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| GLBZ > SEC Filings for GLBZ > Form 10-Q on 10-Aug-2012 | All Recent SEC Filings |
10-Aug-2012
Quarterly Report
Forward-Looking Statements
When used in this discussion and elsewhere in this Form 10-Q, 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 readers are advised that various 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. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in the Company's periodic reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.
The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Overview
Glen Burnie Bancorp, a Maryland corporation (the "Company"), through its subsidiary, The Bank of Glen Burnie, a Maryland banking corporation (the "Bank"), operates a commercial bank with eight offices in Anne Arundel County Maryland. The Company had consolidated net income of $656,000 ($0.24 basic and diluted earnings per share) for the second quarter of 2012, compared to the second quarter of 2011 consolidated net income of $758,000 ($0.28 basic and diluted income per share), a 13.46% decrease. Year-to-date net income was $1,386,000 ($0.51 basic and diluted earnings per share), compared to the 2011 consolidated net income of $1,467,000 ($0.54 basic and diluted income per share), a 5.53% decrease. The decreases in net income for the second quarter and year-to-date were primarily due to decreases in income on loans, U.S. Government agency securities, service charges and gains on investment securities. These decreases were partially offset by decreases in other expenses for the respective periods. During the six months ended June 30, 2012, the Bank increased deposits by almost $9.9 million and increased net loans by $16.6 million.
Results Of Operations
Net Interest Income. The Company's consolidated net interest income prior to provision for credit losses for the three and six months ended June 30, 2012 was $3,098,000 and $6,306,000 respectively, compared to $3,396,000 and $6,743,000 for the same period in 2011, a decrease of $298,000 (8.78%) for the three months and a decrease of $437,000 (6.48%) for the six months.
Interest income for the second quarter decreased from $4,323,000 in 2011 to $3,928,000 in 2012, a 9.14% decrease. Interest income for the six months decreased from $8,609,000 in 2011 to $7,984,000 in 2012, a 7.26% decrease. While the Bank's net loans increased during these periods, interest income decreased for the three and six month periods due to lower rates earned on U.S. Government agency securities, partially offset by an increase in income on state and municipal securities.
Interest expense for the second quarter decreased from $927,000 in 2011 to $830,000 in 2012, a 10.46% decrease. Interest expense for the six months decreased from $1,866,000 in 2011 to $1,678,000 in 2012, a 10.08% decrease. While total deposits increased during the six months ended June 30, 2012, interest paid on deposit balances for the three and six month periods ended June 30, 2012 decreased due to lower interest rates paid on deposit balances.
Net interest margins on a tax equivalent basis for the three and six months ended June 30, 2012 was 3.86% and 3.95%, compared to 4.36% and 4.40% for the three and six months ended June 30, 2011. The decrease of the net interest margin from the 2011 to 2012 period was primarily due to the decline in the interest rates on loans and U.S. Government Agency securities partially offset by the reduction in interest expense, as noted above.
Provision for Credit Losses. The Company made a provision for credit losses of $0 during the three and six month periods ended June 30, 2012 and $0 and $225,000 for credit losses during the three and six month periods ended June 30, 2011. As of June 30, 2012, the allowance for credit losses equaled 80.59% of non-accrual and past due loans compared to 77.38% at December 31, 2011 and 72.77% at June 30, 2011. During the three and six month periods ended June 30, 2012, the Company recorded net charge-offs of $44,000 and $149,000, compared to net (recoveries) charge-offs of ($43,000) and $30,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2012 period represent 0.12% of the average loan portfolio.
Other Income. Other income decreased from $489,000 for the three month period ended June 30, 2011, to $422,000 for the corresponding 2012 period, a $67,000 (13.71%) decrease. For the six month period, other income decreased from $1,100,000 at June 30, 2011, to $840,000 for the corresponding 2012 period, a $260,000 (23.64%) decrease. The decrease for the three and six month period was due to a decrease in gains on investment securities and service charges on deposit accounts.
Other Expenses. Other expenses decreased from $2,887,000 for the three month period ended June 30, 2011, to $2,715,000 for the corresponding 2012 period, a $172,000 (5.96%) decrease. Other expenses decreased from $5,698,000 for the six month period ended June 30, 2011, to $5,401,000 for the corresponding 2012 period, a $297,000 (5.22%) decrease. The decrease for the three month period was primarily due to the decrease in impairment on securities and FDIC expenses, partially offset by an increase in salaries. The decrease for the six month period was due to a decrease in FDIC expenses, other real estate owned (OREO) expenses, legal expenses, and the impairment on securities, partially offset by an increase in salaries and employee benefits.
Income Taxes. During the three and six months ended June 30, 2012, the Company recorded income tax expense of $149,000 and $359,000, compared to income tax expense of $240,000 and $453,000 for the same respective periods in 2011. The Company's effective tax rate for the three and six month period in 2012 was 18.51% and 20.58%, respectively, compared to 24.05% and 23.59% for the prior year period. The decrease in the effective tax rate for the three and six month period was due to an increase in the proportion of tax exempt income included in net interest income.
Comprehensive Income. In accordance with regulatory requirements, the Company reports comprehensive income in its financial statements. Comprehensive income consists of the Company's net income, adjusted for unrealized gains and losses on the Bank's investment portfolio of investment securities. For the second quarter of 2012, comprehensive income, net of tax, totaled $558,000, compared to the June 30, 2011 comprehensive income of $1,833,000. Year-to-date, comprehensive income, net of tax, totaled $1,577,000, as of June 30, 2012, compared to the June 30, 2011 comprehensive income of $3,206,000. The decrease was due to a decrease in net income and a decrease in the net unrealized gains on securities arising during the three and six month periods.
Financial Condition
General. The Company's assets increased to $378,939,000 at June 30, 2012 from $365,260,000 at December 31, 2011, primarily due to an increase in loans, partially offset by a decrease in OREO. The Bank's net loans totaled $249,353,000 at June 30, 2012, compared to $232,734,000 at December 31, 2011, an increase of $16,619,000 (7.14%), primarily attributable to an increase in indirect lending with lesser increases in purchase money mortgages and commercial mortgages.
The Company's total investment securities portfolio (investment securities available for sale) totaled $102,510,000 at June 30, 2012, a $357,000 (0.35%) decrease from $102,867,000 at December 31, 2011. The Bank's cash and due from banks (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of June 30, 2012, totaled $7,483,000, a decrease of $2,471,000 (24.83%) from the December 31, 2011 total of $9,954,000. This decrease was used to fund loan growth.
Deposits as of June 30, 2012, totaled $321,798,000, which is an increase of $9,853,000 (3.16%) from $311,945,000 at December 31, 2011. Demand deposits as of June 30, 2012, totaled $78,574,000, which is an increase of $5,235,000 (7.14%) from $73,339,000 at December 31, 2011. NOW accounts as of June 30, 2012, totaled $26,138,000, which is an increase of $2,099,000 (8.73%) from $24,039,000 at December 31, 2011. Money market accounts as of June 30, 2012, totaled $19,423,000, which is an increase of $1,339,000 (7.40%), from $18,084,000 at December 31, 2011. Savings deposits as of June 30, 2012, totaled $65,611,000, which is an increase of $5,547,000 (9.24%) from $60,064,000 at December 31, 2011. Certificates of deposit over $100,000 totaled $29,624,000 on June 30, 2012, which is a decrease of $1,791,000 (5.70%) from $31,415,000 at December 31, 2011. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $102,428,000 on June 30, 2012, which is a $2,576,000 (2.45%) decrease from the $105,004,000 total at December 31, 2011.
Asset Quality. The following tables set forth the amount of the Bank's current, past due, and non-accrual loans by categories of loans and restructured loans, at the dates indicated.
The following table analyzes the age of past due loans, including both accruing and non-accruing loans, segregated by class of loans as of the three months ended June 30, 2012 and the year ended December 31, 2011.
At June 30, 2012 90 Days or
(Dollars in Thousands) 30-89 Days More and
Current Past Due Still Accruing Nonaccrual Total
Commercial and industrial $ 6,002 $ - $ - $ 1,310 $ 7,312
Commercial real estate 68,877 - - 2,817 71,694
Consumer and indirect 61,328 844 - 5 62,177
Residential real estate 111,691 814 259 302 113,066
$ 247,898 $ 1,658 $ 259 $ 4,434 $ 254,249
At December 31, 2011 90 Days or
(Dollars in Thousands) 30-89 Days More and
Current Past Due Still Accruing Nonaccrual Total
Commercial and industrial $ 7,135 $ 38 $ - $ 20 $ 7,193
Commercial real estate 66,590 - - 4,484 71,074
Consumer and indirect 48,745 1,298 - 75 50,118
Residential real estate 108,703 135 18 482 109,338
$ 231,173 $ 1,471 $ 18 $ 5,061 $ 237,723
At At
June 30, December 31,
2012 2011
(Dollars in Thousands)
Restructured loans $ 4,097 $ 4,108
Non-accrual and 90 days or more and still accruing loans
to gross loans 1.85 % 2.15 %
Allowance for credit losses to non-accrual and 90 days
or more and still accruing loans 80.59 % 77.38 %
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At June 30, 2012, there was $3,875,000 in loans outstanding, included in the current and 30-89 days past due columns 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.
Non-accrual loans with specific reserves at June 30, 2012 are comprised of:
Commercial loans - Two loans to one borrower totaling $19,000 with $19,000 of specific reserves established.
Commercial Real Estate - Two loans to two borrowers in the amount of $4,097,000, secured by commercial and/or residential properties with a specific reserve of $997,000 established for the loans.
Below is a summary of the recorded investment amount and related allowance for losses of the Bank's impaired loans at June 30, 2012 and December 31, 2011.
(Dollars in thousands)
Unpaid Interest Average
Recorded Principal Income Specific Recorded
June 30, 2012 Investment Balance Recognized Reserve Investment
Impaired loans with specific
reserves:
Real-estate - mortgage:
Residential $ 1,460 1,460 32 385 1,463
Commercial 6,464 7,064 71 1,460 6,473
Consumer 76 76 4 20 76
Installment - - - - -
Home Equity - - - - -
Commercial 705 705 18 445 718
Total impaired loans with
specific reserves $ 8,705 9,305 125 2,310 8,730
Impaired loans with no specific
reserve:
Real-estate - mortgage:
Residential $ 561 561 25 n/a 649
Commercial 180 180 6 n/a 185
Consumer 1 1 - n/a -
Installment 166 166 - n/a -
Home Equity - - - n/a -
Commercial 204 204 10 n/a 221
Total impaired loans with no
specific reserve $ 1,112 1,112 41 - 1,055
(Dollars in thousands)
Unpaid Interest Average
Recorded Principal Income Specific Recorded
December 31, 2011 Investment Balance Recognized Reserve Investment
Impaired loans with specific
reserves:
Real-estate - mortgage:
Residential $ 1,703 1,703 62 411 1,708
Commercial 6,503 7,103 219 1,642 6,559
Consumer 100 100 10 44 104
Installment - - - - -
Home Equity - - - - -
Commercial 731 731 41 456 755
Total impaired loans with
specific reserves $ 9,037 9,637 332 2,553 9,126
Impaired loans with no specific
reserve:
Real-estate - mortgage:
Residential $ 260 260 7 n/a 245
Commercial 1,036 1,036 50 n/a 1,051
Consumer 25 25 - n/a -
Installment 265 265 - n/a -
Home Equity - - - n/a -
Commercial 253 253 21 n/a 304
Total impaired loans with no
specific reserve $ 1,839 1,839 78 - 1,600
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Loans that were restructured by the Bank by categories of loans at June 30, 2012 are as follows:
At June 30, 2012
(Dollars in Thousands) Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
Contracts Investment Investment
Troubled Debt Restructurings:
Real Estate - Residential 1 $ 1,280 $ 1,280
Real Estate - Commercial 1 2,759 2,817
Commercial - - -
Finance leases - - -
Troubled Debt Restructurings Number of Recorded
That Subsequently Defaulted Contracts Investment
Troubled Debt Restructurings:
Real Estate - Residential - $ -
Real Estate - Commercial 1 2,817
Commercial - -
Finance leases - -
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At June 30, 2012, the Bank has one modified residential loan (done in 2011) in the amount of $1,280,423 which modifications qualify the loan as Troubled Debt Restructuring (TDR). The loan is included in the schedule above of accruing impaired loans. This borrower is in compliance with the modified term and is accruing interest. The Bank has one modified commercial real estate loan (done in 2010) in the amount of $2,817,000 which modifications qualify the loan as Troubled Debt Restructuring (TDR). The loan is included in the schedule above of non-accruing impaired loans. This borrower is not in compliance with the modified term and is not accruing interest.
Credit Quality Information
The following tables represent credit exposures by creditworthiness category for the quarter ending June 30, 2012 and the year ended December 31, 2011. The use of creditworthiness categories to grade loans permits management to estimate a portion of credit risk. The Bank's internal creditworthiness is based on experience with similarly graded credits. Loans that trend upward toward higher credit grades typically have less credit risk and loans that migrate downward typically have more credit risk.
The Bank's internal risk ratings are as follows:
1 Superior - minimal risk (normally supported by pledged deposits, United States government securities, etc.)
2 Above Average - low risk. (all of the risks associated with this credit based on each of the bank's creditworthiness criteria are minimal)
3 Average - moderately low risk. (most of the risks associated with this credit based on each of the bank's creditworthiness criteria are minimal)
4 Acceptable - moderate risk. (the weighted overall risk associated with this credit based on each of the bank's creditworthiness criteria is acceptable)
5 Other Assets Especially Mentioned - moderately high risk. (possesses deficiencies which corrective action by the bank would remedy; potential watch list)
6 Substandard - (the bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected)
7 Doubtful - (weaknesses make collection or liquidation in full, based on currently existing facts, improbable)
Loans rated 1-4 are considered "Pass" for purposes of the risk rating chart below.
Risk ratings of loans by categories of loans are as follows:
Commercial Consumer
June 30, 2012 and Commercial and Residential
(Dollars in Thousands) Industrial Real Estate Indirect Real Estate Total
Pass $ 6,078 $ 62,402 $ 61,032 $ 110,155 $ 239,667
Special mention 325 5,454 903 1,192 7,874
Substandard 909 3,838 237 1,719 6,703
Doubtful - - 5 - 5
Loss - - - - -
$ 7,312 $ 71,694 $ 62,177 $ 113,066 $ 254,249
Commercial Consumer
December 31, 2011 and Commercial and Residential
(Dollars in Thousands) Industrial Real Estate Indirect Real Estate Total
Pass $ 5,883 $ 58,799 $ 48,528 $ 106,302 219,512
Special mention 327 4,736 1,325 1,333 7,721
Substandard 983 7,539 190 1,703 10,415
Doubtful - - 75 - 75
Loss - - - - -
$ 7,193 $ 71,074 $ 50,118 $ 109,338 $ 237,723
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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 collectability of the principal is unlikely. The allowance, based on evaluations of the collectability of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations are performed for each class of loans and take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, value of collateral securing the loans and current economic conditions and trends that may affect the borrowers' ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Based on that analysis, the Bank deems its allowance for credit losses in proportion to the total non-accrual loans and past due loans to be sufficient.
Transactions in the allowance for credit losses for the six months ended June 30, 2012 and the year ended December 31, 2011 were as follows:
Commercial Consumer
June 30, 2012 and Commercial and Residential
(Dollars in Thousands) Industrial Real Estate Indirect Real Estate Unallocated Total
Balance, beginning of year $ 557 $ 2,013 $ 889 $ 596 $ (124 ) $ 3,931
Provision for credit losses 57 (265 ) 119 140 (51 ) -
Recoveries 7 45 170 6 - 228
Loans charged off (55 ) - (213 ) (109 ) - (377 )
Balance, end of quarter $ 566 $ 1,793 $ 965 $ 633 $ (175 ) $ 3,782
Individually evaluated for
impairment:
Balance in allowance $ 423 $ 1,460 $ 42 $ 385 $ - $ 2,310
Related loan balance 705 6,464 76 1,460 - 8,705
Collectively evaluated for
impairment:
Balance in allowance $ 143 $ 333 $ 923 $ 248 $ (175 ) $ 1,472
Related loan balance 6,607 65,230 62,101 111,606 - 245,544
Commercial Consumer
December 31, 2011 and Commercial and Residential
(Dollars in Thousands) Industrial Real Estate Indirect Real Estate Unallocated Total
Balance, beginning of year $ 263 $ 2,108 $ 830 $ 196 $ 2 $ 3,399
Provision for credit losses 296 (166 ) 257 402 (126 ) 663
Recoveries 4 71 409 2 - 486
Loans charged off (6 ) - (607 ) (4 ) - (617 )
Balance, end of year $ 557 $ 2,013 $ 889 $ 596 $ (124 ) $ 3,931
Individually evaluated for
impairment:
Balance in allowance $ 456 $ 1,642 $ 44 $ 411 $ - $ 2,553
Related loan balance 730 6,503 100 1,703 - 9,036
Collectively evaluated for
impairment:
Balance in allowance $ 101 $ 371 $ 845 $ 185 $ (124 ) $ 1,378
Related loan balance 6,463 64,571 50,018 107,635 - 228,687
At At
June 30, June 30,
2012 2011
(Dollars in Thousands)
Average loans $ 238,425 $ 229,573
Net charge-offs to average loans (annualized) 0.12 % 0.02 %
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