated financial
statements are filed under Item 8 hereof:
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(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.
(3) Exhibits. The following is a list of exhibits filed as part of
this Annual Report on Form 10-K and is also the Exhibit Index.
No. Description
--- -----------
3.1 Articles of Incorporation. Incorporated herein by reference to
Exhibit 3.1 to the Annual Report on Form 10-K of Glen Burnie
Bancorp for its Fiscal Year Ended December 31, 1995, SEC File
Number 33-62278 (the "1995 Form 10-K")
3.2 By-Laws. Incorporated herein by reference to Exhibit 3.2 to the
1995 Form 10-K
10.1 Glen Burnie Bancorp Stockholder Purchase Plan. Incorporated
herein by reference from Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (Commission File No.
333-37073) (the "Form S-1")
10.2 Glen Burnie Bancorp Dividend Reinvestment and Stock Purchase
Plan. Incorporated herein by reference to Exhibit 10.2 to the
Form S-1.
10.3 Glen Burnie Bancorp Director Stock Purchase Plan. Incorporated
herein by reference to Exhibit 10.3 to the 1995 Form 10-K
10.4 The Bank of Glen Burnie Employee Stock Purchase Plan.
Incorporated herein by reference Exhibit 10.4 to Amendment No.
1 to the 1995 Form 10-K
10.5 The Bank of Glen Burnie Pension Plan. Incorporated herein by
reference to Exhibit 10.5 to the 1995 Form 10-K
16 Letter re: change in certifying public accountant. Incorporated
herein by reference to Exhibit 16 to the 1995 Form 10-K
21 Subsidiaries of the registrant. Incorporated herein by
reference to Exhibit 21 to the 1995 Form 10-K
23.1 Consent of Trice & Geary LLC
23.2 Consent of Rowles & Company, LLP.
27 Financial Data Schedule. Incorporated herein by reference to
Exhibit 27 to the Annual Report on Form 10-K of Glen Burnie
Bancorp for its fiscal year ended December 31, 1996.
(b) Reports on Form 8-K. The Company did not file a current report on
Form 8-K during the quarter ended December 31, 1996.
(c) Exhibits. The exhibits required by Item 601 of Regulation S-K are
either filed as part of this Annual Report on Form 10-K or incorporated by
reference herein.
(d) Financial Statements and Schedules Excluded from Annual Report.
There are no other financial statements and financial statement schedules which
were excluded from the Annual Report to Stockholders pursuant to Rule
14a-3(b)(1) which are required to be included herein.
57
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
Date: January 8, 1998 By: /s/ John E. Porter
- --------------------- -------------------------------------
John E. Porter
Treasurer and Chief Financial Officer
(Duly Authorized Representative)