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

Show all filings for GLEN BURNIE BANCORP

Form 10-Q for GLEN BURNIE BANCORP


14-Aug-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 $640,000 ($0.24 basic and diluted earnings per share) for the second quarter of 2013, compared to the second quarter of 2012 consolidated net income of $656,000 ($0.24 basic and diluted income per share), a 2.44% decrease. Year-to-date net income was $1,169,000 ($0.43 basic and diluted earnings per share), compared to the 2012 consolidated net income of $1,386,000 ($0.51 basic and diluted income per share), a 15.66% decrease. The decrease in net income for the second quarter was primarily due to decreases in income on loans. These decreases were partially offset by decreases in interest expense on deposits and an increase on gains on investment securities. The decrease in net income for the six months was primarily due to decreases in income on loans. These decreases were partially offset by decreases in interest expense on deposits. During the six months ended June 30, 2013, the Bank decreased deposits by $3,209,000 and increased net loans by $4,553,000.

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, 2013 was $3,009,000 and $5,922,000, respectively, compared to $3,098,000 and $6,306,000for the same period in 2012, a decrease of $89,000 (2.87%) for the three months and a decrease of $384,000 (6.09%) for the six months.

Interest income for the second quarter decreased from $3,928,000 in 2012 to $3,708,000 in 2013, a 5.60% decrease. Interest income for the six months decreased from $7,984,000 in 2012 to $7,338,000 in 2013, an 8.09% decrease. While the Bank's net loans increased during these periods, interest income decreased for the three and six month periods due to a decline in the interest rates on loans.

Interest expense for the second quarter decreased from $830,000 in 2012 to $699,000 in 2013, a 15.78% decrease. Interest expense for the six months decreased from $1,678,000 in 2012 to $1,416,000 in 2013, a 15.61% decrease. The decrease was due to both the decline in total deposits and the lower interest rates paid on deposit balances.

Net interest margins on a tax equivalent basis for the three and six months ended June 30, 2013 was 3.63% and 3.60%, compared to 3.86% and 3.95% for the three and six months ended June 30, 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 and six month periods ending June 30, 2013 and June 30, 2012. As of June 30, 2013, the allowance for credit losses equaled 53.54% of non-accrual and past due loans compared to 58.84% at December 31, 2012 and 80.59% at June 30, 2012. During the three and six month periods ended June 30, 2013, the Company recorded net charge-offs of $162,000 and $179,000, compared to net charge-offs of $44,000 and$149,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2013 period represent 0.14% of the average loan portfolio.

- 12 -

Other Income. Other income increased from $422,000 for the three month period ended June 30, 2012, to $502,000 for the corresponding 2013 period, an $80,000 (18.96%) increase. For the six month period, other income increased from $840,000 from June 30, 2012, to $881,000 for the corresponding 2013 period, a $41,000 (4.88%) increase. The increase for the three and six month period was due to an increase in gains on investment securities.

Other Expenses. Other expenses increased from $2,715,000 for the three month period ended June 30, 2012, to $2,723,000 for the corresponding 2013 period, an $8,000 (0.29%) increase. Other expenses increased from $5,401,000 for the six month period ended June 30, 2012, to $5,408,000 for the corresponding 2013 period, a $7,000 (0.13%) increase. The increase for the three and six month period was primarily due to the increase in other expenses offset by a decrease in salary and employee benefits.

Income Taxes. During the three and six months ended June 30, 2013, the Company recorded income tax expense of $148,000 and $226,000, compared to income tax expense of $149,000 and $359,000 for the same respective period in 2012. The Company's effective tax rate for the three and six month period in 2013 was 18.78% and 16.20%, respectively, compared to 18.51% and 20.58% for the prior year period. The decrease in the effective tax rate for the 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 2013, comprehensive (loss) income, net of tax, totaled ($1,560,000), compared to the June 30, 2012 comprehensive income of $558,000. Year-to-date, comprehensive (loss) income, net of tax, totaled ($1,440,000), compared to the June 30, 2012 comprehensive income of $1,577,000.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 period.

Financial Condition

General. The Company's assets decreased to $382,185,000 at June 30, 2013 from $387,438,000 at December 31, 2012, primarily due to a decrease in cash and cash equivalents partially offset by an increase in loans and other assets. The Bank's net loans totaled $254,185,000 at June 30, 2013, compared to $249,632,000 at December 31, 2012, an increase of $4,553,000 (1.82%), 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, residential construction commercial and industrial mortgages and business demand loans.

The Company's total investment securities portfolio (investment securities available for sale) totaled $100,192,000 at June 30, 2013, a $298,000 (0.30%) decrease 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 June 30, 2013, totaled $7,992,000, a decrease of $10,636,000 (57.10%) from the December 31, 2012 total of $18,628,000. The decrease in cash and cash equivalents was used to fund loans and the decrease in deposits.

Deposits as of June 30, 2013, totaled $329,080,000, which is a decrease of $3,209,000 (0.96%) from $332,289,000 at December 31, 2012. Demand deposits as of June 30, 2013, totaled $87,479,000, which is an increase of $3,191,000 (3.79%) from $84,288,000 at December 31, 2012. NOW accounts as of June 30, 2013, totaled $28,834,000, which is a decrease of $2,866,000 (9.04%) from $31,700,000 at December 31, 2012. Money market accounts as of June 30, 2013, totaled $21,419,000, which is an increase of $684,000 (3.30%), from $20,735,000 at December 31, 2012. Savings deposits as of June 30, 2013, totaled $70,458,000, which is an increase of $1,781,000 (2.59%) from $68,677,000 at December 31, 2012. Certificates of deposit over $100,000 totaled $25,411,000 on June 30, 2013, which is a decrease of $2,803,000 (9.93%) 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 $95,479,000 on June 30, 2013, which is a $3,196,000 (3.24%) 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 six months ended June 30, 2013 and the year ended December 31, 2012.

- 13 -

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

Commercial and industrial         $   3,951     $          -      $           -     $         84     $   4,035
Commercial real estate               68,242                -                  -            3,817        72,059
Consumer and indirect                58,787            1,049                  3              391        60,230
Residential real estate             119,699              949                482            1,067       122,197

                                  $ 250,679     $      1,998      $         485     $      5,359     $ 258,521



     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             108,546              233                259            1,109       110,147

                                  $ 246,532     $      1,870       $      1,613     $      4,008     $ 254,023

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 June 30, 2013, the allowance for loan loss is $3,129,000 and the unearned income is $1,207,000. 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
                                                     June 30,     December 31,
                                                       2013             2012
                                                       (Dollars in Thousands)

     Restructured loans                             $    2,117      $      2,202
     Non-accrual and 90 days or more and still
     accruing loans to gross loans                        2.27 %            2.22 %
     Allowance for credit losses to non-accrual
     and 90 days or more and still accruing loans        53.54 %           58.84 %

At June 30, 2013, there was $1,676,000 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, 2013 are comprised of:

Installment loans - Two loans to two borrowers in the amount of $239,000 with a specific reserve of $70,000 established for the loan.

Commercial loans - Two loans to one borrower totaling $16,000 with $16,000 of specific reserves established.

- 14 -

Commercial Real Estate - Three loans to three borrowers in the amount of $2,536,000, secured by commercial and/or residential properties with a specific reserve of $334,000 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, 2013 and December 31, 2012.

(Dollars in thousands)
                                                    Unpaid          Interest                        Average
                                   Recorded        Principal         Income         Specific        Recorded
         June 30, 2013            Investment        Balance        Recognized       Reserve        Investment
Impaired loans with specific
reserves:
Real-estate - mortgage:
Residential                       $       353             353                7             39              354
Commercial                              3,513           3,513               32            644            3,570
Consumer                                   75              75                3             20               75
Installment                               239             239                -             70              239
Home Equity                                 -               -                -              -                -
Commercial                                286             286                6            286              290
Total impaired loans with
specific reserves                 $     4,466           4,466               48          1,059            4,528

Impaired loans with no specific
reserve:
Real-estate - mortgage:
Residential                       $     1,322           1,770                2            n/a            1,558
Commercial                              1,281           1,281                -            n/a            1,321
Consumer                                  189             189                -            n/a                -
Installment                               187             187                -            n/a                -
Home Equity                                52              52                -            n/a               50
Commercial                                 69              69                -            n/a               69
Total impaired loans with no
specific reserve                  $     3,100           3,548                2              -            2,998

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    (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 June 30, 2013 and 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)

Loans rated 1-4 are considered "Pass" for purposes of the risk rating chart below.

- 16 -

Risk ratings of loans by categories of loans are as follows:

                                   Commercial                        Consumer
         June 30, 2013                and           Commercial         and          Residential
    (Dollars in Thousands)         Industrial      Real Estate       Indirect       Real Estate        Total

Pass                              $      3,571     $     62,743     $   58,630     $     120,040     $ 244,984
Special mention                            178            5,803          1,100               968         8,049
Substandard                                286            3,513            441             1,189         5,429
Doubtful                                     -                -             59                 -            59
Loss                                         -                -              -                 -             -

                                  $      4,035     $     72,059     $   60,230     $     122,197     $ 258,521

Non-accrual                                 84            3,817            391             1,067         5,359
Troubled debt restructures                   -            1,281              -               836         2,117
Number of TDRs contracts                     -                1              -                 1             2
Non-performing TDRs                          -            1,281              -               836         2,117
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             1,190         8,830
Substandard                                421            3,611            361             1,013         5,406
Doubtful                                     -                -             90                 -            90
Loss                                         -                -              -                 -             -

                                  $      4,901     $     72,879     $   66,096     $     110,147     $ 254,023

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 June 30, 2013, the Bank has one modified residential loan (done in 2011) in the amount of $835,551 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 $1,281,382 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 June 30, 2013, the Company had $328,000 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 properties 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 June 30, 2013 and the year ended December 31, 2012 were as follows:

                           Commercial                         Consumer
     June 30, 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                               58             (234 )         (109 )              13               272             -
Recoveries                           23               45            191                 6                 -           265
Loans charged off                  (175 )              -           (269 )               -                 -          (444 )

Balance, end of quarter     $       448     $        994     $      871     $         412     $         404     $   3,129

Individually evaluated
for impairment:
Balance in allowance        $       286     $        644     $       90     $          39     $           -     $   1,059
Related loan balance                355            4,794            742             1,675                 -         7,566

Collectively evaluated
for impairment:
Balance in allowance        $       162     $        350     $      781     $         373     $         404     $   2,070
Related loan balance              3,680           67,265         59,488           120,522                 -       250,955



                           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
. . .
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