UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24047
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 No.)
101 Crain Highway, S.E.
Glen Burnie, Maryland 21061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 766-3300
Inapplicable
(Former name, former address and former fiscal year
if changed from last report.)
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes No X
--- ---
At July 30, 2003, the number of shares outstanding of the registrant's common
stock was 1,683,668.
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Consolidated Financial Statements:
- -------
Condensed Consolidated Balance Sheets,
June 30, 2003 (unaudited) and December 31, 2002 (audited) 3
Condensed Consolidated Statements of Income for the Three and
Six Months Ended June 30, 2003 and 2002 (unaudited) 4
Condensed Consolidated Statements of
Comprehensive Income for the Three and Six
Months Ended June 30, 2003 and 2002
(unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2003 and 2002 (unaudited) 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- and Results of Operations 8
Item 3. Quantitative And Qualitative Disclosure About Market Risk 12
- -------
Item 4. Disclosure Controls and Procedures 13
- -------
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
- -------
Item 6. Exhibits and Reports on Form 8-K 14
- -------
Signatures 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, 2003 December 31, 2002
ASSETS (unaudited) (audited)
----------- ---------
Cash and due from banks $12,349 $11,297
Interest-bearing deposits in other financial institutions 67 41
Federal funds sold 2,577 4,404
------- -------
Cash and cash equivalents 14,993 15,742
Certificates of deposit in other financial institutions 100 100
Investment securities available for sale, at fair value 101,563 84,658
Investment securities held to maturity, at cost
(fair value June 30: $5,133; December 31: $7,616) 4,813 7,202
Federal Home Loan Bank stock, at cost 896 703
Common Stock in the Glen Burnie Statutory Trust I 155 155
Loans, less allowance for credit losses
(June 30: $2,337; December 31: $2,515) 161,846 158,287
Premises and equipment, at cost, less accumulated depreciation 4,160 4,143
Other real estate owned 175 413
Cash value of life insurance 5,158 5,025
Other assets 2,951 2,978
-------- --------
Total assets $296,810 $279,406
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $256,302 $241,420
Short-term borrowings 1,813 837
Long-term borrowings 7,239 7,251
Guaranteed preferred beneficial interests in Glen Burnie Bancorp
junior subordinated debentures 5,155 5,155
Other liabilities 2,784 2,953
-------- --------
Total liabilities 273,293 257,616
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $1, authorized 15,000,000 shares;
Issued and outstanding: June 30: 1,682,773 shares;
December 31: 1,677,173 shares 1,683 1,677
Surplus 10,736 10,638
Retained earnings 8,933 7,947
Accumulated other comprehensive income, net of tax 2,165 1,528
-------- --------
Total stockholders' equity 23,517 21,790
-------- --------
Total liabilities and stockholders' equity $296,810 $279,406
======== ========
See accompanying notes to condensed consolidated financial statements.
3
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income on:
Loans, including fees $2,830 $3,091 $5,649 $6,206
U.S. Treasury and U.S. Government agency securities 526 674 1,013 1,279
State and Municipal securities 435 281 810 539
Other 118 132 249 275
------ ------ ------ ------
Total interest income 3,909 4,178 7,721 8,299
------ ------ ------ ------
Interest expense on:
Deposits 864 1,039 1,763 2,163
Short-term borrowings 1 1 2 3
Long-term borrowings 110 107 218 213
Junior subordinated debentures 137 137 273 273
------ ------ ------ ------
Total interest expense 1,112 1,284 2,256 2,652
------ ------ ------ ------
Net interest income 2,797 2,894 5,465 5,647
Provision for credit losses 0 0 0 0
------ ------ ------ ------
Net interest income after provision for credit losses 2,797 2,894 5,465 5,647
------ ------ ------ ------
Other income:
Service charges on deposit accounts 249 251 507 500
Other fees and commissions 236 148 444 286
Other non-interest income 3 1 5 4
Gain on termination of post-retirement plan 0 0 0 764
Gains on investment securities 15 2 107 6
------ ------ ------ ------
Total other income 503 402 1,063 1,560
------ ------ ------ ------
Other expenses:
Salaries and employee benefits 1,483 1,494 2,948 2,918
Occupancy 164 146 376 292
Other expenses 798 894 1,596 1,794
------ ------ ------ ------
Total other expenses 2,445 2,534 4,920 5,004
------ ------ ------ ------
Income before income taxes 855 762 1,608 2,203
Income tax expense 122 175 219 628
------ ------ ------ ------
Net income $ 733 $ 587 $1,389 $1,575
====== ===== ====== ======
Basic and diluted earnings per share of common stock $.44 $.35 $.83 $.94
==== ==== ==== ====
Weighted average shares of common stock outstanding 1,680,270 1,666,052 1,678,807 1,664,911
========= ========= ========= =========
Dividends declared per share of common stock $.12 $.10 $.24 $.20
==== ==== ==== ====
See accompanying notes to condensed consolidated financial statements.
4
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income $733 $587 $1,389 $1,575
Other comprehensive income (loss), net of tax
Unrealized gains (losses) securities:
Unrealized holding gains arising
during period 873 995 703 759
Reclassification adjustment for gains
included in net income (56) (1) (66) (2)
------ ------ ------ ------
Comprehensive income $1,550 $1,581 $2,026 $2,332
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
5
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
2003 2002
---- ----
Cash flows from operating activities:
Net income $1,389 $1,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion 157 53
Compensation expense from vested stock options 0 39
Provision for credit losses 0 0
Gains on disposals of assets, net (88) (3)
Income on investment in life insurance (133) 0
Changes in assets and liabilities:
Increase in other assets (245) (411)
Decrease in other liabilities (91) (703)
------- ----
Net cash provided by operating activities 989 550
--- ---
Cash flows from investing activities:
Maturities of available for sale mortgage-backed securities 14,762 4,687
Proceeds from disposals of investment securities 5,562 4,136
Purchases of investment securities (33,530) (20,204)
Purchase of Federal Home Loan Bank stock (193) (51)
(Increase) decrease in loans, net (3,559) 3,283
Purchases of premises and equipment (469) (176)
Proceeds from sale of other real estate 220 3
------- -------
Net cash used by investing activities (17,207) (8,322)
-------- -------
Cash flows from financing activities:
Increase in deposits, net 14,882 3,968
Increase (decrease) in short-term borrowings 976 (252)
Repayment of long-term borrowings (12) (12)
Dividends paid (481) (362)
Common stock dividends reinvested 86 72
Issuance of common stock 18 32
------- ------
Net cash provided by financing activities 15,469 3,446
------- ------
Decrease in cash and cash equivalents (749) (4,326)
Cash and cash equivalents, beginning of year 15,742 18,220
------- -------
Cash and cash equivalents, end of period $14,993 $13,894
======= =======
See accompanying notes to condensed consolidated financial statements.
6
GLEN BURNIE BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore, do not
include all information and notes necessary for a complete presentation of
financial position, results of operations, changes in stockholders' equity, and
cash flows in conformity with accounting principles generally accepted in the
United States of America. However, all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair presentation of the unaudited consolidated financial statements have been
included in the results of operations for the three and six months ended June
30, 2003 and 2002.
Operating results for the three and six-month periods ended June 30,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003.
NOTE 2 -EARNINGS PER SHARE
Basic earnings per share of common stock are computed by dividing net
earnings by the weighted average number of common shares outstanding during the
period. Diluted earnings per share are calculated by including the average
dilutive common stock equivalents outstanding during the periods. Dilutive
common equivalent shares consist of stock options, calculated using the treasury
stock method.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Diluted:
Net income $ 733,000 $587,000 $1,389,000 $1,575,000
Weighted average common shares outstanding 1,680,270 1,666,052 1,678,807 1,664,911
Dilutive effect of stock options 3,190 2,573 3,190 1,286
--------- --------- ---------- ----------
Average common shares outstanding - diluted 1,683,460 1,668,625 1,681,997 1,666,197
Diluted net income per share $0.44 $0.35 $0.83 $0.94
===== ===== ===== =====
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. In management's opinion, the Company and the Bank are currently in
compliance with all applicable provisions of this pronouncement.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
General. Glen Burnie Bancorp, a Maryland corporation (the "Company"),
and its subsidiaries, The Bank of Glen Burnie (the "Bank") and GBB Properties,
Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a
Connecticut business trust, had consolidated net income of $733,000 ($.44 basic
and diluted earnings per share) for the second quarter of 2003, compared to
second quarter 2002 consolidated net income of $587,000 ($0.35 basic and diluted
earnings per share). The increase in consolidated net income was due to an
increase in other income partially offset by a decrease in interest income
earned on loans, and a reduction in interest expense and other expenses.
Year-to-date consolidated net income for the six months ended June 30, 2003 was
$1,389,000 ($0.83 basic and diluted earnings per share), compared to $1,575,000
($0.94 basic and diluted earnings per share) for the six months ended June 30,
2002. The decrease for the six month period is primarily due to a gain of
$764,000 arising from the negative amendment on the Bank's post-retirement
health insurance benefit plan which was recognized in the first quarter of 2002
and not repeated in the 2003 period, partially offset by the recognition of
other income and investment securities gains for the 2003 period.
Net Interest Income. The Company's consolidated net interest income
prior to provision for credit losses for the three and six months ended June 30,
2003 was $2,797,000 and $5,465,000, respectively, compared to $2,894,000 and
$5,647,000 for the same periods in 2002, a decrease of $97,000 (or 3.35%) for
the three-month period, and a decrease of $182,000 (or 3.22%) for the six-month
period. These decreases were primarily attributable to a decrease in interest
income earned on loans offset by a decline in rates paid on deposits. In
addition, the decreases for the three and six-month periods were partially due
to a reallocation of approximately $5,000,000 in interest producing assets to
the Bank's bank owned life insurance (BOLI) program. Income from BOLI is
classified as other income.
Interest income decreased $269,000 (6.44%) for the three months ended
June 30, 2003, and decreased $578,000 (6.96%) for the six months ended June 30,
2003, compared to the same periods in 2002. The decrease for the three-month and
six-month period was primarily due to declining average outstanding balances on
loans and declining interest rate environment partially offset by increased
income on state and municipal securities. In addition, the decrease for the
three-month period was partially due to a reallocation of approximately
$5,000,000 in interest producing assets to the Bank's BOLI program. Income from
BOLI is classified as other income. Interest income on loans decreased $261,000
(8.44%) for the three months ended June 30, 2003 and decreased $557,000 (8.98%)
for the six months ended June 30, 2003, compared to the same periods in 2002.
Interest expense decreased $172,000 (13.40%) for the three months
ended June 30, 2003, and decreased $396,000 (14.93%) for the six months ended
June 30, 2003, compared to the 2002 periods, due to an overall decline in
interest rates paid on deposits as a result of the declining interest rate
environment.
The net interest margin is calculated as interest income less interest
expense expressed as a percentage of interest earning assets. When interest
income increases at a greater rate than interest expense, net interest margins
increase, and when interest expense increases at a greater rate than interest
income, net interest margins decrease. Net interest margins for the three and
six months ended June 30, 2003 were 4.57% and 4.55%, respectively, compared to
tax equivalent net interest margins of 5.07% and 4.98%, for the three and six
month periods ended June 30, 2002. The decreases in net interest margins for the
three and six month periods ended June 30, 2003 were primarily due to the
repricing of the yield on the Bank's loans and securities investments resulting
in lower yields, while the Bank's interest expense, represented by interest paid
on deposits, did not reprice at a proportionately lower yields.
Provision for Credit Losses. The Company made no additional provision
for credit losses during the three and six month periods ended June 30, 2003 and
2002. As of June 30, 2003, the allowance for credit losses equaled 343.68% of
non-accrual and past due loans compared to 429.13% at December 31, 2002 and
693.23% at June 30, 2002. During the three and six month periods ended June 30,
2003, the Company recorded net charge-offs of $43,000 and $178,000,
respectively, compared to net charge-offs of $66,000 and $172,000, respectively,
during the corresponding periods of the prior year. On an annualized basis, net
charge-offs for the 2003 period represent 0.22% of the average loan portfolio.
8
Other Income. Other income for the three month period increased from
$402,000 at June 30, 2002, to $503,000 at June 30, 2003, an increase of $101,000
(25.12%). For the six month period, other income decreased from $1,560,000 at
June 30, 2002 to $1,063,000 at June 30, 2003, a decrease of $497,000 (31.86%).
The increase for the three month period was due to income on BOLI. The decrease
for the six month period is primarily due to a gain of $764,000 arising from the
negative amendment on the Bank's post-retirement health insurance benefit plan
which was recognized in the first quarter of 2002 and not repeated in the 2003
period, partially offset by the recognition of BOLI income and investment
securities gains for the 2003 period.
Other Expense. Other expenses for the three month period decreased
from $2,534,000 at June 30, 2002, to $2,445,000 at June 30, 2003, a decrease of
$89,000 (3.51%). For the six month period, other expenses decreased from
$5,004,000 at June 30, 2002 to $4,920,000 at June 30, 2003, a decrease of
$84,000 (1.68%). The decrease for the three and six month period was due to an
overall general decrease in various other expenses partially offset by an
increase in occupancy expenses.
Income Taxes. During the three and six months ended June 30, 2003, the
Company recorded income tax expense of $122,000 and $219,000, respectively,
compared to an income tax expense of $175,000 and $628,000, respectively, for
the corresponding periods of the prior year. The decrease in income tax expenses
reflect the Company's earnings plus an increased tax advantaged portfolio in the
investment securities during the current year's periods. The six month period
reflects the post-retirement plan recognized in the first quarter of 2002. The
Company's effective tax rate for the three and six month periods in 2003 were
14.27% and 13.62%, respectively, compared to 22.97% and 28.51%, respectively,
for the prior year periods.
FINANCIAL CONDITION
General. The Company's assets increased to $296,810,000 at June 30,
2003 from $279,406,000 at December 31, 2002 primarily due to an increase in
investment securities available for sale, while an increase in loans was offset
by a decrease in cash and cash equivalents and investment securities held to
maturity. The Bank's net loans totaled $161,846,000 at June 30, 2003, compared
to $158,287,000 at December 31, 2002, an increase of $3,559,000 (2.25%),
primarily attributable to an increase in mortgage refinancing activity offset by
a decrease in indirect auto loans.
The Company's total investment securities portfolio (including both
investment securities available for sale and investment securities held to
maturity) totaled $106,376,000 at June 30, 2003, a $14,516,000 or 15.8% increase
from $91,860,000 at December 31, 2002. The Bank's cash and cash equivalents
(cash due from banks, interest-bearing deposits in other financial institutions,
and federal funds sold), as of June 30, 2003, totaled $14,993,000, a decrease of
$749,000 (4.76%) from the December 31, 2002 total of $15,742,000. The aggregate
market value of investment securities held by the Bank as of June 30, 2003 was
$106,696,000 compared to $92,274,000 as of December 31, 2002, a $14,422,000
(15.63%) increase.
Deposits as of June 30, 2003 totaled $256,302,000 which is an increase
of $14,882,000 (6.16%) from $241,420,000 at December 31, 2002. Demand deposits
as of June 30, 2003 totaled $66,676,000 which is an increase of $7,614,000
(12.89%) from $59,062,000 at December 31, 2002. NOW accounts as of June 30, 2003
totaled $24,084,000 which is an increase of $13,000 (.05%) from $24,071,000 at
December 31, 2002. Money market accounts as of June 30, 2003 totaled
$22,528,000, which is an increase of $2,639,000 (13.27%), from $19,889,000 at
December 31, 2002. Savings deposits as of June 30, 2003 totaled $52,285,000, an
increase of $4,669,000 (9.8%) from $47,616,000 at December 31, 2002.
Certificates of deposit over $100,000 totaled $17,737,000 on June 30, 2003, an
increase of $39,000 (0.22%) from $17,698,000 at December 31, 2002. Other time
deposits (made up of certificates of deposit less than $100,000 and individual
retirement accounts) totaled $72,315,000 on June 30, 2003, a $767,000 (1.05%)
decrease from the $73,082,000 total at December 31, 2002.
Asset Quality. The following table sets forth the amount of the Bank's
restructured loans, non-accrual loans and accruing loans 90 days or more past
due at the dates indicated.
9
At June 30, At December 31,
2003 2002
---- ----
(Dollars in Thousands)
Restructured loans $0 $41
== ===
Non-accrual loans:
Real estate - mortgage:
Residential $425 $264
Commercial 0 178
Real estate - construction 8 7
Installment 54 112
Credit card & related 0 0
Commercial 186 10
---- ----
Total non-accrual loans 673 571
---- ----
Accruing loans past due 90 days or more: Real estate - mortgage:
Residential 1 1
Commercial 0 0
Real estate - construction 6 0
Installment 0 14
Credit card & related 0 0
Commercial 0 0
Other 0 0
---- ----
Total accruing loans past due 90 days or more 7 15
---- ----
Total non-accrual and past due loans $680 $586
==== ====
Non-accrual and past due loans to gross loans 0.41% 0.36%
===== =====
Allowance for credit losses to non-accrual and past due loans 343.68% 429.10%
======= =======
At June 30, 2003, there were no loans outstanding, other than those
reflected in the above table, as to which known information about possible
credit problems of borrowers caused management to have serious doubts as to the
ability of such borrowers to comply with present loan repayment terms. Such
loans consist of loans which were not 90 days or more past due but where the
borrower is in bankruptcy or has a history of delinquency, or the loan to value
ratio is considered excessive due to deterioration of the collateral or other
factors.
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.
10
Transactions in the allowance for credit losses for the six months
ended June 30, 2003 and 2002 were as follows:
Six Months Ended
June 30,
2003 2002
---- ----
(Dollars in Thousands)
Beginning balance $2,515 $2,938
Charge-offs (405) (323)
Recoveries 227 151
------ ------
Net charge-offs (178) (172)
Provisions charged to operations 0 0
------ ------
Ending balance $2,337 $2,766
====== ======
Average loans $158,956 $162,366
Net charge-offs to average loans (annualized) 0.22% 0.21%
Reserve for Unfunded Commitments. As of June 30, 2003, the Bank had
outstanding commitments totaling $16,355,749. These outstanding commitments
consisted of letters of credit, undrawn lines of credit, and other loan
commitments. The following table shows the Bank's allowance for credit losses
arising from these unfunded commitments:
Six Months Ended
June 30,
2003 2002
---- ----
(Dollars in Thousands)
Beginning balance $150 $150
Provisions charged to operations 0 0
---- ----
Ending balance $150 $150
==== ====
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of the Bank and
does not currently have any material funding commitments. The Company's
principal sources of liquidity are cash on hand and dividends received from the
Bank. The Bank is subject to various regulatory restrictions on the payment of
dividends.
The Bank's principal sources of funds for investments and operations
are net income, deposits from its primary market area, principal and interest
payments on loans, interest received on investment securities and proceeds from
maturing investment securities. Its principal funding commitments are for the
origination or purchase of loans and the payment of maturing deposits. Deposits
are considered a primary source of funds supporting the Bank's lending and
investment activities.
The Bank's most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold,
certificates of deposit with other financial institutions that have an original
maturity of three months or less and money market mutual funds. The levels of
such assets are dependent on the Bank's operating financing and investment
activities at any given time. The variations in levels of cash and cash
equivalents are influenced by deposit flows and anticipated future deposit
flows. The Bank's cash and cash equivalents (cash due from banks,
interest-bearing deposits in other financial institutions, and federal funds
sold), as of June 30, 2003, totaled $14,993,000, a decrease of $749,000 (4.76%)
from the December 31, 2002 total of $15,742,000.
11
As of June 30, 2003, the Bank was permitted to draw on a $35,500,000
line of credit from the FHLB of Atlanta. Borrowings under the line are secured
by a floating lien on the Bank's residential mortgage loans. As of June 30,
2003, a $7.0 million long-term convertible advance was outstanding under this
line, and a short-term borrowing of $1,000,000 outstanding under this line. In
addition, the Bank has an unsecured line of credit in the amount of $5.0 million
from another commercial bank on which it has not drawn. Furthermore, as of June
30, 2003, the Company had outstanding $5,155,000 of its 10.6% Junior
Subordinated Deferrable Interest Debentures issued to Glen Burnie Statutory
Trust I, a Connecticut statutory trust subsidiary of the Company.
The Company's stockholders' equity increased by $1,727,000 or 7.93%,
during the six months ended June 30, 2003, due to earnings, partially offset by
decreases in equity accounts from dividend distributions. The Company's
accumulated other comprehensive income net of tax increased by $637,000 from
$1,528,000 income at December 31, 2002 to $2,165,000 income at June 30, 2003, as
a result of unrealized holding gains relating to securities held for investment
arising during the period. Retained earnings increased by $986,000 during the
six month period as the result of earnings during the period, partially offset
by dividends declared. In addition, $86,000 was transferred to stockholders'
equity in consideration for shares to be issued under the Company's dividend
reinvestment plan in lieu of cash dividends.
The Federal Reserve Board and the FDIC have established guidelines
with respect to the maintenance of appropriate levels of capital by bank holding
companies and state non-member banks, respectively. The regulations impose two
sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets. At
June 30, 2003, the Bank was in full compliance with these guidelines with a Tier
1 leverage ratio of 8.93%, a Tier 1 risk-based capital ratio of 14.05% and a
total risk-based capital ratio of 15.3%.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Since future events and their
effects cannot be determined with absolute certainty, the determination of
estimates requires the exercise of judgment. Management has used the best
information available to make the estimations necessary to value the related
assets and liabilities based on historical experience and on various assumptions
which are believed to be reasonable under the circumstances. Actual results
could differ from those estimates, and such differences may be material to the
financial statements. The Company reevaluates these variables as facts and
circumstances change. Historically, actual results have not differed
significantly from the Company's estimates. The following is a summary of the
more judgmental accounting estimates and principles involved in the preparation
of the Company's financial statements, including the identification of the
variables most important in the estimation process:
Allowance for Credit Losses. The allowance for credit losses is
management's best estimate of the probable incurred credit losses in the lending
portfolio. The Company performs periodic and systematic detailed reviews of its
loan portfolio to identify and estimate the inherent risks and assess overall
collectibility. These reviews include loss forecast modeling based on historical
experiences and current events and conditions as well as individual loan
valuations. In each analysis, numerous portfolio and economic assumptions are
made.
Accrued Taxes. Management estimates income tax expense based on the
amount it expects to owe various tax authorities. Accrued taxes represent the
net estimated amount due or to be received from taxing authorities. In
estimating accrued taxes, management assesses the relative merits and risks of
the appropriate tax treatment of transactions taking into account statutory,
judicial and regulatory guidance in the context of the Company's tax position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
12
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information, which is
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is accumulated and
communicated to management in a timely manner. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated this system of disclosure
controls and procedures as of the end of the period covered by this quarterly
report, and believe that the system is operating effectively to ensure
appropriate disclosure. There have been no changes in the Company's internal
control over financial reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 8, 2003, the Company held its Annual Meeting of Stockholders.
The matters submitted to the stockholders for a vote were: (i) the election of
four directors; (ii) the authorization of the Board of Directors to select an
outside auditing firm for the Company's fiscal year ending December 31, 2003;
and (iii) the approval of amendments to the Company's Bylaws to reduce the
stockholder vote required to amend the Bylaws from 80% to 66 2/3% of all votes
entitled to be cast. The nominees submitted for election as directors were
Charles L. Hein, Alan E. Hahn, Shirley E. Boyer, and John I. Young.
At the Meeting, at least 1,434,505 shares were voted in favor of each
nominee, no more than 5,472 shares were voted to withhold approval of any
director. As a result, all of the nominees were elected to serve as directors
until the next annual meeting of shareholders of the Company and until their
successors are duly elected and qualified. Directors not up for re-election and
continuing in office after the Meeting are: John E. Demyan, Theodore L. Bertier,
Jr., F. W. Kuethe, III, Mary Lou Wilcox, F. William Kuethe, Jr., William N.
Scherer, Sr., Thomas Clocker, and Karen Thorwarth.
At the Meeting, the Board of Directors was authorized to select an
outside auditing firm, with 1,439,620 shares voting in favor of the measure, 367
shares voting to withhold authorization, and 4,153 shares abstaining. The
stockholders did not approve the amendments to the Company's Bylaws, with
1,237,983 shares voting in favor of the amendments, 9,357 shares voting to
withhold approval, and 21,407 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No.
- -----------
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 to the Registrant's Form 8-A filed December 27, 1999,
File No. 0-24047)
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1998, File No. 0-24047)
3.3 Articles Supplementary, dated November 16, 1999 (incorporated by
reference to Exhibit 3.3 to the Registrant's Current Report on Form
8-K filed December 8, 1999, File No. 0-24047)
4.1 Rights Agreement, dated as of February 13, 1998, between Glen Burnie
Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and
restated as of December 27, 1999 (incorporated by reference to Exhibit
4.1 to Amendment No. 1 to the Registrant's Form 8-A filed December 27,
1999, File No. 0-24047)
10.1 Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-8, File No. 33-62280)
10.2 The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the Period Ended March 31, 2002, File No. 0-24047)
10.3 Amended and Restated Change-in-Control Severance Plan (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
10.4 The Bank of Glen Burnie Executive and Director Deferred Compensation
Plan (incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1999, File No. 0-24047)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1 Section 1350 Certifications
(b) Reports on Form 8-K:
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLEN BURNIE BANCORP
(Registrant)
Date: August 14, 2003 By: /s/ F. William Kuethe, Jr.
-----------------------------------
F. William Kuethe, Jr.
President, Chief Executive Officer
By: /s/ John E. Porter
-----------------------------------
John E. Porter
Chief Financial Officer
15
Exhibit 31.1
------------
CERTIFICATION
I, F. William Kuethe, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Glen Burnie
Bancorp;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting; and
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: August 14, 2003 /s/ F. William Kuethe, Jr.
------------------------------------
F. William Kuethe, Jr.
Chief Executive Officer
Exhibit 31.2
------------
CERTIFICATION
I, John E. Porter, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Glen Burnie
Bancorp;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting; and
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: August 14, 2003 /s/ John E. Porter
------------------------------------
John E. Porter
Chief Financial Officer
Exhibit 32.1
------------
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of Glen Burnie Bancorp (the
"Company") on Form 10-Q for the period ending June 30, 2003 as filed with the
Securities and Exchange Commission and to which this Certification is an exhibit
(the "Report"), the undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company for the periods reflected therein.
Date: August 14, 2003 /s/ F. William Kuethe, Jr.
------------------------------------
F. William Kuethe, Jr.
President, Chief Executive Officer
/s/ John E. Porter
------------------------------------
John E. Porter
Chief Financial Officer