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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
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 number 33-62278
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GLEN BURNIE BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1782444
- --------------------------------- ----------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
101 Crain Highway, S.E., Glen Burnie, MD 21061
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 410-766-3300
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K (ss.229.405 of this chapter) 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|
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 1997 was $13,632,625.
The number of outstanding shares of the registrant's common stock as of
June 30, 1997 was 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 and located in Anne Arundel
County, Maryland. It presently owns all 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, basically serving Anne Arundel County and
surrounding areas. The Bank is engaged in the commercial and retail banking
business as authorized by the banking statutes of the State of Maryland,
including the 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").
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
2
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 in 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.
Recent Loan Loss Experience Involving Significant Borrowers
During its 1995 fiscal year, the Bank had outstanding loans to Brian
Davis and various entities affiliated with him aggregating approximately
$5,804,000. 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, approximately $4,533,000 of these loans have been
charged-off.
Mr. Davis has pled guilty to committing fraud against the Bank and
various other banks. Stephen Boyd, the Bank's former chief lending officer, has
been indicted by a Federal grand jury for the District of Maryland on charges of
fraud against the Bank. The grand jury has alleged, among other things, that he
approved and recommended loans for 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 Davis in violation of the
Bank's limit on the amount that could be lent to related borrowers. In return,
it is alleged, he received cash, gifts and other benefits from Davis and his
affiliates of approximately $10,000. Boyd's attorney has publicly stated that he
intends to plead not guilty to the charges. The United States Attorney's Office
has stated that the investigation which led to Boyd's indictment and Davis's
conviction is continuing.
One of the borrowers affiliated with Davis has brought a proceeding
against the Bank seeking damages for fraud. The Bank denies the asserted
allegations. See "Item 3. -- Legal Proceedings."
An equipment and automobile leasing entity and its affiliates had
approximately $6,218,000 in outstanding lease
3
loans as of December 31, 1996. 3.29% of the principal balances of these loans
were over thirty days delinquent as of April 30, 1997. The Bank has ceased
approving new loans for these customers due to concerns about the quality of
certain of the loans and leases.
Certain other customers hold secured commercial real estate loans. The
outstanding principal amount of some of these loans exceeds ten percent (10%) of
the consolidated revenues of the Company and its subsidiaries; however, the
required annual debt service payments under each such loan does not exceed ten
percent (10%) of the Company's consolidated revenues. The Company does not
believe that the retirement of these loans or loss of such business, should it
occur for any reason, would have a material adverse effect on the Bank's
business.
Strategic Plan
In order to enhance its business and resolve certain of the problems it
has faced as described above and pursuant to the M.O.U., the Bank has adopted a
strategic plan (the "Strategic Plan"). The objectives of the Strategic Plan are
to increase returns on average assets and average equity to set percentages
within set time frames, improve the Bank's efficiency ratio (non-interest
expense divided by the sum of net interest income and non-interest income),
decrease delinquent loans and classified assets as a percentage of total loans
within set time periods, increase the ratio of total loans to total assets
within a set time period while maintaining and improving asset quality, increase
total deposits to a set amount within a set time period, build capital to a set
percentage of assets within set time periods while continuing to make a dividend
payment, maintain regulatory compliance and improve effectiveness of corporate
structure and communications. The Strategic Plan establishes strategies and
action plans to seek to meet these objectives. It is subject to review by the
FDIC and the Commissioner.
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
4
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. See "-- Recent Loan Loss Experience Involving Significant Borrowers."
The following table provides information on the composition of the loan
portfolio at the indicated dates.
Loan Portfolio Analysis
December 31,
Dollars in thousands
1996 1995 1994 1993 1992
$ % $ % $ % $ % $ %
Mortgage
Residential 35,651 27.48% 37,269 24.17% 34,303 21.91% 33,664 23.31% 33,480 25.76%
Commercial 47,757 36.81% 46,888 30.41% 39,398 25.16% 39,277 27.20% 35,111 27.02%
Construction and land 5,515 4.25% 14,265 9.25% 21,014 13.42% 12,372 8.56% 9,264 7.13%
development
Lease Financing 7,538 5.81% 13,242 8.59% 15,598 9.96% 17,774 12.31% 19,497 15.00%
Demand and time 9,557 7.37% 13,124 8.51% 12,680 8.10% 12,841 8.89% 10,633 8.18%
Installment 23,715 18.28% 29,382 19.06% 33,585 21.45% 28,490 19.73% 21,970 16.91%
- --------------------------------------------------------------------------------------------------------------------
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 maturity and rate repricing distribution
of the loan portfolio at the dates indicated. Information is not available for
individual loan categories. Demand loans and loans which have no stated maturity
are treated as due in one year or less.
Loan Maturity Schedule
December 31,
Dollars in thousands
1996 1995 1994 1993 1992
Variable rate immediately $ 21,832 $ 35,148 $ 40,448 $ 35,243 $ 27,528
Due within one year 5,490 21,326 20,521 17,781 8,033
Due over one to five years 25,897 48,259 48,716 46,276 39,771
Due over five years 77,368 50,310 47,669 45,899 55,235
- -------------------------------------------------------------------------------------------------------------------
Total gross loans 130,587 155,043 157,354 145,199 130,567
Deferred origination fees 854 873 776 781 612
- -------------------------------------------------------------------------------------------------------------------
Total Net loans $129,733 $154,170 $156,578 $144,418 $129,955
===================================================================================================================
5
Although the risk of non-payment for any reason exists with respect to
all loans, certain other specific risks are associated with each type of loan.
The primary risks associated with commercial loans, including commercial real
estate loans, are the quality of the borrower's management and a number of
economic and other factors which induce business failures and depreciate the
value of business assets pledged to secure the loan, including competition,
insufficient capital, product obsolescence, changes in the 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.
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 be 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 the 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. 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 fiscal year ended December 31, 1996,
interest of $457,035 would have been accrued on such loans if such loans had
been current in accordance with their original terms.
6
The following table sets forth the amount of the Bank's non-accrual
loans and accruing loans more than 90 days 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.
Nonaccrual Loans 1996 1995 1994 1993 1992
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 4,546 2,375 655 1,114 1,007
- ----------------------------------------------------------------------------------------------------------------
Past Due 90 days
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 Past Due 90 Days 87 3,905 2,919 2,045 1,702
- ----------------------------------------------------------------------------------------------------------------
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.
The Bank identified impaired loans of $5,953,621 as of December 31,
1996. An allowance of $1,232,366 was provided as a specific reserve related to
impaired loans.
These loans were identified as impaired and payments were received of
$377,330 on these loans in 1996 after they were classified impaired.
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.
7
Transactions in the allowance for credit losses during the last five
fiscal years were as follows:
1996 1995 1994 1993 1992
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 $124,930
Net charge offs to total 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 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. The Bank contemplates that the percentage of the total
allowance for credit losses allocable to each loan category will not vary
significantly during 1997 but the amount allocated to each category and the
total allowance will decrease.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AS OF DECEMBER 31, 1996
Reserve for Each Percent of Loans in Each
Portfolio Category Category to Total Loans
Consumer $ 448,002 10.25%
Leases 411,615 5.64%
Residential Real Estate 431,576 26.11%
Credit Card 49,354 0.79%
Commercial 2,042,779 16.46%
Construction 690,112 4.01%
Commercial Real Estate 987,154 36.73%
Total $ 5,060,592 100.00%
============================================ ==================================================================
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.
9
A summary of the consolidated investment securities is set forth below:
Investment Securities
as of December 31,
(book value - in thousands)
1996 1995 1994
U.S. Treasury securities $13,061 $15,071 $17,099
U.S. Government agencies and
mortgage-backed 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 SECURITIES $96,142 $73,385 $60,417
=============================================================== =========== ==============================
Maturities Book Value Wt. Avg. Yld.
U.S. Treasury securities
Due within one year $ 3,999 5.89%
Due over one to five years 6,342 6.00%
Due over five to ten years 2,720 6.08%
Due over ten years 0 0.00%
- --------------------------------------------------------------- ------------------------------
Total U.S. Treasury securities 13,061 5.99%
U.S. Government agencies and
mortgage-backed
Due within one year 0 0.00%
Due over one to five years 22,318 6.61%
Due over five to ten years 20,885 7.16%
Due over ten years 13,404 7.16%
- --------------------------------------------------------------- ------------------------------
Total U.S. Gov't agencies and
mortgage-backed 56,607 6.84%
Obligations of states and political
subdivisions
Due within one year 231 8.47%
Due over one to five years 2,179 9.09%
Due over five to ten years 8,873 8.68%
Due over ten years 14,443 7.70%
- --------------------------------------------------------------- ------------------------------
Total states and political subs 25,726 8.16%
Other securities and stock
Federal Home Loan Bank Stock 748 7.25%
- --------------------------------------------------------------- ------------------------------
TOTAL SECURITIES $96,142 7.08%
=============================================================== ==============================
10
Except as described below, the Bank had no investments in securities of
a single issuer (other than the U.S. government and its agencies and
corporations) which aggregated more than 10% of stockholders' equity at December
31, 1996.
Book Value Market Value
Maryland State, County and Municipal Securities $ 16,982 $ 17,545
Pennsylvania State, County and Municipal Securities 8,744 8,784
Deposits and Sources of Funds
The funds needed by the Bank to make loans are generated by deposit
accounts. 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 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
branches. 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 or more including IRA accounts. The following table
provides information as to the maturity of all time deposits of $100,000 or more
at December 31, 1996.
1996 Time Deposits $100,000 or more maturity schedule
(dollars in thousands)
Three months or less $ 1,614
Over three through six months 1,757
Over six through 12 months 2,336
Over 12 months 6,423
-------
Total $12,130
=======
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
11
headquarters). Former directors of the bank, including its former Chief
Executive Officer, have established County National Bank with a main office in
Glen Burnie close to the Bank's headquarters. The Bank anticipates that County
National 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.
Federal and State Regulation
The Company, as a bank holding company, is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
under the Bank Holding Company Act. It is registered with the Federal Reserve
Board and is subject to Federal Reserve Board regulation, examination,
supervision and reporting requirements. The Company is required to furnish to
the Federal Reserve Board annual and quarterly reports of its operations and
such additional information as the Federal Reserve Board may require. It is
subject to regular inspection by Federal Reserve Board examiners.
Under the Bank Holding Company Act, the Company may not engage in any
business other than managing or controlling banks or furnishing services to its
subsidiaries, except that it may engage in certain activities which, in the
opinion of the Federal Reserve Board, are so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. The Company is
also prohibited, with certain exceptions, from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company unless
the company is engaged in such permitted activities. The Bank Holding Company
Act also prohibits a bank holding company or any of its subsidiaries from
acquiring voting shares or substantially all the assets of any bank holding
company or bank, or from merging or consolidating with any other bank holding
company, unless such acquisition is approved by the Federal Reserve Board. Under
Maryland law, a bank holding company is prohibited from acquiring control of any
bank if, as a result of such acquisition, the bank holding company would control
more than 30% of the total deposits of all
12
depository institutions in the State of Maryland unless such limit is waived by
the Commissioner.
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. The
Federal Reserve Board has been advised that the Company has paid dividends
during 1995 and 1996, despite its losses, and has raised no objections.
The Company's primary source of funds is the receipt of dividends from
its subsidiaries. The Bank's ability to make such payments to the Company is
subject to certain statutory and regulatory restrictions. Under Maryland law,
Maryland banks may only pay dividends from undivided profits (which the Bank,
with the apparent acquiescence of the Commissioner, has interpreted to include
retained earnings in excess of capital and surplus) or, with the prior approval
of the Commissioner, their surplus in excess of 100% of required capital stock
(defined as the number of outstanding shares of capital stock times its par
value). The Bank has been able to pay dividends despite recent losses due to its
substantial retained earnings. Every Maryland bank is prohibited from declaring
dividends on its shares of common stock in excess of 90% of net earnings unless
its surplus fund equals the amount of required capital stock. The Bank's
allocated surplus currently exceeds the amount of its required capital stock. In
addition, banks are prohibited by Federal statute from paying dividends or
making other capital distributions that would cause them to fail to meet their
regulatory capital requirements. The FDIC also has the authority to prohibit the
payment of dividends if it determines such payments to constitute unsafe or
unsound banking practices. Pursuant to the Revised M.O.U., the Bank may not pay
dividends to the Company without prior approval of the FDIC and the Commissioner
if its Tier 1 capital ratio would be less than 6.0% or such dividends would
exceed 50% of net operating income after taxes. See " -- Memoranda of
Understanding."
Banks are extensively regulated under both Federal and state law. The
Bank, as a Maryland state chartered bank, is subject to primary supervision,
periodic examination and regulation by the Commissioner and the FDIC. Although
the Bank is not a member of the Federal Reserve System, it is nevertheless
subject to certain regulations of the Federal Reserve Board. State and Federal
statutes and regulations relate to many aspects of the Bank's
13
operations, including reserves against deposits, loans, investments,
transactions with affiliates, mergers and acquisitions, borrowings, dividends
and locations of branch offices. The FDIC and the Commissioner regularly examine
the operations of the Bank, which must file quarterly and annual reports with
such agencies. Such requirements are intended for the protection of the Bank's
depositors and not its stockholder.
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 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.
As of December 31, 1996, the Bank's "Tier 1" capital (consisting of
stockholders' equity, excluding unrealized after tax net gain or loss on
investment securities available for sale) was $17,367,000. Its ratio of Tier 1
capital to risk-weighted assets (12.0% as of December 31, 1996), total capital
to risk-weighted assets (12.5% as of December 31, 1996) and leverage ratio of
Tier 1 capital to average assets (7.0% as of December 31, 1996) exceed the
minimum ratios required by the Federal Deposit Insurance Corporation.
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 and Tier I leverage ratios.
There are no conditions or events since that notification that the Bank believes
have changed the institution's categorization, although there can be no
assurance that the Bank will continue to meet the minimum ratios necessary to
maintain such categorization.
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.
14
Employees
The Bank currently employs 151 people. Neither the Company nor GBB
currently has any employees.
ITEM 2. Properties
The Bank owns its Banking Operations Center, its Executive Offices, its
main banking facility in Glen Burnie, and four (4) branch offices in various
communities in Anne Arundel County, Maryland, all of which are unencumbered. The
Company owns no real estate at present. At December 31, 1996, 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 can be
used for certain commercial purposes which GBB has contracted to sell for
$155,000 ($25,500 over its book value). The other consists 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 consist of residential property which the Bank is holding for
sale.
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, $10,000,000 in punitive damages and
declaratory and injunctive relief under numerous counts, including one count
pled under the Racketeer Influence and Corrupt Organizations Act ("RICO"). 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 affect on its business.
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. The
Company does
15
not believe that any ultimate liability or risk of loss with respect to these
actions will materially affect its consolidated financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders
during its fourth quarter of 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common equity consists of one class of common stock, par
value $10.00 per share. The Company effectuated a six-for-five stock split in
the form of a 20% stock dividend paid on January 3, 1996. The Company's stock is
traded in the over-the-counter market and quoted in the pink sheets. The actual
range of high and low bid quotations for the common stock, which has been
adjusted to give retroactive effect to the stock split, for each full quarterly
period during 1995 and 1996, based on actual settlements reported by Legg Mason
Wood Walker, Inc., the only source of such information available to the Company,
are as follows:
High Low
------- -------
1st qtr 1995 $32.917 $28.750
2nd qtr 1995 32.917 31.042
3rd qtr 1995 32.917 32.083
4th qtr 1995 34.375 28.854
1st qtr 1996 37.500 34.000
2nd qtr 1996 36.250 33.000
3rd qtr 1996 33.500 33.000
4th qtr 1996 34.000 25.000
====== ======
As of June 30, 1997, the reported sales price for the common stock was
$25.00.
As of June 30, 1997, the number of record holders of the Company's
common stock was 481.
16
Since its inception, the Company has paid quarterly cash dividends on
its common stock. The second quarter 1997 dividend, however, was paid partly in
cash and partly in stock. Because the effect of this stock dividend was not
material, earnings per share have not been restated. The per share dividends
paid in cash during 1995 and 1996, giving retroactive effect to the stock split,
were as follows:
Per Share Dividend
------------------
1st qtr 1995 $.208
2nd qtr 1995 .250
3rd qtr 1995 .250
4th qtr 1995 .250
1st qtr 1996 .300
2nd qtr 1996 .300
3rd qtr 1996 .300
4th qtr 1996 .050
Pursuant to its Strategic Plan, 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 (and to make loans or advances to affiliates
which could be used to pay dividends). See "Business -- Federal and State
Regulation."
ITEM 6. Selected Financial Data.
The following tables presents selected consolidated financial data for
the Company and its subsidiaries for each of the last five fiscal years as well
as certain statistical data. All dollar amounts are expressed in thousands
except per share amounts. Adjustments in dividends and earnings per share have
been made to give retroactive effect to stock splits.
17
At or For Fiscal Year Ended December 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net Interest Income $10,884 $ 11,339 $ 11,868 $ 10,736 $ 8,788
Net Income (Loss) (1,020) (1,727) 3,517 3,047 2,284
Net Income (Loss)
Per Share (1.16) (2.01) 4.22 3.69 4.02
Total Assets 254,325 246,165 232,935 223,422 203,573
Long Term Obligations --- --- --- --- ---
Cash Dividends
Declared Per Common
Share .95 .96 .80 .75 .72
Return on Avg. Assets (0.41)% (0.73)% 1.53% 1.40% 1.23%
Return on Avg. Equity (5.29)% (7.42)% 17.24% 17.70% 15.23%
Dividend Payout Ratio * * 19.24% 20.38% 25.89%
Avg. Equity to Avg. 7.82% 9.89% 8.86% 7.92% 8.05%
Assets
* Not meaningful.
ITEM 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations.
Results Of Operations
The Company and its subsidiaries had a consolidated net loss of
$1,020,177 ($1.16 per share) for 1996 compared to their 1995 consolidated net
loss of $1,726,748 ($2.01 per share) and their 1994 consolidated net income of
$3,516,593 ($4.22 per share). The change is primarily due to a significant
increase in the provision for credit losses of $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. See "Business --Recent Loan Loss Experience Involving Significant
Borrowers." Charge offs in 1996 amounted to $5,468,293 following the $7,060,650
charged off in 1995. In 1996 the Bank entered into the M.O.U. with the FDIC and
the Commissioner which addresses the
18
factors relating to such losses. See "Business -- Memoranda of Understanding."
Net Interest Income. The consolidated net interest income prior to
making provision for credit losses decreased by $454,884 (4.0%) from $11,339,137
in 1995 to $10,884,253 in 1996. It had decreased by $528,822 (4.5%) in 1995 from
$11,867,959 in 1994. The 1996 decrease is 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 $14,085,042 at the end of 1994. In addition to increased loan charge offs,
the Bank made fewer loans during 1996 than 1995.
19
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.
1996 VS. 1995 1995 VS. 1994
-------------------------------- -----------------------------
INCREASE/ CHANGE DUE TO INCREASE/ CHANGE DUE TO
DECREASE RATE VOLUME DECREASE RATE VOLUME
(dollars in thousands)
ASSETS
Interest earning assets:
Money market investments:
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.
gov't 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 investments 1,647 80 1,567 274 (18) 292
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) (537) (862) 393 (18) 411
Allowance for credit losses
-------- ----- ------ ------ ----- -----
Total net loans (1,399) (420) (979) 393 (18) 411
-------- ----- ------ ------ ----- -----
Total Interest-Earning Assets $ 248 $(779) $1,027 $ 667 $ (63) $ 730
======== ===== ====== ====== ====== =====
LIABILITIES
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 (33) 572 1,164 933 231
Noninterest-bearing deposits -- -- -- -- -- --
-------- ----- ------ ------ ----- -----
Borrowed funds (39) (9) (30) 21 22 (1)
-------- ----- ------ ------ ----- -----
Total Interest-Bearing
Liabilities $ 500 $ (34) $ 534 $1,185 $1,115 $ 70
======== ===== ====== ====== ====== =====
(1) Tax equivalent basis
(2) Non-accrual loans included in average balances.
20
The following table provides information for the designated periods
with respect to the average balances, income and expense and yields and costs
associated with various categories of interest-bearing assets and
interest-bearing liabilities.
AVERAGE BALANCES, YIELDS AND RATES
(dollars in thousands)
For the Year Ended Dec. 31, 1996 For the Year Ended Dec. 31, 1995
Avg. Bal. Inc./Exp. Yld/Rate(1) Avg. Bal. Inc./Exp. Yld/Rate(1)
-------- --------- ---------- --------- --------- -----------
ASSETS
Interest-earning assets:
Money market investments:
Federal funds sold $ 5,185 $ 261 5.03% $ 2,416 $ 139 5.75%
Interest bearing deposits 1,267 54 4.26 1,526 85 5.57
Investment securities:
U.S. Treasury securities and
obligations of U.S. gov't
agencies 53,454 3,669 6.86 40,263 2,587 6.43
Obligations of States and
political subdivisions (1) 27,875 2,307 8.28 21,479 1,835 8.54
All other investment securities 737 54 7.33 696 52 7.47
-------- -------- ---- ------- -------- ----
Total Investments 88,518 6,345 7.17 66,380 4,698 7.08
Loans, net of unearned income
Demand, time and lease 22,343 1,944 8.70 28,559 2,557 8.95
Mortgage and construction 97,777 8,886 9.07 94,322 9,135 9.68
Installment and credit card 26,802 2,278 8.50 33,338 2,795 8.38
-------- -------- ---- ------- -------- ----
Total gross loans(2) 146,922 13,088 8.91 156,219 14,487 9.27
Allowance for credit losses 3,835 2,766
-------- -------- ---- ------- -------- ----
Total Net loans 143,087 13,088 9.15 153,453 14,487 9.44
-------- -------- ---- ------- -------- ----
Total Interest Earning Assets 231,605 19,433 8.39 219,833 19,185 8.73
Cash and due from banks 7,936 7,152
Other Assets 7,318 8,471
-------- -------- ---- ------- -------- ----
Total Assets $246,859 $ 19,433 7.87% $235,456 $ 19,185 8.15%
-------- -------- ---- ------- -------- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Savings and NOW $ 71,455 $ 2,075 2.90% $ 68,957 $ 2,187 3.17%
Money market 26,911 818 3.04 29,081 929 3.19
Other time deposits 83,486 4,819 5.77 70,382 4,057 5.76
-------- -------- ---- ------- -------- ----
Total Interest-Bearing Deposits 181,852 7,712 4.24 168,420 7,173 4.26
Noninterest-bearing deposits 44,570 41,500
-------- -------- ---- ------- -------- ----
Total deposits 226,422 7,712 3.41 209,920 7,173 3.42
-------- -------- ---- ------- -------- ----
Borrowed funds 1,029 50 4.86 1,549 89 5.75
Other liabilities 110 699
-------- -------- ---- ------- -------- ----
Stockholders' equity 19,298 23,288
-------- -------
Total liabilities and equity $246,859 $ 7,762 3.14% $235,456 $ 7,262 3.08%
======== ======== ==== ======== ======== ====
Net Interest Income/Margin $ 11,671 5.04% $ 11,923 5.42%
======== ==== ======== ====
For the Year Ended Dec. 31, 1994
Avg. Bal. Inc./Exp. Yld/Rate(1)
--------- --------- -----------
ASSETS
Interest-earning assets:
Money market investments:
Federal funds sold $ 2,799 $ 101 3.61%
Interest bearing deposits 415 23 5.54
Investment securities:
U.S. Treasury securities and
obligations of U.S. gov't
agencies 38,430 2,488 6.47
Obligations of States and
political subdivisions (1) 20,240 1,783 8.81
All other investment securities 443 29 6.55
-------- ------ ----
Total Investments 62,327 4,424 7.11
Loans, net of unearned income
Demand, time and lease 29,232 2,469 8.45
Mortgage and construction 90,804 8,834 9.73
Installment and credit card 31,897 2,791 8.75
-------- ------ ----
Total gross loans(2) 151,933 14,094 9.28
Allowance for credit losses 2,762
-------- ------ ----
Total Net loans 149,171 14,094 9.45
-------- ------ ----
Total Interest Earning Assets 211,498 18,518 8.76
Cash and due from banks 9,769
Other Assets 8,817
-------- ------ ----
Total Assets 230,084 18,518 8.05%
-------- ------ ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Savings and NOW $ 78,067 $ 2,489 3.19%
Money market 35,301 1,076 3.05
Other time deposits 54,524 2,444 4.48
-------- ------ ----
Total Interest-Bearing Deposits 167,892 6,009 3.58
Noninterest-bearing deposits 39,585
-------- ------ ----
Total deposits 207,477 6,009 2.90
-------- ------ ----
Borrowed funds 1,573 68 4.32
Other liabilities 639
-------- ------ ----
Stockholders' equity 20,395
--------
Total liabilities and equity $230,084 $ 6,077 2.64%
======== ======= ====
Net Interest Income/Margin $12,441 5.88%
======= ====
(1) Tax equivalent basis
(2) Non-accrual loans included
Over the last two years the Bank has 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.
Provision for Credit Losses. During 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 the
past two fiscal years reflect the amount determined by the Company to be
necessary to maintain the allowance for credit losses to an adequate level
21
after significant increases in loan charge-offs during 1996 and 1995. See
"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 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 3 -- Legal Proceedings." The Bank has
obtained insurance reimbursement for approximately $560,000 of its 1995
restructuring and litigation charges.
Capital Resources And Liquidity
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 have increased over the past two 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 totalled $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
22
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.
Cash and cash equivalents (cash due from banks, interest-bearing
deposits in other financial institutions, and Federal funds sold) as of December
31, 1996 was $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 totalled $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 aggregate market value of investment securities held as of December
31, 1996 was $96,905,238 compared to $74,690,073 as of December 31, 1995, a
$22,215,165 (29.7%) increase. The market value of investment securities as of
December 31, 1995 had increased by $15,665,944 (26.5%) from their December 31,
1994 total. The reasons for the large increases in investment securities were
increases in deposits coupled with declines in loan demand and increased
amortization of loan balances. The loan types most affected by the increased
amortizations were construction and land development mortgages, lease financing
and installments.
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, 1994 $1,500,000 was
outstanding under this line. No amounts were outstanding at the end of either
1996 or 1995.
Net loans decreased by $25,799,354 (17.2%) from $150,471,768 in 1995 to
$124,672,414 in 1996. The 1995 net loans total decreased by $3,342,654 (2.2%)
from $153,814,422 in 1994. The variations are largely due to an increase in
construction and land development loans in 1994 followed by a reduction in such
loans in both 1995 and 1996. 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. 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.
23
The 1995 and 1996 losses significantly affected retained earnings. They
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.
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.
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.
ITEM 7A. Quantitative and Qualitative disclosures About Market
Risk.
Not Applicable.
24
ITEM 8. Financial Statements And Supplementary Data.
The response to this Item is set forth at the end of this report.
ITEM 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure.
On April 11, 1996 the Company's board of directors decided not to
reengage Rowles & Company to audit the Company's consolidated financial
statements for its 1996 fiscal year. Such accountants' report on the Company's
consolidated financial statements for each of its prior two fiscal years did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. There were no
disagreements between the Company and Rowles & Company. On June 27, 1996, the
Company's board of directors decided to engage Trice & Geary LLC to perform such
function and Trice & Geary LLC was so engaged on August 16, 1996.
ITEM 10. Directors And Executive Officers Of The Registrant.
Set forth below is information about the directors, executive officers
and significant employees of the Company, the Bank and GBB. Unless indicated
otherwise, the positions stated for each individual are positions held in the
Company and in each of its subsidiaries, and the positions stated are positions
which are currently held and which have been held for at least the last five
years.
NAME: AGE: DIRECTOR SINCE:
Theodore L. Bertier 69 1997
Retired since 1993. Manager of design and drafting department of Westinghouse
Electric Corp. prior to retirement.
Shirley Boyer 60 1995
Owner/Manager of a large number of residential properties in Anne Arundel
County, Maryland. Thirteen years experience in various banks (1954-1967) in
positions from Teller to Assistant Branch Manager.
Thomas Clocker 62 1995
Owner/Operator of Angel's Food Market in Pasadena, Maryland since 1960. Charter
member of and assisted in founding Pasadena Business Association. Community
involvement including local charities, schools, church, scout groups and
athletic programs.
25
John E. Demyan 49 1990
Chairman of the board since 1995. Director of the Company and the Bank from 1990
through 1994. Completed Maryland Banking School in 1994. Owner/Manager of
commercial and residential properties in northern Anne Arundel County, Maryland.
Alan E. Hahn 62 1997
Owner/manager of residential real estate. Retired information systems manager.
Charles L. Hein 75 1997
Retired clergyman. Purchaser and restorer of residential properties. Mortgagee
of residential properties.
F. William Kuethe, Jr. 64 1995
President and Chief Executive Officer of the Company and the Bank since 1995.
Director of the Bank from 1960 through 1989. Former President - Glen Burnie
Mutual Savings Bank from 1988 through 1995. Licensed appraiser and real estate
broker. Banking experience from 1960 to present at all levels.
Frederick W. Kuethe, III 37 1995
Vice President of the Company since 1995. Director of the Bank since 1988.
Software design and systems integration - Northrop Grumman Corp. (formerly
Westinghouse Electric Corporation). Chairman of Data Processing Committee for
the Bank. Attended Maryland Banking School. Son of F. William Kuethe, Jr.
Eugene P. Nepa 67 1997
Retired. Mechanical engineer at Premier Rides Incorporated 1992-1997.
William N. Scherer, Sr. 75 1995
Attorney specializing in wills and estates. Formerly accountant and tax
specialist.
Karen B. Thorwarth 40 1995
Manager, Yacht Department - Basil-Voges, Inc. of Annapolis, Maryland. Licensed
insurance agent specializing in underwriting and marketing private pleasure
yacht insurance. Member - Annapolis Yacht Club.
Mary Lou Wilcox 49 1997
Elementary school teacher.
Dorothy A. Abel 55
26
Secretary of the Company since 1995. Vice President and Secretary of the Bank
since 1990.
Michael L. Derr 46
Vice President Operations of the Bank since 1992. Assistant Vice President
Operations of the Bank since 1989.
Michael Livingston 43
Chief Lending Officer of the Bank since 1996. Regional Vice President and
commercial loan officer with Citizens Bank from March 1993 until April 1996.
Comptroller with Land Services Group from April 1992 through January 1993.
John E. Porter 43
Treasurer and Chief Financial Officer of the Company since 1995. Vice President,
Treasurer and Chief Financial Officer of the Bank since 1990.
Secretary/Treasurer of GBB since 1995.
Robert J. Riedel 55
Vice President of the Bank since 1990.
ITEM 11. Executive Compensation.
The following chart sets forth the compensation paid by the
Company and the Bank to F. William Kuethe, Jr., their chief
executive officer, during the years indicated.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Other
Annual Securities All Other
Compen- Restricted Underlying Compen-
Name and Principal sation Stock Options/ sation
Position Year Salary ($) Bonus ($) ($) Award(s) SARs (#) ($)
F. William Kuethe, Jr. 1996 $ 80,000 $ --- $ --- --- --- $ 35,183 2/
Chief Executive Officer 1995 65,538 7,500 250 1/ --- 250 16,904
1994 --- 1,500 --- --- --- 35,109
1/ Mr. Kuethe's "Other Annual Compensation" for 1995 consisted solely of the
differences between the exercise price of director stock options exercised by
him during the respective years and the fair market value of the shares at the
time of exercise as determined by information furnished by Legg Mason Wood
Walker.
2/ Mr. Kuethe's "Other Compensation" for 1996 consisted of $15,170 in paid
insurance premiums, $16,100 in directors' fees and $3,913 in appraisal fees.
Under the Bank's Employee Stock Purchase Plan, employees of the Bank,
including its chief executive officer, may receive the right to purchase shares
of the Company's common stock, at a per share price equal to the greater of (a)
15% less than the market
27
price for such shares on the date of grant or exercise (whichever is lower) or
(b) their book value as of the end of the Company's fiscal year preceding the
grant date. Options have been awarded on the basis of five shares for every
$1,000 of salary and bonus paid during the preceding year although the plan
leaves the amount of option awards at the discretion of the board as long as the
board applies uniform salary guidelines. 11,320 options were granted on July 1,
1995 and could be exercised at any time through September 30, 1996. At December
31, 1996, there were 31,780 shares reserved for issuance under the plan. The
plan was suspended in 1996, and no options have been granted thereunder since
the July 1995 grant.
The Company maintains a Director Stock Purchase Plan pursuant to which
directors may purchase the Company's common stock at its fair market value on
the date an option is granted. At December 31, 1996, there were 17,700 shares of
common stock reserved for issuance under the plan. No options are currently
outstanding under the plan. The plan was suspended in 1996.
The options issued to Mr. Kuethe referenced in the first note to the
Summary Compensation Table were issued under the Director Stock Option Plan. Mr.
Kuethe neither received nor exercised any options in 1996. (Neither the Company
nor the Bank grants any stock appreciation rights.)
The Bank maintains a pension plan for substantially all employees
pursuant to which benefits are based on the employee's average rate of earnings
and years of service. Vesting occurs after six months of employment but benefits
are reduced for job termination within ten years of employment and for early
retirement. A participant's pension is based on the average amount of his annual
earnings for his five most highly paid consecutive years during the ten years
immediately preceding his retirement. His pension is determined by multiplying
2% of the "covered" portion of this amount and .65% of any additional portion by
the lesser of the number of his years of service or 20. The "covered" portion is
his social security taxable wage basis taken over a period of up to 35 years.
The following table shows the estimated annual benefits payable upon retirement
in specified compensation and years of service classifications based on the
assumption that the "covered" portion equals $65,400 (the current maximum salary
subject to social security tax) for all employees receiving more than such
amount and that the highest salary payable is $100,000 per annum. Currently, no
employee earns this much and the Bank does not anticipate that any employee will
in the foreseeable future.
28
PENSION PLAN TABLE
Years of Service
Remuneration 5 10 15 20
40,000 4,000 8,000 12,000 16,000
60,000 6,000 12,000 18,000 24,000
80,000 7,015 14,029 21,044 28,058
100,000 7,665 15,329 22,994 30,658
The total compensation covered by the pension plan for the year ended
December 31, 1996 was $2,965,047.19. 2.2% of the covered compensation represents
compensation paid to F. William Kuethe, Jr. who has two years of credited
service.
Benefits under the pension plan are not subject to deduction for social
security payments or other offsets.
Director's Fees
Each director receives a $700 fee for attending each meeting of the
board of directors of the Bank or of committees of the board of the Bank. During
1996, $137,900 were paid in directors' fees.
Compensation Committee
A compensation committee of directors of the Bank approved by its board
sets director compensation. The Bank's board sets the compensation of the chief
executive officer. The chief executive officer sets the compensation of the
other executive officers. Executive officers are placed at certain grade levels
with the salary range of each grade level established by the compensation
committee, subject to board approval, based on comparable salaries paid by
similar financial institutions. Within such range, an individual's salary is
based on a performance review conducted by the board or president, as indicated
above. Bonuses are discretionary and largely based on the Bank's financial
performance.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table provides information as of June 30, 1997 concerning
ownership of the Company's common stock (which constitutes its only class of
equity securities) by any individual or group known to the Company to be the
beneficial owner of more than 5% of its common stock, each of its directors, the
individual listed in the Summary Compensation Table included
29
above and all executive officers and directors as a group. Each person listed
has sole voting and sole investment power with respect to the shares listed
across from his name except as noted otherwise.
Name and Address of Account And Nature of Percent of Class
Beneficial Owner Beneficial Ownership (If 1% or more)
- ------------------- ---------------------- ----------------
Ethel Webster 169,191 19.14%
104 W. Pasadena Road
Pasadena, MD
John E. Demyan 74,202 1/ 8.40% 1/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
F. William Kuethe, Jr. 113,090 2/ 12.80% 2/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Theodore L. Bertier 6,479 3/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Shirley Boyer 4,456
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Thomas Clocker 2,799
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Alan E. Hahn 4,456
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Charles L. Hein 36,204 4/ 4.10% 4/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Frederick W. Kuethe, III 8,341 5/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Eugene P. Nepa 34,918 3.95%
101 Crain Highway, S.E.
Glen Burnie, MD 21061
William N. Scherer, Sr. 2,460 6/
101 Crain Highway, S.E.
Glen Burnie, MD 21061
Karen B. Thorwarth 505
101 Crain Highway, S.E.
Glen Burnie, MD 21061
30
Name and Address of Account And Nature of Percent of Class
Beneficial Owner Beneficial Ownership (If 1% or more)
- ------------------- ---------------------- ----------------
Mary Lou Wilcox 319
101 Crain Highway, S.E.
Glen Burnie, MD 21061
All directors and executive 293,634 33.22%
officers as a group
1/ Includes 3,000 shares owned by John Demyan's spouse as to which he disclaims
beneficial ownership.
2/ F. William Kuethe, Jr. has shared voting and shared investment power with
respect to 20,097 of these shares.
3/ Theodore L. Bertier has shared voting and shared investment power with
respect to 679 of these shares.
4/ Charles L. Hein has shared voting and shared investment power with respect to
23,570 of these shares.
5/ Frederick W. Kuethe, III has shared voting and shared investment power with
respect to 8,158 of these shares.
6/ William N. Scherer, Sr. has shared voting and shared investment power with
respect to 2,367 of these shares.
ITEM 13. Certain Relationships and Related Transactions
The executive officers and directors of the Bank, and their affiliates,
enter into loan transactions with the Bank in the ordinary course of business.
Loans to them are made on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans with unrelated
borrowers and the Bank does not believe that they involve more than the normal
risk of collectibility or present other unfavorable features. At December 31,
1996, 1995, and 1994, the outstanding amounts of such loans were $2,587,122,
$2,878,742, and $685,613, respectively. The election of new directors having
outstanding loans in 1995 is the main reason for the increase in 1995 and 1996.
31
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Glen Burnie Bancorp and Subsidiaries
Consolidated Financial Statements
Table of Contents
Reports of Independent Auditors F-1
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Changes in
Stockholders Equity F-5
Consolidated Statements of Cash Flows F-6
Noted to Consolidated Financial Statements F-8
32
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
F-1
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
F-2
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 $41,993,324; 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 727,366 shares; 1994 708,083 shares .............................. 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 ....................... $ 254,324,701 $ 246,164,736 $ 232,934,732
============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
F-3
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.
F-4
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.
F-5
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.
F-6
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.
F-7
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.
Income on Loans:
Interest income on loans is accrued at the contractual rate on the
principal amount outstanding. It is the 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. Fees
charged for the origination of loans are being amortized on the
straight-line method over the term of the loan. Amortization of these
fees is discontinued on loans placed on non-accrual status.
F-8
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 1. Summary of Significant Accounting Policies (continued)
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.
While management believes it has established the allowance for credit
losses in accordance with generally accepted accounting 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.
F-9
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 purposes of reporting cash flows. The
Bank is required to carry noninterest-bearing cash reserves of
specified percentages of deposit balances. The Bank's balances of cash
and due from banks are sufficient to satisfy these requirements.
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.
Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
F-10
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
=========== ========== ======== ===========
F-11
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 Bank transferred a majority of its securities from held to
maturity to available for sale in accordance with special window
provisions relating to SFAS No. 115.
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
=========== =========== ============ ===========
F-12
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
$14,644,392, $20,338,033, 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.
F-13
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.
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.
F-14
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
=========== =========== ===========
F-15
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 con ditions 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.
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
========== ========== ==========
F-16
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.
F-17
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
========= ========= =========
F-18
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
=========== ========== ==========
F-19
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.
F-20
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.
F-21
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.
F-22
Glen Burnie Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 13. Stockholders' Equity
Employees who have completed one year of service are eligible to
participate in the employee stock purchase plan. The plan allows
employees to purchase stock at 85 percent of the fair market value.
Options for 200 and 6,586 shares were exercised in 1996 and 1995,
respectively, at prices from $24.08 to $26.92 per share. At December
31, 1996, there were 31,780 shares of common stock reserved for
issuance under the plan and no outstanding options.
The director stock purchase plan allows directors to purchase stock
at the fair market value on the date an option is granted. Options
for 3,600 shares were exercised in 1995 at prices from $28.33 to
$31.67 per share. At December 31, 1996, there were 17,700 shares of
common stock reserved for issuance under the plan and no outstanding
options.
The 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.
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.
F-23
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
Adequacy Purposes
Actual ------------------
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%
F-24
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.
F-25
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.
F-26
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.
F-27
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 5,000 $ 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
=========== =========== ==========
F-28
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 $ --
=========== =========== ============
F-29
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
F-30
Exhibits
--------
3.1 Articles of Incorporation. See 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
10-K Annual Report") which is incorporated herein by
reference.
3.2 By-Laws. See Exhibit 3.2 to the 1995 10-K Annual
Report which is incorporated herein by reference.
10.1 Glen Burnie Bancorp Stockholder Purchase Plan. See
Exhibit 10.1 to the 1995 10-K Annual Report which is
incorporated herein by reference.
10.2 Glen Burnie Bancorp Dividend Reinvestment and Stock
Purchase Plan. See Exhibit 10.2 to the 1995 10-K
Annual Report which is incorporated herein by
reference.
10.3 Glen Burnie Bancorp Director Stock Purchase Plan. See
Exhibit 10.3 to the 1995 10-K Annual Report which is
incorporated herein by reference.
10.4 The Bank of Glen Burnie Employee Stock Purchase Plan.
See Exhibit 10.4 to Amendment Number 1 to the 1995 10-K
Annual Report which is incorporated herein by
reference.
10.5 The Bank of Glen Burnie Pension Plan. See Exhibit 10.5
to the 1995 10-K Annual Report which is incorporated
herein by reference.
16 Letter re: change in certifying public accountant. See
Exhibit 16 to the 1995 10-K Annual Report which is
incorporated herein by reference.
21 Subsidiaries of the registrant. See Exhibit 21 to the
1995 10-K Annual Report which is incorporated herein by
reference.
23.1 Consent of Trice & Geary LLC, dated August 29, 1997.
23.2 Consent of Rowles & Company, LLP, dated August 29,
1997.
27 Financial Data Schedule
The Company did not file any reports on Form 8-K during the last
quarter of its 1996 fiscal year.
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.
(Registrant): Glen Burnie Bancorp
By (Signature and Title): /s/ F. William Kuethe, Jr.
------------------------------------
Signature
Chief Executive Officer,
President
Date: August 29, 1997
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title): /s/ John E. Porter
------------------------------------
Signature
Chief Financial Officer
Date: July 10, 1997 John E. Porter
---------------
By (Signature and Title): /s/ Beatrice S. McQuarrie
------------------------------------
Signature
Principal Accounting Officer
Date: August 29, 1997 Beatrice S. McQuarrie
---------------
By (Signature and Title): /s/ Alan E. Hahn
------------------------------------
Signature
Director, Alan E. Hahn
Date: August 29, 1997
---------------
By (Signature and Title): /s/ Theodore L. Bertier, Jr.
------------------------------------
Director, Theodore L. Bertier,
Jr.
Date: August 29, 1997
---------------
By (Signature and Title): /s/ Karen Thorwarth
------------------------------------
Director, Karen Thorwarth
Date: July 10, 1997
---------------
By (Signature and Title): /s/ Thomas Clocker
------------------------------------
Director, Thomas Clocker
Date: August 29, 1997
---------------
By (Signature and Title): /s/ William N. Scherer, Sr.
------------------------------------
Director, William N. Scherer,
Sr.
Date: August 29, 1997
---------------
By (Signature and Title): /s/ Charles L. Hein
------------------------------------
Director, Charles L. Hein
Date: August 29, 1997
---------------
By (Signature and Title): /s/ F.W. Kuethe, III
------------------------------------
Director, F.W. Kuethe, III
Date: July 10, 1997
---------------
By (Signature and Title): /s/ Shirley E. Boyer
------------------------------------
Director, Shirley E. Boyer
Date: July 10, 1997
---------------
By (Signature and Title): /s/ Eugene P. Nepa
------------------------------------
Director, Eugene P. Nepa
Date: August 29, 1997
---------------
By (Signature and Title): /s/ John E. Demyan
------------------------------------
Chairman of the Board,
John E. Demyan
Date: July 10, 1997
---------------
By (Signature and Title): /s/ Mary L., Wilcox
------------------------------------
Director, Mary L. Wilcox
Date: July 10, 1997
---------------