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GLBZ > SEC Filings for GLBZ > Form 10-Q on 14-May-2013All Recent SEC Filings

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Form 10-Q for GLEN BURNIE BANCORP


14-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 $529,000 ($0.19 basic and diluted earnings per share) for the first quarter of 2013, compared to the first quarter of 2012 consolidated net income of $730,000 ($0.27 basic and diluted income per share), a 27.53% decrease. The decrease in net income for the first quarter was primarily due to an increase in other expenses and decreases in income on loans, U.S. Government agency securities, and gains on investment securities. These decreases were partially offset by decreases in salaries and employee benefits and decreases in interest expense on deposits. During the three months ended March 31, 2013, the Bank increased deposits by $1,852,000 and increased net loans by $2,438,000.

Results Of Operations

Net Interest Income. The Company's consolidated net interest income prior to provision for credit losses for the three months ended March 31, 2013 was $2,913,000, compared to $3,208,000 for the same period in 2012, a decrease of $295,000 (9.20%) for the three months.

Interest income for the first quarter decreased from $4,056,000 in 2012 to $3,630,000 in 2013, a 10.50% decrease. While the Bank's net loans increased during these periods, interest income decreased for the three month period due to a decline in the interest rates on loans and U.S. Government agency securities.

Interest expense for the first quarter decreased from $848,000 in 2012 to $717,000 in 2013, a 15.45% decrease. While total deposits increased during the three months ended March 31, 2013, interest paid on deposit balances for the three month periods ended March 31, 2013 decreased due to lower interest rates paid on deposit balances.

Net interest margins on a tax equivalent basis for the three months ended March 31, 2013 was 3.56%, compared to 4.07% for the three months ended March 31, 2012. The decrease of the net interest margin from the 2012 to 2013 period was primarily due to the continuing 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 month periods ending March 31, 2013 and March 31, 2012. As of March 31, 2013, the allowance for credit losses equaled 57.82% of non-accrual and past due loans compared to 58.84% at December 31, 2012 and 79.71% at March 31, 2012. During the three month period ended March 31, 2013, the Company recorded net charge-offs of $17,000, compared to net charge-offs of $105,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2013 period represent 0.03% of the average loan portfolio.

Other Income. Other income decreased from $418,000 for the three month period ended March 31, 2012, to $379,000 for the corresponding 2013 period, a $39,000 (9.33%) decrease. The decrease for the three month period was due to a decrease in gains on investment securities and a decrease in other fees and commissions.

- 12 -

Other Expenses. Other expenses decreased from $2,686,000 for the three month period ended March 31, 2012, to $2,685,000 for the corresponding 2013 period, a $1,000 (0.04%) decrease. The decrease for the three month period was primarily due to the decrease in salary and employee benefits offset by an increase in other expenses.

Income Taxes. During the three months ended March 31, 2013, the Company recorded income tax expense of $78,000, compared to income tax expense of $210,000 for the same respective period in 2012. The Company's effective tax rate for the three month period in 2013 was 12.85%, compared to 22.34% for the prior year period. The decrease in the effective tax rate for the three 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 first quarter of 2013, comprehensive income, net of tax, totaled $120,000, compared to the March 31, 2012 comprehensive income of $1,019,000. The decrease was due to a decrease in net income and a decrease in the net unrealized gains on securities arising during the three month period.

Financial Condition

General. The Company's assets increased to $388,867,000 at March 31, 2013 from $387,438,000 at December 31, 2012, primarily due to an increase in loans and investment securities and partially offset by a decrease in cash and cash equivalents. The Bank's net loans totaled $252,070,000 at March 31, 2013, compared to $249,632,000 at December 31, 2012, an increase of $2,438,000 (0.98%), primarily attributable to an increase in purchase money mortgages, refinance mortgages, home equity loans and real estate construction (non-home owner occupied), offset by decreases primarily in indirect lending and residential construction.

The Company's total investment securities portfolio (investment securities available for sale) totaled $103,298,000 at March 31, 2013, a $2,808,000 (2.79%) increase from $100,490,000 at December 31, 2012. 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 March 31, 2013, totaled $14,637,000, a decrease of $3,991,000 (21.43%) from the December 31, 2012 total of $18,628,000. The decrease in cash and cash equivalents was used to buy securities and fund loans.

Deposits as of March 31, 2013, totaled $334,141,000, which is an increase of $1,852,000 (0.56%) from $332,289,000 at December 31, 2012. Demand deposits as of March 31, 2013, totaled $87,461,000, which is an increase of $3,173,000 (3.76%) from $84,288,000 at December 31, 2012. NOW accounts as of March 31, 2013, totaled $29,144,000, which is a decrease of $2,556,000 (8.06%) from $31,700,000 at December 31, 2012. Money market accounts as of March 31, 2013, totaled $22,170,000, which is an increase of $1,435,000 (6.92%), from $20,735,000 at December 31, 2012. Savings deposits as of March 31, 2013, totaled $69,457,000, which is an increase of $780,000 (1.14%) from $68,677,000 at December 31, 2012. Certificates of deposit over $100,000 totaled $27,397,000 on March 31, 2013, which is a decrease of $817,000 (2.90%) from $28,214,000 at December 31, 2012. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $98,512,000 on March 31, 2013, which is a $163,000 (0.17%) decrease from the $98,675,000 total at December 31, 2012.

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 March 31, 2013 and the year ended December 31, 2012.

- 13 -

      At March 31, 2013                                            90 Days or
   (Dollars in Thousands)                       30-89 Days          More and
                                 Current         Past Due        Still Accruing       Nonaccrual        Total

Commercial and industrial       $    4,212     $          -     $              -     $        202     $    4,414
Commercial real estate              69,027                -                    -            3,908         72,935
Consumer and indirect               62,769              979                    -              227         63,975
Residential real estate            113,501              376                  291            1,064        115,232

                                $  249,509     $      1,355     $            291     $      5,401     $  256,556




    At December 31, 2012                                           90 Days or
   (Dollars in Thousands)                       30-89 Days          More and
                                 Current         Past Due        Still Accruing       Nonaccrual        Total

Commercial and industrial       $    4,678     $        206     $              -     $         17     $    4,901
Commercial real estate              68,880                -                1,354            2,645         72,879
Consumer and indirect               64,428            1,431                    -              237         66,096
Residential real estate            108,545              233                  259            1,109        110,146

                                $  246,531     $      1,870     $          1,613     $      4,008     $  254,022

The balances in the above charts have not been reduced by the allowance for loan loss and the unearned income on loans. For the period ending March 31, 2013, the allowance for loan loss is $3,291,000 and the unearned income is $1,195,000. For the period ending December 31, 2012, the allowance for loan loss is $3,308,000 and the unearned income is $1,083,000.

                                                                 At               At
                                                              March 31,      December 31,
                                                                2013             2012
                                                                (Dollars in Thousands)

Restructured loans                                           $     2,144     $       2,202
Non-accrual and 90 days or more and still accruing loans
to gross loans                                                      2.21 %            2.22 %
Allowance for credit losses to non-accrual and 90 days or
more and still accruing loans                                      57.82 %           58.84 %

At March 31, 2013, there was $1,598,000 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 March 31, 2013 are comprised of:

Consumer loans- One loan to one borrower in the amount of $147,000 with a specific reserve of $30,000 established for the loan.

Commercial loans - Three loans to two borrowers totaling $134,000 with $134,000 of specific reserves established.

- 14 -

Commercial Real Estate - Three loans to three borrowers in the amount of $2,596,000, secured by commercial and/or residential properties with a specific reserve of $394,000 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 March 31, 2013 and December 31, 2012.

   (Dollars in thousands)
                                                   Unpaid          Interest                          Average
                                  Recorded        Principal         Income          Specific         Recorded
       March 31, 2013            Investment        Balance        Recognized         Reserve        Investment
Impaired loans with specific
reserves:
Real-estate - mortgage:
Residential                     $        180             180                 3              35              180
Commercial                             3,574           3,574                15             705            3,595
Consumer                                  76              76                 1              20               76
Installment                              239             239                 -              70              239
Home Equity                                -               -                 -               -                -
Commercial                               407             407                 4             408              410
Total impaired loans with
specific reserves               $      4,476           4,476                23           1,238            4,500

Impaired loans with no
specific reserve:
Real-estate - mortgage:
Residential                     $      1,304           1,752                 1             n/a            1,557
Commercial                             1,311           1,311                 -             n/a            1,347
Consumer                                  51              51                 -             n/a                -
Installment                              218             218                 -             n/a                -
Home Equity                               50              50                 -             n/a               50
Commercial                                69              69                 -             n/a               69
Total impaired loans with no
specific reserve                $      3,003           3,451                 1               -            3,023

- 15 -

   (Dollars in thousands)
                                                   Unpaid          Interest                         Average
                                  Recorded        Principal         Income         Specific         Recorded
      December 31, 2012          Investment        Balance        Recognized        Reserve        Investment
Impaired loans with specific
reserves:
Real-estate - mortgage:
Residential                     $        180             180               12              36              182
Commercial                             3,611           4,211               99             808            3,642
Consumer                                  76              76                8              20               76
Installment                              147             147                8              30              148
Home Equity                                -               -                -               -                -
Commercial                               421             421               20             421              432
Total impaired loans with
specific reserves               $      4,435           5,035              147           1,315            4,480

Impaired loans with no
specific reserve:
Real-estate - mortgage:
Residential                     $      1,365           1,812               75             n/a            1,795
Commercial                             1,370           1,370                -             n/a            2,441
Consumer                                   1               -                -             n/a                -
Installment                              228               -                -             n/a                -
Home Equity                                -               -                -             n/a                -
Commercial                                 -               -                -             n/a                -
Total impaired loans with no
specific reserve                $      2,964           3,182               75               -            4,236

Credit Quality Information

The following tables represent credit exposures by creditworthiness category for the quarter ending March 31, 2013and the year ended December 31, 2012. 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)

8 Loss - (of little value; not warranted as a bankable asset)

- 16 -

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
       March 31, 2013              and           Commercial          and          Residential
   (Dollars in Thousands)       Industrial      Real Estate       Indirect        Real Estate        Total

Pass                           $      3,825     $     63,486     $    62,459     $     113,038     $  242,808
Special mention                         181            5,875             983             1,182          8,221
Substandard                             408            3,574             453             1,012          5,447
Doubtful                                  -                -              80                 -             80
Loss                                      -                -               -                 -              -

                               $      4,414     $     72,935     $    63,975     $     115,232     $  256,556

Non-accrual                             202            3,908             227             1,064          5,401
Troubled debt restructures                -            1,311               -               832          2,143
Number of TDRs contracts                  -                1               -                 1              2
Non-performing TDRs                       -            1,311               -               832          2,143
Number of TDR accounts                    -                1               -                 1              2




                                Commercial                        Consumer
     December 31, 2012             and           Commercial          and          Residential
   (Dollars in Thousands)       Industrial      Real Estate       Indirect        Real Estate        Total

Pass                           $      4,296     $     63,297     $    64,160     $     107,944        239,697
Special mention                         184            5,971           1,485             1,189          8,829
Substandard                             421            3,611             361             1,013          5,406
Doubtful                                  -                -              90                 -             90
Loss                                      -                -               -                 -              -

                               $      4,901     $     72,879     $    66,096     $     110,146     $  254,022

Non-accrual                              17            2,645             237             1,109          4,008
Troubled debt restructures                -            1,370               -               832          2,202
Number of TDRs contracts                  -                1               -                 1              2
Non-performing TDRs                       -            1,370               -               832          2,202
Number of TDR accounts                    -                1               -                 1              2

At March 31, 2013, the Bank has one modified residential loan (done in 2011) in the amount of $832,500 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 no longer in compliance with the modified term. The Bank has one modified commercial real estate loan (done in 2010) in the amount of $1,311,293 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. The reduction in the outstanding recorded amount is due to the sale of part of the building.

Other Real Estate Owned. At March 31, 2013, the Company had $412,000 in real estate acquired in partial or total satisfaction of debt, compared to $478,000 at December 31, 2012. This decrease for 2013 was the result of sales of units in a property acquired in 2011 along with the sale of a property acquired in the third quarter of 2012. All such properties are recorded at the lower of cost or fair value at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in non-interest expense. Gains and losses realized from the sale of other real estate owned are included in non-interest income or expense.

- 17 -

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 three months ended March 31, 2013 and the year ended December 31, 2012 were as follows:

                                    Commercial                        Consumer
         March 31, 2013                and           Commercial         and          Residential
     (Dollars in Thousands)         Industrial      Real Estate       Indirect       Real Estate       Unallocated        Total

Balance, beginning of year         $        542     $      1,183     $    1,058     $         393     $         132     $   3,308
Provision for credit losses                 (15 )           (146 )         (129 )              (5 )             295             -
Recoveries                                    1               22             79                 -                 -           102
Loans charged off                           (12 )              -           (107 )               -                 -          (119 )

Balance, end of quarter            $        516     $      1,059     $      901     $         388     $         427     $   3,291

Individually evaluated for
impairment:
Balance in allowance               $        408     $        705     $       90     $          35     $           -     $   1,238
Related loan balance                        476            4,885            634             1,484                 -         7,479

Collectively evaluated for
impairment:
Balance in allowance               $        108     $        354     $      811     $         353     $         427     $   2,053
Related loan balance                      3,938           68,050         63,341           113,748                 -       249,077




                                    Commercial                        Consumer
       December 31, 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                  29             (919 )          358               526               256           250
Recoveries                                   11               89            286                 6                 -           392
Loans charged off                           (55 )              -           (475 )            (735 )               -        (1,265 )

Balance, end of year               $        542     $      1,183     $    1,058     $         393     $         132     $   3,308

Individually evaluated for
impairment:
Balance in allowance               $        451     $        808     $       20     $          36     $           -     $   1,315
Related loan balance                        796            4,981             77             1,545                 -         7,399

Collectively evaluated for
impairment:
Balance in allowance               $         91     $        375     $    1,038     $         357     $         132     $   1,993
Related loan balance                      4,105           67,898         66,019           108,601                 -       246,623

- 18 -

As of March 31, 2013 and December 31, 2012, the allowance for loan losses included an unallocated excess amount of $427,000 and $132,000, respectively. Management is comfortable with these amounts as they feel the amounts are adequate to absorb additional inherent potential losses in the loan portfolio.

                                                     At              At
                                                 March 31,       March 31,
. . .
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