Non-accelerated Filer0000000000890066--12-312021Q2false2842040284817028471912832974284549328311740.170.030.380.060.170.030.380.060000890066us-gaap:CommonStockMember2021-01-012021-06-300000890066us-gaap:AdditionalPaidInCapitalMember2021-01-012021-06-300000890066us-gaap:CommonStockMember2020-01-012020-06-300000890066us-gaap:AdditionalPaidInCapitalMember2020-01-012020-06-300000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2021-06-300000890066us-gaap:RetainedEarningsMember2021-06-300000890066us-gaap:CommonStockMember2021-06-300000890066us-gaap:AdditionalPaidInCapitalMember2021-06-300000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-06-300000890066us-gaap:RetainedEarningsMember2020-12-310000890066us-gaap:CommonStockMember2020-12-310000890066us-gaap:AdditionalPaidInCapitalMember2020-12-310000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310000890066us-gaap:RetainedEarningsMember2020-06-300000890066us-gaap:CommonStockMember2020-06-300000890066us-gaap:AdditionalPaidInCapitalMember2020-06-300000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000890066us-gaap:RetainedEarningsMember2019-12-310000890066us-gaap:CommonStockMember2019-12-310000890066us-gaap:AdditionalPaidInCapitalMember2019-12-310000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000890066us-gaap:FinancialServiceOtherMember2021-04-012021-06-300000890066us-gaap:DepositAccountMember2021-04-012021-06-300000890066us-gaap:FinancialServiceOtherMember2021-01-012021-06-300000890066us-gaap:DepositAccountMember2021-01-012021-06-300000890066us-gaap:FinancialServiceOtherMember2020-04-012020-06-300000890066us-gaap:DepositAccountMember2020-04-012020-06-300000890066us-gaap:FinancialServiceOtherMember2020-01-012020-06-300000890066us-gaap:DepositAccountMember2020-01-012020-06-300000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-012021-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2020-01-012020-12-310000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2020-01-012020-12-310000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2020-01-012020-12-310000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-06-300000890066us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-06-300000890066us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300000890066srt:MinimumMemberus-gaap:MeasurementInputDiscountRateMember2021-06-300000890066srt:MaximumMemberus-gaap:MeasurementInputDiscountRateMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMemberus-gaap:PassMember2021-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberus-gaap:SubstandardMember2021-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:SubstandardMember2021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:PassMember2021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:DoubtfulMember2021-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:SubstandardMember2021-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2021-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2021-06-300000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2021-06-300000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2021-06-300000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2021-06-300000890066glbz:CommSbaPppMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2021-06-300000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2021-06-300000890066us-gaap:SubstandardMember2021-06-300000890066us-gaap:PassMember2021-06-300000890066us-gaap:DoubtfulMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMemberus-gaap:SubstandardMember2020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMemberus-gaap:PassMember2020-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberus-gaap:SubstandardMember2020-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:SubstandardMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:PassMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberus-gaap:DoubtfulMember2020-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:SubstandardMember2020-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2020-12-310000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2020-12-310000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2020-12-310000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2020-12-310000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMemberus-gaap:PassMember2020-12-310000890066glbz:CommSbaPppMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2020-12-310000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMemberus-gaap:PassMember2020-12-310000890066us-gaap:SubstandardMember2020-12-310000890066us-gaap:PassMember2020-12-310000890066us-gaap:DoubtfulMember2020-12-310000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Membersrt:SingleFamilyMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Membersrt:MultifamilyMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:FarmlandMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Membersrt:SingleFamilyMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Membersrt:MultifamilyMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:FarmlandMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberglbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:RealEstateLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:ConsumerLoanMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:CommercialAndIndustrialSectorMember2021-01-010000890066us-gaap:ConsumerLoanMember2021-06-300000890066us-gaap:RealEstateLoanMember2021-01-012021-06-300000890066us-gaap:ConsumerLoanMember2021-01-012021-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2020-01-012020-12-310000890066us-gaap:RealEstateLoanMember2020-01-012020-12-310000890066us-gaap:ConsumerLoanMember2020-01-012020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMemberglbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066us-gaap:CommercialAndIndustrialSectorMemberglbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066glbz:FinancingReceivables30To89DaysPastDueMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066us-gaap:RealEstateLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066us-gaap:ConsumerLoanMemberglbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066glbz:FinancingReceivables30To89DaysPastDueMember2020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2020-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2020-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2020-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2020-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2020-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:ConsumerLoanMember2021-06-300000890066us-gaap:CommercialAndIndustrialSectorMember2021-06-300000890066us-gaap:ConsumerLoanMember2020-12-310000890066us-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-06-300000890066us-gaap:RealEstateLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-06-300000890066us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310000890066us-gaap:RealEstateLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310000890066us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2020-01-012020-12-310000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2020-01-012020-12-310000890066us-gaap:RealEstateLoanMember2021-06-300000890066us-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberus-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberus-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Membersrt:SingleFamilyMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Membersrt:MultifamilyMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberglbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberglbz:FarmlandMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberglbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Memberglbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2019-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2019-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2019-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2019-12-310000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2019-12-310000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2019-12-310000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMember2019-12-310000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2019-12-310000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2019-12-310000890066us-gaap:RetainedEarningsMember2021-01-012021-06-300000890066us-gaap:RetainedEarningsMember2020-01-012020-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300000890066us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CollateralizedMortgageObligationsMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AgencySecuritiesMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CollateralizedMortgageObligationsMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AgencySecuritiesMember2021-06-300000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-310000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2020-12-310000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CollateralizedMortgageObligationsMember2020-12-310000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AgencySecuritiesMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CollateralizedMortgageObligationsMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AgencySecuritiesMember2020-12-310000890066us-gaap:CorporateDebtSecuritiesMember2021-06-300000890066us-gaap:USStatesAndPoliticalSubdivisionsMember2021-06-300000890066us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-06-300000890066us-gaap:MortgageBackedSecuritiesMember2021-06-300000890066us-gaap:CollateralizedMortgageObligationsMember2021-06-300000890066us-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000890066us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-310000890066us-gaap:MortgageBackedSecuritiesMember2020-12-310000890066us-gaap:CollateralizedMortgageObligationsMember2020-12-310000890066us-gaap:FairValueInputsLevel3Member2021-06-300000890066us-gaap:FairValueInputsLevel2Member2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300000890066us-gaap:FairValueInputsLevel3Member2020-12-310000890066us-gaap:FairValueInputsLevel2Member2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-310000890066us-gaap:AccountingStandardsUpdate201613Member2020-12-3100008900662020-06-3000008900662019-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2021-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2021-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2021-06-300000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2021-06-300000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMember2021-06-300000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2021-06-300000890066glbz:CommSbaPppMemberus-gaap:CommercialAndIndustrialSectorMember2021-06-300000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2020-12-310000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2020-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2020-12-310000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2020-12-310000890066glbz:SbaGuarantyMemberus-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2020-12-310000890066glbz:CommSbaPppMemberus-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2020-12-310000890066us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMember2021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2020-01-012020-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2020-01-012020-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2020-01-012020-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2020-01-012020-06-300000890066us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2021-06-300000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2021-06-300000890066us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-310000890066us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-310000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2021-01-012021-06-300000890066us-gaap:CommercialPortfolioSegmentMemberus-gaap:RealEstateLoanMember2021-01-012021-06-300000890066srt:MultifamilyMemberus-gaap:RealEstateLoanMember2021-01-012021-06-300000890066glbz:FarmlandMemberus-gaap:RealEstateLoanMember2021-01-012021-06-300000890066glbz:ConstructionAndLandDevelopmentMemberus-gaap:RealEstateLoanMember2021-01-012021-06-300000890066glbz:CommSbaPppMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-012021-06-300000890066glbz:CommercialAndIndustrialPortfolioSegmentMemberus-gaap:CommercialAndIndustrialSectorMember2021-01-012021-06-300000890066glbz:ConsumerAndIndirectPortfolioSegmentMember2021-06-3000008900662021-06-012021-06-300000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2021-01-012021-06-300000890066us-gaap:ConsumerPortfolioSegmentMemberus-gaap:ConsumerLoanMember2020-01-012020-12-310000890066srt:SingleFamilyMemberus-gaap:RealEstateLoanMember2020-01-012020-12-3100008900662020-01-012020-12-310000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2021-01-012021-06-300000890066us-gaap:AutomobileLoanMemberus-gaap:ConsumerLoanMember2020-01-012020-06-3000008900662021-04-012021-06-3000008900662020-04-012020-06-3000008900662020-01-012020-06-300000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:RetainedEarningsMember2021-01-012021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Memberus-gaap:RetainedEarningsMember2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201613Member2021-01-010000890066srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate201613Member2021-01-0100008900662021-06-3000008900662020-12-3100008900662021-08-0300008900662021-01-012021-06-30xbrli:sharesiso4217:USDxbrli:pureglbz:loanglbz:borrowerglbz:securityiso4217:USDxbrli:shares

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended June 30, 2021

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  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  No

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $1.00 per share

GLBZ

The NASDAQ Stock Market LLC

The number of shares of the registrant’s common stock outstanding as of August 3, 2021, was 2,851,070.

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

TABLE OF CONTENTS

Page

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements:

Consolidated Balance Sheets: As of June 30, 2021 (unaudited) and December 31, 2020 (audited)

3

Consolidated Statements of Income (Loss): Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

4

Consolidated Statements of Comprehensive Income (Loss): Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

5

Consolidated Statements of Changes in Stockholders’ Equity: Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

6

Consolidated Statements of Cash Flows: Six Months Ended June 30, 2021 and 2020 (unaudited)

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

43

Item 4.

Controls and Procedures

43

Part II.

OTHER INFORMATION

44

Item 1.

Legal Proceedings

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

46

SIGNATURES

47

- 2 -

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

June 30, 

December 31, 

2021

2020

(unaudited)

(audited)

ASSETS

Cash and due from banks

$

2,223

$

2,117

Interest-bearing deposits in other financial institutions

 

24,545

 

34,976

Cash and Cash Equivalents

 

26,768

 

37,093

Investment securities available for sale, at fair value

 

157,591

 

114,049

Restricted equity securities, at cost

1,062

1,199

Loans, net of deferred fees and costs

 

234,871

 

253,772

Less: Allowance for credit losses(1)

(2,887)

(1,476)

Loans, net

231,984

252,296

Real estate acquired through foreclosure

575

Premises and equipment, net

 

3,716

 

3,853

Bank owned life insurance

 

8,258

 

8,181

Deferred tax assets, net

1,004

142

Accrued interest receivable

 

1,304

 

1,302

Accrued taxes receivable

 

258

 

116

Prepaid expenses

 

407

 

318

Other assets

 

422

 

362

Total Assets

$

432,774

$

419,486

LIABILITIES

Noninterest-bearing deposits

$

143,254

$

132,626

Interest-bearing deposits

 

225,630

 

216,994

Total Deposits

 

368,884

 

349,620

Short-term borrowings

 

25,237

 

29,912

Defined pension liability

296

285

Accrued expenses and other liabilities

 

2,962

 

2,576

Total Liabilities

397,379

382,393

STOCKHOLDERS' EQUITY

Common stock, par value $1, authorized 15,000,000 shares, issued and outstanding 2,848,170 and 2,842,040 shares as of June 30, 2021 and December 31, 2020, respectively.

 

2,848

 

2,842

Additional paid-in capital

 

10,700

 

10,640

Retained earnings

 

22,104

 

23,071

Accumulated other comprehensive (loss) gain

 

(257)

540

Total Stockholders' Equity

35,395

37,093

Total Liabilities and Stockholders' Equity

$

432,774

$

419,486

(1)Effective January 1, 2021, the Company applied ASU 2016-13, Financial Instruments – Credit Losses (“ASC 326”), such that the allowance calculation is based on current expected credit loss methodology (“CECL”). Prior to January 1, 2021, the calculation was based on incurred loss methodology. See Note 5 “Loans Receivable and Allowance for Losses on Loans” for details.

See accompanying notes to unaudited consolidated financial statements.

- 3 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts)

(unaudited)

    

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

INTEREST INCOME

 

  

 

  

 

  

 

  

 

Interest and fees on loans

$

2,568

$

2,980

$

5,205

$

6,051

Interest and dividends on securities

698

317

1,203

698

Interest on deposits with banks and
federal funds sold

 

24

 

39

 

43

 

86

Total Interest Income

 

3,290

 

3,336

 

6,451

 

6,835

INTEREST EXPENSE

 

  

 

  

 

  

 

  

Interest on deposits

 

158

 

289

 

325

 

614

Interest on short-term borrowings

 

116

 

109

 

232

 

235

Total Interest Expense

 

274

 

398

 

557

 

849

Net Interest Income

 

3,016

 

2,938

 

5,894

 

5,986

(Release) provision for credit losses

 

(67)

 

487

 

(471)

 

407

Net interest income after release/provision

 

3,083

 

2,451

 

6,365

 

5,579

NONINTEREST INCOME

 

  

 

  

 

  

 

  

Service charges on deposit accounts

 

37

 

38

 

77

 

94

Other fees and commissions

 

190

 

151

 

359

 

311

Gain on securities sold/redeemed

 

 

 

1

Income on life insurance

 

39

 

39

 

77

 

78

Gains on sale of OREO

14

14

Total Noninterest Income

 

280

 

228

 

527

 

484

NONINTEREST EXPENSE

 

  

 

  

 

  

 

  

Salary and benefits

 

1,588

 

1,597

 

3,218

 

3,302

Occupancy and equipment expenses

304

295

606

626

Legal, accounting and other professional fees

183

252

395

504

Data processing and item processing services

248

184

505

417

FDIC insurance costs

40

48

83

99

Advertising and marketing related expenses

24

19

45

44

Loan collection costs

22

21

28

88

Telephone costs

 

54

 

43

 

131

 

90

Other expenses

 

329

 

348

 

610

 

676

Total Noninterest Expenses

 

2,792

 

2,807

 

5,621

 

5,846

Income (loss) before income taxes

 

571

 

(128)

 

1,271

 

217

Income tax expense (benefit)

 

91

 

(32)

 

197

 

43

NET INCOME (LOSS)

$

480

$

(96)

$

1,074

$

174

Basic and diluted net income (loss) per share of common stock

$

0.17

$

(0.03)

$

0.38

$

0.06

See accompanying notes to unaudited consolidated financial statements.

- 4 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Net income (loss)

$

480

$

(96)

$

1,074

$

174

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Net unrealized gain (loss) on securities available for sale:

 

 

Net unrealized gain (loss) on securities during the period

2,247

568

(1,327)

1,485

Income tax (expense) benefit relating to item above

 

(619)

 

(156)

 

365

 

(408)

Reclassification adjustment for gain on sales of securities included in net income

 

 

 

 

(1)

Net effect on other comprehensive income (loss)

 

1,628

 

412

 

(962)

 

1,076

Net unrealized gain (loss) on interest rate swaps:

Net unrealized gain (loss) on interest rate swap during the period

88

(78)

228

(774)

Income tax (expense) benefit relating to item above

(24)

21

(63)

213

Net effect on other comprehensive income (loss)

64

(57)

165

(561)

Other comprehensive income (loss)

1,692

355

(797)

515

Comprehensive income

$

2,172

$

259

$

277

$

689

See accompanying notes to unaudited consolidated financial statements.

- 5 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)

    

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Stock

Capital

Earnings

(Loss) Income

Total

Balance, December 31, 2019

 

$

2,827

$

10,525

$

22,537

$

(209)

$

35,680

Net income

 

 

 

 

174

 

 

174

Cash dividends, $0.20 per share

 

 

 

 

(566)

 

 

(566)

Dividends reinvested under

dividend reinvestment plan

 

 

7

 

57

 

 

 

64

Other comprehensive income

 

 

 

 

 

515

 

515

Balance, June 30, 2020

 

$

2,834

$

10,582

$

22,145

$

306

$

35,867

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total

Balance, December 31, 2020

 

$

2,842

$

10,640

$

23,071

$

540

$

37,093

Net income

 

 

 

 

1,074

 

 

1,074

Cash dividends, $0.20 per share

 

 

 

 

(569)

 

 

(569)

Dividends reinvested under

dividend reinvestment plan

 

 

6

 

60

 

 

 

66

Transition adjustment pursuant to adoption

of ASU 2016-13

(1,472)

(1,472)

Other comprehensive loss

 

 

 

 

 

(797)

 

(797)

Balance, June 30, 2021

 

$

2,848

$

10,700

$

22,104

$

(257)

$

35,395

See accompanying notes to unaudited consolidated financial statements.

- 6 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

    

    

Six Months Ended June 30, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

 

Net income

$

1,074

$

174

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

Depreciation, amortization, and accretion of premises and equipment

 

213

 

193

Amortization, and accretion of investment securities available for sale

845

108

(Release) allowance for credit losses

 

(471)

 

407

Gain on disposals of assets, net

 

(14)

 

Increase in cash surrender value of bank owned life insurance

 

(77)

 

(78)

Decrease in ground rents

 

 

3

Increase in accrued interest receivable

 

(2)

 

(265)

Net (increase) decrease in other assets

 

(292)

 

206

Net decrease in accrued expenses and other liabilities

 

258

 

704

Net cash provided by operating activities

 

1,534

 

1,452

Cash flows from investing activities:

 

  

 

  

Redemptions and maturities of investment securities available for sale

 

10,505

 

8,230

Purchases of investment securities available for sale

 

(56,219)

 

(19,900)

Net sale of Federal Home Loan Bank stock

 

137

 

238

Net decrease (increase) in loans

 

19,209

 

(305)

Proceeds from sale of real estate acquired through foreclosure

 

589

 

Purchases of premises and equipment

(165)

(388)

Net cash used in investing activities

 

(25,944)

 

(12,125)

Cash flows from financing activities:

 

  

 

  

Net increase in deposits

 

19,264

 

20,497

(Decrease) increase in short term borrowings

(4,676)

12,367

Cash dividends paid

 

(569)

 

(566)

Common stock dividends reinvested

 

66

 

64

Net cash provided by financing activities

 

14,085

 

32,362

Net (decrease) increase in cash and cash equivalents

 

(10,325)

 

21,689

Cash and cash equivalents at beginning of year

 

37,093

 

13,290

Cash and cash equivalents at end of year

$

26,768

$

34,979

Supplemental Disclosures of Cash Flow Information:

 

  

 

  

Interest paid on deposits and borrowings

$

559

$

890

Net income taxes paid (refunded)

340

(1,176)

Net (decrease) increase in unrealized appreciation on available for sale securities

 

(1,327)

 

1,485

Net decrease (increase) in unrealized depreciation on swaps

228

(774)

See accompanying notes to unaudited consolidated financial statements.

- 7 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATIONAL

Nature of Business

Glen Burnie Bancorp (the “Company”) is a bank holding company organized in 1990 under the laws of the State of Maryland. The Company owns all the 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 (the “State”). 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.

NOTE 2 – BASIS OF PRESENTATION

In management’s opinion, the accompanying unaudited consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim period reporting, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position at June 30, 2021 and December 31, 2020, the results of operations for the three- and six-month periods ended June 30, 2021 and 2020, and the statements of cash flows for the six-month periods ended June 30, 2021 and 2020. The operating results for the three- and six-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021 or any future interim period. The consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2021. The unaudited consolidated financial statements for June 30, 2021 and 2020, the consolidated balance sheet at December 31, 2020, and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020. Other than the adoption of the current expected credit loss (“CECL”) methodology discussed below, there have not been any significant changes in the Company's significant accounting policies.

Allowance for Credit Losses – Loans Receivable

Effective January 1, 2021, the Company applied ASU 2016-13, Financial Instruments - Credit Losses ("ASC 326"), such that the allowance calculation is based on CECL methodology. Prior to January 1, 2021, the calculation was based on incurred loss methodology. See Note 7 "Recent Accounting Pronouncements" and Note 5 "Loans Receivable and Allowance for Loan Losses" for details. The Company maintains an allowance for credit losses (“ACL”) for the expected credit losses of the loan portfolio as well as unfunded loan commitments. The amount of ACL is based on ongoing, quarterly assessments by management. The CECL methodology requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures) and replaces the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was probable a loss event was incurred.

The ACL consists of the allowance for loan losses and the reserve for unfunded commitments. The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not

- 8 -

Table of Contents

exist over the period that historical experience was based for each loan type. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.

Portfolio segment is defined as the level at which the Company develops and documents a systematic methodology to determine its ACL. The Company has designated three loan portfolio segments: loans secured by real estate, commercial and industrial loans, and consumer loans. These loan portfolio segments are further disaggregated into classes, which represent loans of similar type, risk characteristics, and methods for monitoring and assessing credit risk. The loans secured by real estate portfolio segment is disaggregated into five classes: construction and land, farmland, family residential, multifamily, and commercial. The commercial and industrial loan portfolio segment is disaggregated into two classes: commercial and industrial, and SBA guaranty. The risk of loss for the commercial and industrial loan portfolio segment is generally most indicated by the credit risk rating assigned to each borrower. Commercial and industrial loan risk ratings are determined by experienced senior credit officers based on specific facts and circumstances and are subject to periodic review by an independent internal team of credit specialists. The consumer loan portfolio segment is disaggregated into two classes: consumer and automobile. The risk of loss for the consumer loan portfolio segment is generally most indicated by delinquency status and general economic factors. Each of the three loan portfolio segments may also be further segmented based on risk characteristics.

For most of our loan portfolio classes, the historical loss experience is determined using the Average Charge-Off Method. This method pools loans into groups (“cohorts”) sharing similar risk characteristics and tracks each cohort’s net charge-offs over the lives of the loans. The Average Charge-Off Method uses historical values by period to calculate losses and then applies the historical average to future balances over the life of the account. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. For certain loan portfolio classes, the Company determined there was not sufficient historical loss information to calculate a meaningful historical loss rate using the average charge-off methodology. For any such loan portfolio class, peer group history contributes to the Company’s weighted average loss history. The peer group data is included in the weighted average loss history that is developed for each loan pool.

The Company also considers qualitative adjustments to the historical loss rate for each loan portfolio class. The qualitative adjustments for each loan class consider the conditions over the period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors; and 2) reasonable and supportable forecast of future economic conditions and collateral values.

The Company performs a quarterly asset quality review which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans, risk rating migration, delinquencies, etc. The asset quality review is performed by management and the results are used to consider a qualitative overlay to the quantitative baseline.

When management deems it to be appropriate, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans or troubled debt restructurings (“TDRs”).

Allowance for Credit Losses – Held-to-Maturity Debt Securities

For held-to-maturity (“HTM”) debt securities, the Company is required to utilize a CECL methodology to estimate expected credit losses. The Company does not own any HTM debt securities. Therefore, the Company did not record an allowance for credit losses for these types of securities.

Allowance for Credit Losses – Available-for-Sale Debt Securities

The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASC

- 9 -

Table of Contents

326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Under the new guidance, an entity may no longer consider the length of time fair value has been less than amortized cost. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the collectability of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of January 1, 2021, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded.

Off-Balance-Sheet Credit Exposures

The only material off-balance-sheet credit exposures are unfunded loan commitments, which had a combined balance of $31.8 million on June 30, 2021. The reserve for unfunded commitments is recognized as a liability (other liabilities in the consolidated statements of financial condition), with adjustments to the reserve recognized through provision for credit losses in the consolidated statements of income. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments that are unconditionally cancellable by the Company. The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, The Bank of Glen Burnie. Consolidation resulted in the elimination of all intercompany accounts and transactions.

Cash Flow Presentation

In the statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, Federal Home Loan Bank of Atlanta (“FHLB Atlanta”) overnight deposits, and federal funds sold. Generally, federal funds are sold for one-day periods.

Reclassifications

Certain items in the 2020 consolidated financial statements have been reclassified to conform to the 2021 classifications. The reclassifications had no effect on previously reported results of operations or retained earnings.

Use of Estimates

The preparation of financial statements 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses (the “ACL”); the fair value of financial instruments,

- 10 -

Table of Contents

such as loans and investment securities; benefit plan obligations and expenses; and the valuation of deferred tax assets and liabilities.

NOTE 3 – EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average common shares outstanding, plus the effect of common stock equivalents (for example, stock options computed using the treasury stock method).

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

    

Basic and diluted earnings per share:

Net income

$

479,657

$

(96,000)

$

1,073,650

$

173,793

Weighted average common shares outstanding

 

2,847,191

 

2,832,974

 

2,845,493

 

2,831,174

Basic and dilutive net income per share

$

0.17

$

(0.03)

$

0.38

$

0.06

Diluted earnings per share calculations were not required for the three- and six-month period ended June 30, 2021 and 2020, as there were no stock options outstanding.

NOTE 4 – INVESTMENT SECURITIES

Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company held no trading securities at June 30, 2021 or December 31, 2020. Available-for-sale investment securities, comprised of debt and mortgage-backed securities, are those that may be sold before maturity due to changes in the Company's interest rate risk profile or funding needs, and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. Held-to-maturity investment securities are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company held no held-to-maturity securities at June 30, 2021 or December 31, 2020.

Realized gains and losses are recorded in noninterest income and are determined on a trade date basis using the specific identification method. Interest and dividends on investment securities are recognized in interest income on an accrual basis. Premiums and discounts are amortized or accreted into interest income using the interest method over the expected lives of the individual securities.

- 11 -

Table of Contents

The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at June 30, 2021 and December 31, 2020:

    

At June 30, 2021

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

(dollars in thousands)

Cost

Gains

Losses

Value

Collateralized mortgage obligations

$

25,240

$

324

$

(117)

$

25,447

Agency mortgage-backed securities

32,573

659

(188)

33,044

Municipal securities

41,926

877

(116)

42,687

Corporate securities

1,500

(4)

1,496

U.S. Government agency securities

55,984

71

(1,138)

54,917

Total securities available for sale

$

157,223

$

1,931

$

(1,563)

$

157,591

    

At December 31, 2020

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

(dollars in thousands)

Cost

Gains

Losses

Value

Collateralized mortgage obligations

$

24,261

$

396

$

(14)

$

24,643

Agency mortgage-backed securities

26,072

 

886

 

(10)

 

26,948

Municipal securities

28,675

740

(2)

29,413

Corporate securities

U.S. Government agency securities

33,346

9

(310)

33,045

Total securities available for sale

$

112,354

$

2,031

$

(336)

$

114,049

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021

Less than 12 months

12 months or more

Total

Securities available for sale:

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

    

Value

    

Loss

    

Value

    

Loss

    

Value

    

Loss

(dollars in thousands)

Collateralized mortgage obligations

 

$

4,184

 

$

(108)

 

$

1,048

$

(9)

 

$

5,232

 

$

(117)

Agency mortgage-backed securities

6,753

(182)

227

(6)

6,980

(188)

Municipal securities

6,717

(116)

6,717

(116)

Corporate securities

1,496

(4)

1,496

(4)

U.S. Government agency securities

35,317

(1,138)

35,317

(1,138)

 

$

54,467

 

$

(1,548)

 

$

1,275

$

(15)

 

$

55,742

 

$

(1,563)

- 12 -

Table of Contents

December 31, 2020

Less than 12 months

12 months or more

Total

Securities available for sale:

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

    

Value

    

Loss

    

Value

    

Loss

    

Value

    

Loss

(dollars in thousands)

Collateralized mortgage obligations

 

$

201

$

$

1,188

$

(14)

$

1,389

$

(14)

Agency mortgage-backed securities

566

(10)

566

(10)

Municipal securities

851

(2)

851

(2)

Corporate securities

U.S. Government agency securities

24,160

(308)

481

(2)

24,641

(310)

 

$

25,212

 

$

(310)

 

$

2,235

$

(26)

 

$

27,447

 

$

(336)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment upon adoption of ASC 326 on January 1, 2021 or as of June 30, 2021. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is more likely than not that the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Municipal bonds are considered to have issuer(s) of high credit quality (rated A or higher) and the decline in fair value is due to changes in interest rates and other market conditions. Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating. The absence of a rating does not imply substandard quality. Non-rated corporate securities may be purchased from issuers operating in and around the Company’s operating footprint. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

At June 30, 2021, the Company recorded unrealized losses in its portfolio of debt securities totaling $1,563,000 related to 87 securities, which resulted from decreases in market value, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

At December 31, 2020, the Company recorded unrealized losses in its portfolio of debt securities totaling $336,000 related to 49 securities, which resulted from decreases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

Shown below are contractual maturities of debt securities at June 30, 2021. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

At June 30, 2021

Amortized

Fair

Yield

(dollars in thousands)

    

Cost

Value

    

(1), (2)

Available for sale securities maturing:

 

 

  

 

  

Within one year

$

451

$

452

2.00

%

Over one to five years

2,189

2,223

1.95

%

Over five to ten years

 

18,368

 

18,531

 

1.62

%

Over ten years

 

136,215

 

136,385

 

2.06

%

Total debt securities

$

157,223

$

157,591

 

_____________________

- 13 -

Table of Contents

(1) Yields are stated as book yields which are adjusted for amortization and accretion of purchase premiums and discounts, respectively.

(2) Yields on tax-exempt obligations are computed on a tax-equivalent basis.

NOTE 5 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The fundamental lending business of the Company is based on understanding, measuring, and controlling the credit risk inherent in the loan portfolio. The Company's loan portfolio is subject to varying degrees of credit risk. These risks entail both general risks, which are inherent in the lending process, and risks specific to individual borrowers. The Company's credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry, or collateral type.

The Company currently manages its credit products and the respective exposure to loan losses by specific portfolio segments and classes, which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses.  The Company believes each portfolio segment has unique risk characteristics.  The Company's loans held for investment is divided into three portfolio segments:  loans secured by real estate, commercial and industrial loans, and consumer loans.  Each of these segments is further divided into loan classes for purposes of estimating the allowance for credit losses.

For additional information, including the accounting policies and CECL methodology used to estimate the allowance for credit losses, see Note 2 “Basis of Presentation” and Note 7 “Recent Accounting Pronouncements.”

- 14 -

Table of Contents

The following table is a summary of loans receivable by loan portfolio segment and class.

June 30, 

December 31, 

2021

  

2020

(dollars in thousands)

    

Amount

    

%

    

Amount

    

%

    

Loans Secured by Real Estate

Construction and land

$

3,895

2

$

2,553

1

Farmland

347

0

350

Single-family residential

79,684

34

82,520

33

Multifamily

5,709

3

6,105

2

Commercial

57,856

25

57,027

23

Total loans secured by real estate

147,491

148,555

Commercial and Industrial

Commercial and industrial

9,008

4

10,800

4

SBA guaranty

7,183

3

7,200

3

Comm SBA PPP

5,237

2

9,912

4

Total commercial and industrial loans

21,428

27,912

Consumer Loans

Consumer

2,373

1

3,063

1

Automobile

63,579

26

74,242

29

Total consumer loans

65,952

77,305

Loans, net of deferred fees and costs

234,871

100

253,772

100

Less: Allowance for credit losses

$

(2,887)

$

(1,476)

Loans, net

231,984

252,296

The Bank’s net loans totaled $232.0 million on June 30, 2021, compared to $252.3 million on December 31, 2020, a decrease of $20.3 million, or 8.05%. Construction and land loans increased from $2.6 million on December 31, 2020, to $3.9 million on June 30, 2021, an increase of $1.3 million, or 52.56%. Farmland loans decreased by $3,000, or 1.00%, from $350,000 on December 31, 2020, to $347,000 on June 30, 2021. Single-family residential loans decreased from $82.5 million on December 31, 2020, to $79.7 million on June 30, 2021, a decrease of $2.8 million, or 3.44%. Multi-family residential loans were $5.7 million on June 30, 2021, and $6.1 million on December 31, 2020, a decrease of $0.4 million, or 6.48%. Commercial real estate loans increased $0.8 million, or 1.45%, to $57.9 million on June 30, 2021, from $57.0 million on December 31, 2020. Commercial and industrial loans decreased by $1.8 million, or 16.59%, to $9.0 million on June 30, 2021, compared to $10.8 million on December 31, 2021. SBA guaranty loans were $7.2 million on June 30, 2021, and December 31, 2020. The Commercial Small Business Administration (SBA) Paycheck Protection Program (PPP) loan balance was $5.2 million on June 30, 2021, compared to $9.9 million on December 31, 2020, a decrease of $4.7 million or 47.17%. This loan type is discussed in “Item 5. Other Information.” Consumer loans decreased by $0.7 million, or 22.53% to $2.4 million on June 30, 2021, compared to $3.1 million on December 31, 2020. Automobile loans decreased from $74.2 million on December 31, 2020, to $63.6 million on June 30, 2021, a decrease of $10.7 million or 14.36%.

Credit Risk and Allowance for Loan Losses. Credit risk is the risk of loss arising from the inability of a borrower to meet his or her obligations and entails both general risks, which are inherent in the process of lending, and risks specific to individual borrowers. Credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry, or collateral type. Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as auto loans, generally experience medium credit losses. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and for that reason, the Bank has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.

- 15 -

Table of Contents

On January 1, 2021, the Company early adopted ASU 2016-13, Financial Instruments - Credit Losses (“ASC 326”) which replaces the “incurred loss approach” for estimating credit losses with an expected loss methodology. The incurred loss model delayed the recognition of credit losses until it was probable that a loss had occurred, while the CECL model requires the immediate recognition of expected credit losses over the contractual term for financial instruments that fall within the scope of CECL at the date of origination or purchase of the financial instrument. The CECL model, which is applicable to the measurement of credit losses on financial assets measured at amortized cost and certain off-balance sheet credit exposures, affects the Company’s estimates of the allowance for credit losses for our loan portfolio and the reserve for our off-balance sheet credit exposures related to loan commitments. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance, based on evaluations of the collectability of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations are performed for each class of loans and take into consideration factors such as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, value of collateral securing the loans and current economic conditions and trends that may affect the borrowers’ ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Finally, the Company considers forecasts about future economic conditions or changes in collateral values that are reasonable and supportable. Based on that analysis, the Bank deems its allowance for loan losses in proportion to the total nonaccrual loans and past due loans to be sufficient.

As a result of the adoption of ASC 326 in the first quarter of 2021, with an effective date of January 1, 2021, there is a lack of comparability in both the allowance and provisions for credit losses for the periods presented. Results for reporting periods beginning after January 1, 2021 are presented using the CECL methodology, while comparative period information continues to be reported in accordance with the incurred loss methodology in effect for prior years.

Transactions in the allowance for credit losses for the six months ended June 30, 2021 and the year ended December 31, 2020 were as follows:

Loans Secured By Real Estate

Commercial and Industrial Loans

Consumer Loans

 

June 30, 2021

Construction

Single-family

Commercial

Commercial

 

(dollars in thousands)

    

and Land

Farmland

Residential

Multi-family

Commercial

    

and Industrial

SBA Guaranty

SBA PPP

Consumer

Automobile

Total

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance, beginning of year

$

9

$

2

$

513

$

39

$

218

$

67

$

48

$

$

11

$

569

$

1,476

Impact of ASC 326 adoption

16

9

854

63

199

120

(6)

46

 

273

1,574

Charge-offs

(1)

 

(123)

(124)

Recoveries

 

 

 

279

 

 

 

 

 

 

 

153

 

432

Provision for loan losses

 

17

 

(1)

 

(407)

 

(4)

 

24

 

(25)

 

(26)

 

 

16

 

(65)

 

(471)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance, end of quarter

$

42

$

10

$

1,239

$

98

$

441

$

162

$

16

$

$

72

$

807

$

2,887

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance in allowance

$

$

$

$

$

$

$

$

$

10

$

$

10

Related loan balance

 

 

 

 

 

 

 

 

 

37

 

 

37

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Collectively evaluated for impairment:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance in allowance

$

42

$

10

$

1,239

$

98

$

441

$

162

$

16

$

$

62

$

807

$

2,877

Related loan balance

 

3,895

 

347

 

79,684

 

5,709

 

57,856

 

9,008

 

7,183

 

5,237

 

2,336

 

63,579

 

234,834

- 16 -

Table of Contents

Loans Secured By Real Estate

Commercial and Industrial Loans

Consumer Loans

 

December 31, 2020

Construction

Single-family

Commercial

Commercial

 

(dollars in thousands)

    

and Land

Farmland

Residential

Multi-family

Commercial

    

and Industrial

SBA Guaranty

SBA PPP

Consumer

Automobile

Total

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance, beginning of year

$

24

$

2

$

849

$

40

$

241

$

69

$

25

$

$

11

$

805

$

2,066

Charge-offs

 

(392)

(392)

Recoveries

 

 

 

266

 

 

 

20

 

 

 

6

 

199

 

491

Provision for loan losses

 

(15)

 

 

(602)

 

(1)

 

(23)

 

(22)

 

23

 

 

(6)

 

(43)

 

(689)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance, end of the year

$

9

$

2

$

513

$

39

$

218

$

67

$

48

$

$

11

$

569

$

1,476

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance in allowance

$

$

$

$

$

$

$

$

$

11

$

$

11

Related loan balance

 

 

132

 

 

 

4,493

 

 

 

39

 

 

4,664

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Collectively evaluated for impairment:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance in allowance

$

9

$

2

$

513

$

39

$

218

$

67

$

48

$

$

$

569

$

1,465

Related loan balance

 

2,553

 

350

 

82,388

 

6,105

 

57,027

 

6,307

 

7,200

 

9,912

 

3,024

 

74,242

 

249,108

    

June 30, 

June 30, 

(dollars in thousands)

2021

2020

Average loans

$

244,416

$

284,168

Net charge offs to average loans (annualized)

 

(0.25)

%  

 

0.02

%

During the six-month period ended June 30, 2021, loans to 12 borrowers and related entities totaling approximately $124,000 were determined to be uncollectible and were charged off. During the six-month period ending June 30, 2020, loans to 20 borrowers and related entities totaling approximately $171,000 were determined to be uncollectible and were charged off.

Reserve for Unfunded Commitments. Loan commitments and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Bank generally requires collateral to support financial instruments with credit risk on the same basis as it does for on-balance sheet instruments. The collateral requirement is based on management's credit evaluation of the counter party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of June 30, 2021, and 2020, the Bank had outstanding commitments totaling $31.8 million and $31.8 million, respectively. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments that are unconditionally cancellable by the Company. The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class.

- 17 -

Table of Contents

The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:

Six Months Ended

Ended June 30, 

(dollars in thousands)

    

2021

    

2020

Beginning balance

 

$

33

 

$

37

Impact of ASC 326 adoption

457

Reduction of unfunded reserve

(13)

Provisions charged to operations

60

Ending balance

 

$

477

 

$

97

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the second quarter of 2021.

Asset Quality. The following tables set forth the amount of the Bank’s current, past due, and non-accrual loans by categories of loans and restructured loans, at the dates indicated.

At June 30, 2021

90 Days or

(dollars in thousands)

30-89 Days

More and

    

Current

    

Past Due

    

Still Accruing

    

Nonaccrual

    

Total

Loans Secured by Real Estate

Construction and land

$

3,895

$

$

$

$

3,895

Farmland

 

347

 

 

 

 

347

Single-family residential

79,535

15

134

79,684

Multifamily

5,709

5,709

Commercial

54,019

3,837

57,856

Total loans secured by real estate

 

143,505

 

 

15

 

3,971

 

147,491

Commercial and Industrial

Commercial and industrial

9,008

9,008

SBA guaranty

7,112

71

7,183

Comm SBA PPP

5,237

5,237

Total commercial and industrial loans

21,357

71

21,428

Consumer Loans

Consumer

2,366

7

2,373

Automobile

63,089

352

138

63,579

Total consumer loans

 

65,455

 

359

 

 

138

 

65,952

$

230,317

$

430

$

15

$

4,109

$

234,871

- 18 -

Table of Contents

At December 31, 2020

90 Days or

(dollars in thousands)

30-89 Days

More and

    

Current

    

Past Due

    

Still Accruing

    

Nonaccrual

    

Total

Loans Secured by Real Estate

Construction and land

$

2,553

$

$

$

$

2,553

Farmland

 

350

 

 

 

 

350

Single-family residential

82,232

18

270

82,520

Multifamily

6,105

6,105

Commercial

52,245

753

4,029

57,027

Total loans secured by real estate

 

143,485

 

753

 

18

 

4,299

 

148,555

Commercial and Industrial

Commercial and industrial

10,800

10,800

SBA guaranty

7,200

7,200

Comm SBA PPP

9,912

9,912

Total commercial and industrial loans

27,912

27,912

Consumer Loans

Consumer

3,028

1

34

3,063

Automobile

73,551

512

179

74,242

Total consumer loans

 

76,579

 

513

 

 

213

 

77,305

0

$

247,976

$

1,266

$

18

$

4,512

$

253,772

The balances in the above charts have not been reduced by the allowance for credit losses. For the period ending June 30, 2021, the allowance for credit loss is $2.9 million. For the period ending December 31, 2020, the allowance for loan loss is $1.5 million.

Non-accrual loans with specific reserves at June 30, 2021 are comprised of:

Consumer loansOne loan to one borrower that totaled $37,061 with specific reserves of $10,423 established for the loan. This loan was also a troubled debt restructured loan.

- 19 -

Table of Contents

Below is a summary of the recorded investment amount and related allowance for losses of the Bank’s impaired loans at June 30, 2021 and December 31, 2020.

June 30, 2021

    

    

Unpaid

Interest

Average

(dollars in thousands)

Recorded

Principal

Income

Specific

Recorded

Investment

Balance

Recognized

Reserve

Investment

Impaired loans with specific reserves:

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

Construction and land

$

$

$

$

$

Farmland

 

 

 

 

 

Single-family residential

 

27

 

37

 

1

 

10

 

49

Multifamily

Commercial

Total loans secured by real estate

27

37

1

10

49

Commercial and Industrial

Commercial and industrial

SBA guaranty

Total commercial and industrial loans

Consumer Loans

Consumer

Automobile

Total consumer loans

Total impaired loans with specific reserves

$

27

$

37

$

1

$

10

$

49

Impaired loans with no specific reserve:

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

Construction and land

$

$

$

$

n/a

$

Farmland

 

 

 

 

n/a

 

Single-family residential

 

102

 

102

 

 

n/a

 

100

Multifamily

n/a

Commercial

3,837

3,837

317

n/a

4,456

Total loans secured by real estate

3,939

3,939

317

4,556

Commercial and Industrial

Commercial and industrial

n/a

SBA guaranty

n/a

Total commercial and industrial loans

Consumer Loans

Consumer

n/a

Automobile

138

138

4

n/a

158

Total consumer loans

138

138

4

n/a

158

Total impaired loans with no specific reserve

$

4,077

$

4,077

$

321

$

$

4,713

- 20 -

Table of Contents

December 31, 2020

    

    

Unpaid

Interest

Average

(dollars in thousands)

Recorded

Principal

Income

Specific

Recorded

Investment

Balance

Recognized

Reserve

Investment

Impaired loans with specific reserves:

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

Construction and land

$

$

$

$

$

Farmland

 

 

 

 

 

Single-family residential

 

27

 

38

 

2

 

11

 

50

Multifamily

Commercial

Total loans secured by real estate

27

38

2

11

50

Commercial and Industrial

Commercial and industrial

SBA guaranty

Total commercial and industrial loans

Consumer Loans

Consumer

Automobile

Total consumer loans

Total impaired loans with specific reserves

$

27

$

38

$

2

$

11

$

50

Impaired loans with no specific reserve:

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

Construction and land

$

$

$

$

n/a

$

Farmland

 

 

 

 

n/a

 

Single-family residential

 

232

 

232

 

 

n/a

 

544

Multifamily

n/a

Commercial

4,493

4,493

185

n/a

4,315

Total loans secured by real estate

4,725

4,725

185

4,859

Commercial and Industrial

Commercial and industrial

n/a

SBA guaranty

n/a

Total commercial and industrial loans

Consumer Loans

Consumer

34

34

4

n/a

43

Automobile

117

117

10

n/a

227

Total consumer loans

151

151

14

n/a

270

Total impaired loans with no specific reserve

$

4,876

$

4,876

$

199

$

$

5,129

June 30, 

December 31, 

(dollars in thousands)

    

2021

2020

 

Troubled debt restructured loans

 

$

37

$

39

Non-accrual and 90+ days past due and still accruing loans to average loans

1.69

%  

1.63

%

Allowance for loan losses to nonaccrual & 90+ days past due and still accruing loans

69.9

%  

32.6

%

At June 30, 2021, there was one troubled debt restructured loan consisting of a single-family residential loan in the amount of $37,000. This loan is in a nonaccrual status.

- 21 -

Table of Contents

The following table shows the activity for non-accrual loans for the six months ended June 30, 2020 and 2021.

Loans Secured By Real Estate

Consumer Loans

 

Single-family

 

(dollars in thousands)

Residential

Multifamily

Commercial

    

Consumer

Automobile

Total

  

 

  

 

  

 

  

 

  

 

  

December 31, 2019

$

790

$

24

$

3,139

$

51

$

123

$

4,127

Transfers into nonaccrual

577

 

254

831

Loans paid down/payoffs

(139)

(5)

(67)

(6)

 

(35)

(252)

Loans returned to accrual status

 

 

 

(577)

 

 

(17)

 

(594)

Loans charged off

 

 

 

 

 

(171)

 

(171)

 

 

 

 

 

 

June 30, 2020

$

651

$

19

$

3,072

$

45

$

154

$

3,941

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

December 31, 2020

$

270

$

$

4,029

$

34

$

179

$

4,512

Transfers into nonaccrual

920

1

134

1,055

Loans paid down/payoffs

 

(136)

 

 

(496)

 

(1)

 

(52)

 

(685)

Loans returned to accrual status

$

$

$

(616)

$

(34)

$

$

(650)

Loans charged off

 

 

 

 

 

(123)

 

(123)

June 30, 2021

$

134

$

$

3,837

$

$

138

$

4,109

Other Real Estate Owned. The Company had $575,000 in real estate acquired in partial or total satisfaction of debt at December 31, 2020. All such properties are initially recorded at the lower of cost or fair value (net realizable value) at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in noninterest expense. Gains and losses realized from the sale of other real estate owned were included in noninterest income.

In June of 2021 the property was sold for $589,000 and resulted in a gain on the sale of other real estate owned property in the amount of $14,000. At June 30, 2021 the Company had no real estate acquired in partial or total satisfaction of debt.

Credit Quality Information

In addition to monitoring the performance status of the loan portfolio, the Company utilizes a risk rating scale (1-8) to evaluate loan asset quality for all loans. Loans that are rated 1-4 are classified as pass credits. For the pass rated loans, management believes there is a low risk of loss related to these loans and, as necessary, credit may be strengthened through improved borrower performance and/or additional collateral.

The Bank’s internal risk ratings are as follows:

1Superior – minimal risk. (normally supported by pledged deposits, United States government securities, etc.)
2Above Average - low risk. (all of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)
3Average – moderately low risk. (most of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)
4Acceptable – moderate risk. (the weighted overall risk associated with this credit based on each of the bank’s creditworthiness criteria is acceptable)
5Other Assets Especially Mentioned – moderately high risk. (possesses deficiencies which corrective action by the bank would remedy; potential watch list)
6Substandard – (the bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected)

- 22 -

Table of Contents

7Doubtful – (weaknesses make collection or liquidation in full, based on currently existing facts, improbable)
8Loss – (of little value; not warranted as a bankable asset)

The following tables provides information with respect to the Company's credit quality indicators by loan portfolio segment on June 30, 2021, and December 31, 2020:

Loans Secured By Real Estate

Commercial and Industrial Loans

Consumer Loans

 

June 30, 2021

Construction

Single-family

Commercial

Commercial

 

(dollars in thousands)

and Land

Farmland

Residential

Multifamily

Commercial

    

and Industrial

SBA Guaranty

SBA PPP

Consumer

Automobile

Total

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

3,895

$

347

$

79,550

$

5,709

$

54,019

$

9,008

$

7,183

$

5,237

$

2,373

$

63,440

$

230,761

Special mention

Substandard

134

3,837

73

4,044

Doubtful

66

66

Loss

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

$

3,895

$

347

$

79,684

$

5,709

$

57,856

$

9,008

$

7,183

$

5,237

$

2,373

$

63,579

$

234,871

Nonaccrual

$

$

$

134

$

$

3,837

$

$

$

$

$

138

$

4,109

Troubled debt restructures

$

$

$

37

$

$

$

$

$

$

$

$

37

Number of TDRs accounts

1

1

Non-performing TDRs

$

$

$

37

$

$

$

$

$

$

$

$

Number of non-performing TDR accounts

1

1

Loans Secured By Real Estate

Commercial and Industrial Loans

Consumer Loans

 

December 31, 2020

Construction

Single-family

Commercial

Commercial

 

(dollars in thousands)

    

and Land

Farmland

Residential

Multifamily

Commercial

    

and Industrial

SBA Guaranty

SBA PPP

Consumer

Automobile

Total

 

Pass

$

2,553

$

350

$

82,310

$

6,105

$

52,534

$

10,800

$

7,200

$

9,912

$

3,030

$

74,064

$

248,858

Special mention

Substandard

210

4,493

33

62

4,798

Doubtful

116

116

Loss

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

$

2,553

$

350

$

82,520

$

6,105

$

57,027

$

10,800

$

7,200

$

9,912

$

3,063

$

74,242

$

253,772

Nonaccrual

$

$

$

270

$

$

4,029

$

$

$

$

34

$

179

$

4,512

Troubled debt restructures

$

$

$

39

$

$

$

$

$

$

$

$

39

Number of TDRs accounts

1

1

Non-performing TDRs

$

$

$

39

$

$

$

$

$

$

39

$

$

39

Number of non-performing TDR accounts

1

1

1

NOTE 6 – FAIR VALUE

ASC Topic 820 provides a framework for measuring and disclosing fair value under GAAP. ASC 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or a nonrecurring basis (for example, impaired loans).

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

- 23 -

Table of Contents

The Fair Value Hierarchy

ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities).
Level 3 – Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Investment Securities Available-for-Sale and Interest Rate Swaps. Investment securities available-for-sale and interest rate swap contracts are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities, and interest rate swap contracts. Securities classified as Level 3 include asset-backed securities in illiquid markets.

The Bank may be required, from time to time, to measure certain other financial and non-financial assets and liabilities at fair value on a non-recurring basis in accordance with GAAP.

Loans. Impaired loans totaled $4,113,826 with $10,423 of specific reserves as of June 30, 2021. These assets included single-family residential, commercial real estate and automobile loans. They have been classified as impaired and include nonaccrual, past due 90 days or more and still accruing, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs. Foreclosed real estate assets are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. The Company is predominantly a cash flow lender with real estate serving as collateral on a majority of loans. On a quarterly basis, the Company determines such fair values through a variety of data points and mostly rely on appraisals from independent appraisers. We obtain an appraisal on properties when they become impaired and conduct new appraisals at least every year. Typically, these appraisals do not include an inside inspection of the property as our loan documents do not require the borrower to allow access to the property. Therefore, the most significant unobservable inputs are the details of the amenities included within the property and the condition of the property. Further, we cannot always accurately assess the amount of time it takes to gain ownership of our collateral through the foreclosure process and the damage, as well as potential looting, of the property further decreasing our value. Thus, in determining the fair values we discount the current independent appraisals, within a range of 0% to 16%, based on individual circumstances.

- 24 -

Table of Contents

The changes in the assets subject to fair value measurements are summarized below by level:

Fair

(dollars in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Value

June 30, 2021

Recurring:

Securities available for sale

Collateralized mortgage obligations

$

$

25,447

$

$

25,447

Agency mortgage-backed securities

 

 

33,044

 

 

33,044

Municipal securities

 

 

42,687

 

 

42,687

Corporate securities

1,496

1,496

U.S. Government agency securities

 

54,917

 

 

54,917

Interest rate swap

(722)

(722)

Non-recurring:

Maryland Financial Bank stock

 

 

 

3

 

3

Impaired loans

 

 

 

4,104

 

4,104

OREO

 

 

 

$

$

156,869

$

4,107

$

160,976

December 31, 2020

Recurring:

Securities available for sale

Collateralized mortgage obligations

$

$

24,643

$

$

24,643

Agency mortgage-backed securities

 

 

26,948

 

 

26,948

Municipal securities

 

 

29,413

 

 

29,413

Corporate securities

U.S. Government agency securities

33,045

33,045

Interest rate swap

(949)

(949)

Non-recurring:

 

 

Maryland Financial Bank stock

 

 

 

3

 

3

Impaired loans

 

 

 

4,893

 

4,893

OREO

575

575

$

$

113,675

$

4,896

$

118,571

The estimated fair values of the Company’s financial instruments at June 30, 2021 and December 31, 2020 are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

- 25 -

Table of Contents

June 30, 2021

December 31, 2020

(dollars in thousands)

Carrying

Fair

Carrying

Fair

    

Amount

    

Value

    

Amount

    

Value

    

Financial assets:

Cash and due from banks

$

2,223

$

2,223

$

2,117

$

2,117

Interest-bearing deposits in other financial institutions

 

20,145

 

20,145

 

29,730

 

29,730

Federal funds sold

 

4,400

 

4,400

 

5,246

 

5,246

Investment securities available for sale

 

157,591

 

157,591

 

114,049

 

114,049

Investments in restricted stock

1,062

1,062

1,199

1,199

Ground rents

 

140

 

140

 

140

 

140

Loans, less allowance for credit losses

 

231,984

 

238,850

 

252,296

 

253,946

Accrued interest receivable

 

1,304

 

1,304

 

1,302

 

1,302

Cash value of life insurance

 

8,258

 

8,258

 

8,181

 

8,181

Financial liabilities:

Deposits

 

368,884

 

370,102

 

349,620

 

350,666

Short-term borrowings

25,237

25,245

29,912

29,935

Accrued interest payable

 

15

 

15

 

16

 

16

Unrecognized financial instruments:

Commitments to extend credit

 

30,706

 

30,706

 

31,561

 

31,561

Standby letters of credit

 

1,044

 

1,044

 

1,044

 

1,044

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments that were estimated using an exit pricing notion.

(dollars in thousands)

Carrying

Fair

June 30, 2021

    

Amount

    

Value

    

Level 1

    

Level 2

    

Level 3

Financial instruments - Assets

Cash and cash equivalents

$

26,768

$

26,768

$

26,768

 

$

$

Loans receivable, net

 

231,984

 

238,850

 

 

 

 

238,850

Cash value of life insurance

 

8,258

 

8,258

 

 

 

8,258

 

Financial instruments - Liabilities

Deposits

 

368,884

 

370,102

 

143,914

 

 

226,187

 

Short-term debt

 

25,237

 

25,245

 

5,237

 

 

20,009

 

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments.

The fair value of cash and due from banks, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations, if available, or measured using pricing models or other model-based valuation techniques such as present value and future value cash flows. The fair value of loans receivable is estimated using discounted cash flow analysis. For cash surrender value of life insurance, the carrying value is a reasonable estimate of fair value. Cash surrender value of life insurance is reported in the Level 2 fair value category. The fair value of the Commercial SBA PPP loans is equal to the carrying amounts. The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discounted rate comparable to the current market rate for such borrowings. FHLB borrowings are reported in the Level 2 fair value category.

The fair value of noninterest-bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts.  The fair value of fixed-maturity time deposits is estimated using discounted cash flow analysis.  

- 26 -

Table of Contents

NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") with required effective dates. The following accounting pronouncements should be read in conjunction with "Critical Accounting Policies" of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2020 Form 10-K.

ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13") requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2016-13, as updated, was adopted on January 1, 2021. Through the date of adoption, we held working group meetings that included individuals from various functional areas relevant to the implementation of CECL. Additionally, an assessment of our primary modeling tool was completed, which enabled us to complete parallel runs utilizing second and third quarter 2020 data, during which preliminary operational procedures and internal controls were designed. Management's working group also validated the appropriateness of, among other things, management’s decisions regarding portfolio segmentation, life of loan considerations, and reasonable and supportable forecasting methodology. The Company early adopted ASC 326 during the first quarter 2021 and based on the application of the modified retrospective method, it became effective on January 1, 2021 for all financial assets measured at amortized cost (primarily loans receivable) and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease to retained earnings of $1,472,000 as of January 1, 2021 for the cumulative effect of adopting ASC 326 as further detailed below.

CECL

December 31, 2020

Adoption Impact

January 1, 2021

(dollars in thousands)

Allowance for credit losses:

Loans Secured by Real Estate

Construction and land

$

10

$

16

$

26

Farmland

2

9

11

Single-family residential

512

854

1,366

Multi-family

39

63

102

Commercial

218

199

417

Total loans secured by real estate

781

1,141

1,922

Commercial and Industrial

Commercial and industrial

67

120

187

SBA guaranty

48

(6)

42

Total commercial and industrial loans

115

114

229

Consumer Loans

Consumer

11

46

57

Automobile

569

273

842

Total consumer loans

580

319

899

Total allowance for loan losses

1,476

1,574

3,050

Reserve for unfunded commitments

33

457

490

Total allowance for credit losses

$

1,509

$

2,031

$

3,540

Retained earnings

Total pre-tax impact

$

2,031

Tax effect

(559)

Decrease to retained earnings

$

1,472

- 27 -

Table of Contents

ASU 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740).”  The ASU was issued in December 2019.  The amendments in this Update are meant to simplify the accounting for income taxes by removing certain exceptions to GAAP.  The amendments also improve consistent application of and simplify GAAP by modifying and/or revising the accounting for certain income tax transactions and by clarifying certain existing codification.  The amendments in the update are effective for public business entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.  The adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force).”  The ASU clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments.  ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs.  ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method.  In addition, the new ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise.  The amendments in this update become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.  Early adoption is permitted, and the amendments are to be applied prospectively.  There was no material impact from adopting the new guidance on the Company’s consolidated financial statements.

ASU No. 2020-04, “Reference Rate Reform (Topic 848).”  The ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.  The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs.”  The amendments in this update clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.  The amendments in this update are effective beginning after December 15, 2020. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements.

ASU No. 2020-10, “Codification Improvements.” The ASU improves reporting consistency by amending the Codification to include all disclosure guidance in the appropriate disclosure sections. It clarifies the application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The amendments are effective for annual periods beginning after December 15, 2020, and early application is permitted. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements.

ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.”  The ASU clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining, or contract price alignment due to reference rate reform are in the scope of ASC 848.  Entities may apply certain optional expedients in ASC 848 to derivative instruments that do not reference LIBOR or another rate expected to be discontinued as a result of reference rate reform if there is a change to the interest rate used for discounting, margining or contract price alignment.  The ASU also clarifies other aspects of ASC 848 and provides new guidance on how to address the effects of the cash compensation adjustment that is provided as part of the above change on certain aspects of hedge accounting.  The ASU is intended to reduce diversity in practice related to accounting for (1)  modifications to the terms of affected derivatives; and (2)  existing hedging relationships in which the affected derivatives are designated as hedging instruments.  ASU 2021-01 is effective upon issuance and generally can be applied through December 31, 2022.  Entities may elect to apply the guidance on

- 28 -

Table of Contents

contract modifications either (1) retrospectively as of any date from the beginning of any interim period that includes March 12, 2020; or (2) prospectively to new modifications from any date in an interim period that includes or is after January 7, 2021, up to the date that financial statements are available to be issued.  The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

NOTE 8 – REVENUE RECOGNITION

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606.  The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.  Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees and merchant income.  However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.  Substantially all of the Company’s revenue is generated from contracts with customers.  Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts.  Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees.  The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.  Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts.

Other Noninterest Income.  Other noninterest income consists of:  fees, exchange, other service charges, safety deposit box rental fees, and other miscellaneous revenue streams.  Fees and other service charges are primarily comprised of debit card income, ATM fees, merchant services income, and other service charges.  Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks.  ATM fees are primarily generated when a Company cardholder uses a non-Company ATM.  Merchant services income mainly represents fees charged to merchants to process their debit card transactions, in addition to account management fees.  Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services.  The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.  Payment is typically received immediately or in the following month.  Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of

- 29 -

Table of Contents

the date made, and readers are advised that various factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those factors identified in the Company’s periodic reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. Please refer to Part II, “Item 5, Other Information”, for a discussion of the impact of the COVID-19 pandemic on the Company.

The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

OVERVIEW

Glen Burnie Bancorp, a Maryland corporation (the “Company”), through its subsidiary, The Bank of Glen Burnie, a Maryland banking corporation (the “Bank”), operates a commercial bank with eight offices in Anne Arundel County Maryland. Total interest income declined $384,000 to $6.5 million for the six-month period ending June 30, 2021, compared to the same period in 2020. This was driven by decreases in interest income on loans and lower interest earned on overnight funds, mainly attributable to lower market rates, offset by an increase on interest and dividends on securities due to a $73.1 million increase in the investment portfolio. Beyond pricing pressure/competition and the absolute low level of rates, the current economic outlook and prospects of a sustained historic low interest rate environment will likely continue to place pressure on net interest margin. Exacerbating the above, the Company maintained significantly higher levels of excess balance sheet liquidity during 2021 as compared to the same period in 2020 due to growth in deposits and decreased loan balances. The Bank’s loan portfolio decreased by $20.3 million or 8.05% in the first six months of 2021. The Company has strong liquidity and capital positions that provide ample capacity for future growth, along with the Bank’s total regulatory capital to risk weighted assets of 14.29% at June 30, 2021, compared to 12.95% for the same period of 2020.

Return on average assets for the three- and six-month period ended June 30, 2021 was 0.45% and 0.51% compared to (0.10)%  and 0.09% for the three- and six-month periods ended June 30, 2020.  Return on average equity for the three- and six-month periods ended June 30, 2021 was 5.51% and 6.10% compared to (1.05)% and 0.95% for the three- and six-month periods ended June 30, 2020.  Higher net income offset by lower average asset balances primarily drove the higher return on average assets, while higher net income primarily drove the higher return on average equity.

The book value per share of Bancorp’s common stock was $12.43 at June 30, 2021, compared to $12.65 per share at June 30, 2020. The decrease primarily resulted from the CECL transition adjustment and unrealized losses on the Company’s fixed rate available for sale securities.

At June 30, 2021, the Bank remained above all “well-capitalized” regulatory requirement levels. The Bank’s estimated tier 1 risk-based capital ratio was 13.45% at June 30, 2021, compared to 13.09% at December 31, 2020.

Our liquidity position remained strong due to managed cash and cash equivalents, borrowing lines with the FHLB of Atlanta, the Federal Reserve and correspondent banks, and the size and composition of the bond portfolio.

RESULTS OF OPERATIONS

Net income attributable to common stockholders for the three-month period ended June 30, 2021 was $480,000, or $0.17 per basic and diluted common share compared to a $96,000 loss, or ($0.03) per basic and diluted common share for the same period of 2020. The results recorded for the three-month period ending June 30, 2021 were higher than the same period of 2020 resulting primarily from a $554,000 increase in the release of credit losses due to a decrease in the reservable balance (excluding PPP loans) in the loan portfolio. Net income attributable to common stockholders for the six-month period ended June 30, 2021 was $1,074,000, or $0.38 per basic and diluted common share compared to $174,000, or $0.06 per basic and diluted common share for the same period of 2020. The results recorded for the six-month period ending June 30, 2021 were higher than the same period of 2020 resulting primarily from a $878,000 increase in the release of credit losses due to a decrease in the reservable balance (excluding PPP loans) in the loan portfolio and $432,000 in loan recoveries in the six months ended June 30, 2021.

- 30 -

Table of Contents

Net Interest Income. The Company’s net interest income for the three-month period ended June 30, 2021 was $3.02 million, compared to $2.94 million for the same period in 2020, an increase of $78,000, or 2.66%. The increase in net interest income was due to lower interest income in the amount of $46,000, offset by lower interest expense in the amount of $124,000. This was primarily due to an increase in the investment portfolio, offset by lower interest and fees on loans from a decrease in the loan portfolio, and a decrease in the costs of interest-bearing deposits. The Company’s net interest income for the six-month period ended June 30, 2021 was $5.89 million, compared to $5.99 million for the same period in 2020, a decrease of $92,000, or 1.53%. The decrease in net interest income was due to lower interest income in the amount of $384,000 and lower interest expense in the amount of $292,000. These decreases were primarily due to lower interest and fees on loans from a decrease in the loan portfolio, and a decrease in the costs of interest-bearing deposits, offset by an increase in the investment portfolio.

Total interest income for the second quarter of 2021 decreased $46,000, or 1.38% when compared to the same period in 2020, from $3.34 million in 2020 to $3.29 million in 2021. The primary driver of the decrease was a decrease of $412,000 in interest and fees on loans due to lower average loan balances, and a $15,000 decrease in interest on deposits with banks and federal funds sold due to lower interest rates, offset by a $381,000 increase in interest and dividends on investment securities due to an increase in the investment portfolio balance. Total interest income decreased $384,000 for the six-month period ended June 30, 2021, when compared to the same period in 2020 from $6.8 million in 2020 to $6.5 million in 2021, a decrease of 5.62%. The primary driver of the decrease in total interest income was a decrease of $846,000 in interest and fees on loans and a $43,000 decrease in interest on deposits with banks and federal funds sold, offset by a $505,000 increase on interest and dividends on securities. The decreases can be attributed to a decrease in the loan portfolio and the lower interest rate environment.

Interest expense for the second quarter 2021 decreased $124,000 from $398,000 for the same period in 2020 to $274,000 in 2021, a decrease of 31.16%. The primary driver for the decrease was a $131,000 decrease of expense on interest-bearing deposits. The decreases for the three-month period ended June 30, 2021 are attributed to the lower interest rate environment and decline in the average balance of time deposits. Interest expense decreased $292,000 for the six-month period ended June 30, 2021 from $849,000 for the same period in 2020 to $557,000 in 2021, a decrease of 34.43%. The decrease was primarily due to a $289,000 decrease in the cost of interest on deposits. The decreases for the three-and six-month periods ended June 30, 2021 was due to the lower interest rate environment.

Net interest margin for the three-month period ended June 30, 2021 was 2.92% compared to 3.12% for the three-month period ended June 30, 2020. The decrease was primarily due to increased downward pressure from declines in interest rates across the yield curve. The yield on interest earning assets decreased by 0.36% to 3.18% for the three-month period ended June 30, 2021 from 3.54% from the same period of 2020 primarily due to lower interest rates. The cost of funds decreased 0.17% to 0.28% for the three-month period ended June 30, 2021 from 0.45% for the same period of 2020 due to a decrease in total time deposits and the renewal of matured time deposits at lower interest rates. Net interest margins for the six-month period ended June 30, 2021 were 2.92% compared to 3.23% for the six-month period ended June 30, 2020. The decrease was primarily due to lower yields on interest earning assets and lower cost of funds resulting from the lower interest rate environment. The yield on interest earning assets decreased by 0.49% from 3.69% for the six-month period ended June 30, 2020 to 3.20% for the same period of 2021. The cost of funds decreased 0.20% from 0.49% for the six-month period ended June 30, 2020 to 0.29% for the same period of 2021 due to a decrease in total time deposits and the renewal of time deposits at lower interest rates in 2021.

The following tables set forth, for the periods indicated, information regarding the average balances of interest-earning assets and interest-bearing liabilities, the amount of interest income and interest expense and the resulting yields on average interest-earning assets and rates paid on average interest-bearing liabilities.

- 31 -

Table of Contents

Three Months Ended June 30, 

2021

    

2020

    

Average

  

Yield/

Average

  

Yield/

(dollars in thousands)

    

Balance

    

Interest

    

Cost

    

Balance

    

Interest

    

Cost

    

ASSETS:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest-bearing deposits w/ banks & fed funds

$

23,172

$

5

 

0.09

%  

$

23,665

$

23

 

0.39

%  

Investment securities available for sale

 

150,556

 

706

 

1.88

 

69,729

 

317

 

1.82

Restricted equity securities

 

1,062

 

11

 

4.00

 

1,199

 

16

 

5.40

Total interest-bearing deposits/investments

 

174,790

 

722

 

1.65

 

94,593

 

356

 

1.51

 

  

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

 

  

 

  

 

  

 

  

 

  

 

  

Construction and land

753

29

15.54

3,846

56

5.76

Farmland

349

4

5.01

357

4

4.96

Singlefamily residential

81,427

873

4.29

88,998

972

4.32

Multifamily

6,456

83

5.12

7,189

84

4.62

Commercial

58,719

700

4.77

63,559

812

5.05

Total loans secured by real estate

147,704

1,689

4.57

163,949

1,928

4.65

Commercial and Industrial

Commercial and industrial

7,141

72

4.03

5,012

100

7.89

SBA guaranty

7,376

196

10.62

4,797

122

10.06

Comm SBA PPP

8,252

21

1.00

16,107

32

0.79

Total commercial and industrial loans

 

22,769

 

289

 

5.08

 

25,916

 

254

 

3.88

Consumer Loans

Consumer

4,813

7

0.58

5,486

10

0.72

Automobile

64,626

583

3.61

88,818

788

3.51

Total consumer loans

 

69,439

 

590

 

3.40

 

94,304

 

798

 

3.35

Total loans

 

239,912

 

2,568

 

4.31

 

284,169

 

2,980

 

4.22

Total interest-earning assets

 

414,702

 

3,290

 

3.18

 

378,762

 

3,336

 

3.54

Cash

2,062

2,329

Allowance for loan losses

 

(2,945)

 

  

 

  

 

(2,278)

 

  

 

  

Market valuation

(1,169)

1,219

Other assets

 

16,849

 

  

 

  

 

16,601

 

  

 

  

Total non-earning assets

14,797

17,871

Total assets

$

429,499

 

  

 

  

$

396,633

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

LIABILITIES AND STOCKHOLDER'S EQUITY:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing checking and savings

$

136,647

 

15

 

0.05

%  

$

117,912

 

18

 

0.06

%  

Money market

 

20,904

 

3

 

0.05

 

18,222

 

2

 

0.05

Certificates of deposit

 

66,555

 

140

 

0.84

 

76,887

 

269

 

1.41

Total interest-bearing deposits

 

224,106

 

158

 

0.28

 

213,021

 

289

 

0.54

Borrowed Funds:

PPPLF Term Funding

616

1

0.42

948

Federal Funds Purchased

 

1

 

 

 

1

 

 

FHLB advances

 

20,000

 

115

 

2.32

 

20,000

 

109

 

2.20

Total borrowed funds

20,617

116

2.28

20,949

109

2.10

Total interest-bearing liabilities

 

244,723

 

274

 

0.45

 

233,970

 

398

 

0.68

 

  

 

  

 

  

 

  

 

  

 

  

Non-interest-bearing deposits

 

147,009

 

  

 

  

 

123,308

 

  

 

  

Total cost of funds

 

391,732

 

274

 

0.28

 

357,278

 

398

 

0.45

Other liabilities and accrued expenses

2,841

2,592

Total liabilities

394,573

359,870

 

  

 

  

 

  

 

  

 

  

 

  

Stockholder's equity

 

34,926

 

  

 

  

 

36,763

 

  

 

  

Total liabilities and equity

$

429,499

 

  

 

  

$

396,633

 

  

 

  

Net interest income

 

  

$

3,016

 

  

 

  

$

2,938

 

  

Yield on earning assets

 

  

 

  

 

3.18

%  

 

  

 

  

 

3.54

%  

Cost of interest-bearing liabilities

0.45

%  

0.68

%  

Net interest spread

2.73

%  

2.86

%  

Net interest margin

 

  

 

  

 

2.92

%  

 

  

 

  

 

3.12

%  

- 32 -

Table of Contents

Six Months Ended June 30, 

2021

    

2020

    

Average

  

Yield/

Average

  

Yield/

(dollars in thousands)

Balance

    

Interest

    

Cost

    

Balance

    

Interest

    

Cost

    

ASSETS:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest-bearing deposits w/ banks & fed funds

$

26,611

$

12

 

0.09

%  

$

18,084

$

57

 

0.63

%  

Investment securities available for sale

 

134,581

 

1,211

 

1.80

 

70,254

 

698

 

1.99

Restricted equity securities

 

1,121

 

23

 

4.17

 

1,289

 

29

 

4.59

Total interest-bearing deposits/investments

 

162,313

 

1,246

 

1.54

 

89,627

 

784

 

1.76

 

  

 

  

 

  

 

  

 

  

 

  

Loans Secured by Real Estate

 

  

 

  

 

  

 

  

 

  

 

  

Construction and land

757

53

13.90

3,545

119

6.70

Farmland

350

9

4.98

357

9

5.00

Singlefamily residential

82,004

1,764

4.30

88,883

1,972

4.44

Multifamily

6,530

163

4.99

7,206

169

4.69

Commercial

58,913

1,376

4.67

64,531

1,640

5.08

Total loans secured by real estate

148,554

3,365

4.53

164,522

3,909

4.75

Commercial and Industrial

Commercial and industrial

6,947

160

4.62

7,206

224

6.23

SBA guaranty

7,662

426

11.13

4,619

180

7.78

Comm SBA PPP

8,867

44

1.00

8,053

32

0.80

Total commercial and industrial loans

 

23,476

 

630

 

5.36

 

19,878

 

436

 

4.39

Consumer Loans

Consumer

5,255

17

0.65

5,669

27

0.95

Automobile

67,131

1,193

3.55

92,682

1,679

3.62

Total consumer loans

 

72,386

 

1,210

 

3.34

 

98,351

 

1,706

 

6.86

Total loans

 

244,416

 

5,205

 

4.29

 

282,751

 

6,051

 

4.30

Total interest-earning assets

 

406,729

 

6,451

 

3.20

 

372,378

 

6,835

 

3.69

Cash

2,111

2,327

Allowance for loan losses

 

(2,984)

 

  

 

  

 

(2,152)

 

  

 

  

Market valuation

(178)

911

Other assets

 

16,472

 

  

 

  

 

16,707

 

  

 

  

Total non-earning assets

15,421

17,793

Total assets

$

422,150

 

  

 

  

$

390,171

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

LIABILITIES AND STOCKHOLDER'S EQUITY:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing checking and savings

$

133,476

 

30

 

0.05

%  

$

115,264

 

34

 

0.06

%  

Money market

 

20,578

 

5

 

0.05

 

18,206

 

5

 

0.05

Certificates of deposit

 

67,168

 

290

 

0.87

 

78,580

 

575

 

1.47

Total interest-bearing deposits

 

221,222

 

325

 

0.30

 

212,050

 

614

 

0.58

Borrowed Funds:

PPPLF Term Funding

589

1

0.42

474

Federal Funds Purchased

 

1

 

 

 

1

 

 

FHLB advances

 

20,001

 

231

 

2.34

 

21,846

 

235

 

2.16

Total borrowed funds

20,591

232

2.28

22,321

235

2.12

Total interest-bearing liabilities

 

241,813

 

557

 

0.47

 

234,371

 

849

 

0.73

 

  

 

  

 

  

 

  

 

  

 

  

Non-interest-bearing deposits

 

142,105

 

  

 

  

 

116,418

 

  

 

  

Total cost of funds

 

383,918

 

557

 

0.29

 

350,789

 

849

 

0.49

Other liabilities and accrued expenses

2,733

2,540

Total liabilities

386,651

353,329

 

  

 

  

 

  

 

  

 

  

 

  

Stockholder's equity

 

35,499

 

  

 

  

 

36,842

 

  

 

  

Total liabilities and equity

$

422,150

 

  

 

  

$

390,171

 

  

 

  

Net interest income

 

  

$

5,894

 

  

 

  

$

5,986

 

  

Yield on earning assets

 

  

 

  

 

3.20

%  

 

  

 

  

 

3.69

%  

Cost of interest-bearing liabilities

0.47

%  

0.73

%  

Net interest spread

2.73

%  

2.96

%  

Net interest margin

 

  

 

  

 

2.92

%  

 

  

 

  

 

3.23

%  

- 33 -

Table of Contents

Provision for Credit Losses.  The Company recognized a release of credit losses in the amount of $67,000 and a provision for credit losses in the amount of $487,000 for the three-month periods ending June 30, 2021 and 2020, respectively. The Company recognized a release for credit losses in the amount of $471,000 and a provision for credit losses in the amount of $407,000 for the six-month period ending June 30, 2021 and 2020, respectively.  As of June 30, 2021, the allowance for credit losses represented 1.23% of total loans compared to 0.84% at June 30, 2020.  The $554,000 favorable decline in the provision for credit losses (“PCL-loans”) in the second quarter of 2021 as compared to the second quarter of 2020, and the $878,000 favorable decrease in the first six months of 2021 compared to the same period in 2020 is due primarily to lower average balances on loans, and net recoveries of previously charged-off loan balances.  A provision was not recognized for the Commercial SBA PPP loans as these loans are 100% guaranteed by the SBA.            

Noninterest Income. Noninterest income increased to $280,000 for the three-month period ended June 30, 2021, from $228,000 for the corresponding period in 2020, an increase of $52,000, or 22.81%. The increase was primarily due to an increase in other fees and commissions and the gain on the sale of other real estate owned (“OREO”). Noninterest income increased to $527,000 for the six-month period ended June 30, 2021, from $484,000 for the corresponding period in 2020, an increase of $43,000, or 8.88%. The decrease was primarily due to increases in other fees and commissions and the gain on the sale of OREO, offset by a decrease in service charges on deposit accounts.

Noninterest Expenses. Noninterest expenses for the three-month period ended June 30, 2021 and 2020 were $2.79 million and $2.81 million, respectively, a decrease of $15,000 or 0.53%.  The decrease was driven by decreases in legal, accounting and other professional fees, and other expenses, offset by increases in data and item processing services, and telephone costs. Noninterest expenses decreased from $5.85 million for the six-month period ended June 30, 2020, to $5.62 million for the corresponding period in 2021, a decrease of $230,000, or 3.93%. The decrease was driven by decreases in salary and employee benefits cost, occupancy and equipment, legal, accounting, and other professional fees, loan collection costs, FDIC insurance costs and other expenses, offset by increases in data processing and item processing services and telephone costs.

Income Taxes. During the three-month period ended June 30, 2021, the Company recorded income tax expense of $91,000 compared to $32,000 benefit for the same period in 2020, a $123,000, or 384.38%, increase. The Company’s annualized effective tax rate at June 30, 2021 was 15.83% compared to 20.05% for the prior year. The increase in income tax expense was due to higher income before taxes. The decrease in the annualized effective tax rate for the six-month period was due to an increase in tax-exempt municipal securities in 2021.

Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s portfolio of investment securities and interest rate swap contracts. For the second quarter of 2021, comprehensive income, net of tax, totaled $2,172,000 compared to $259,000 for the same period in 2020. The increase was due to higher net income, unrealized gains on available for sale securities and net unrealized gains on interest rate swaps. For the six-month period ended June 30, 2021, comprehensive income, net of tax, totaled $277,000, compared to $689,000 for the same period in 2020. The decrease was due to higher net unrealized losses on available for sale securities, offset by higher net income and net unrealized gains on interest rate swaps.

FINANCIAL CONDITION

General. The Company’s assets increased to $432.8 million at June 30, 2021 from $419.5 million at December 31, 2020, an increase of $13.3 million or 3.17%, primarily due to an increase in investment securities available for sale, offset by decreases in interest-bearing deposits at other financial institutions and loans, net. Loans totaled $232.0 million at June 30, 2021, a decrease of $20.3 million, or 8.05%, from $252.3 million at December 31, 2020. The decrease was primarily attributable to decreases in single-family residential, multi-family residential, commercial and industrial loans, commercial SBA PPP loans, consumer, and automobile loans, offset by increases in construction and land and commercial real estate loans. Investment securities available for sale as of June 30, 2021, totaled $157.6 million, an increase of $43.6 million, or 38.18% from $114.0 million on December 31, 2020. The increase resulted primarily from the purchase of investments securities due to an increase in excess liquidity from deposit growth and decreases in loan

- 34 -

Table of Contents

portfolio balances. Cash and cash equivalents as of June 30, 2021, totaled $26.8 million, a decrease of $10.3 million, or 27.83% from $37.1 million on December 31, 2020 resulting from the purchase of investment securities in 2021.

 

Loans are placed on nonaccrual status when they are past due 90 days as to either principal or interest or when, in the opinion of management, the collection of all interest and/or principal is in doubt. Placing a loan on nonaccrual status means that we no longer accrue interest or amortize deferred fees or costs on such loans and reverse any interest previously accrued but not collected. Management may grant a waiver from nonaccrual status for a 90 day past due loan that is both well secured and in the process of collection. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and the borrower has demonstrated the ability to make payments in accordance with the terms of the loan and remain current.

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the fair value of the collateral for collateral dependent loans and at the present value of expected future cash flows using the loans’ effective interest rates for loans that are not collateral dependent.

At June 30, 2021, impaired loans totaled $4.1 million. Included in the impaired loans total were $4.1 million in loans classified as nonaccrual loans. At June 30, 2021, troubled debt restructurings included in impaired loans totaled $37,000. Borrowers under all other restructured loans are paying in accordance with the terms of the modified loan agreement and have been placed on accrual status after a period of performance with the restructured terms.

The following table presents details of our nonperforming loans and nonperforming assets, as these asset quality metrics are evaluated by management, at the dates indicated:

June 30, 

December 31,

(dollars in thousands)

2021

2020

Nonaccrual loans

$

4,109

$

4,512

TDR loans excluding those in nonaccrual loans

-

-

Accruing loans past due 90+ days

15

18

Total nonperforming loans

4,124

4,530

Real estate acquired through foreclosure

-

575

Total nonperforming assets

$

4,124

$

5,105

Nonperforming assets to total assets

0.95

%

1.22

%

Deposits as of June 30, 2021, totaled $368.9 million, an increase of $19.3 million, or 5.51% from $349.6 million on December 31, 2020. Demand deposits as of June 30, 2021 totaled $143.3 million, an increase of $10.6 million, or 8.01% from $132.6 million at December 31, 2020. Interest-bearing checking accounts as of June 30, 2021 totaled $36.8 million, an increase of $4.2 million, or 12.91% from $32.6 million at December 31, 2020. Savings accounts as of June 30, 2021 totaled $100.8 million, an increase of $3.8 million, or 3.89%, from $97.0 million at December 31, 2020. Money market accounts as of June 30, 2021 totaled $21.7 million, an increase of $2.6 million, or 13.83%, from $19.1 million at December 31, 2020. Time deposits under $100,000 totaled $38.4 million on June 30,

- 35 -

Table of Contents

2021, a $1.6 million or a 4.01% decrease from $40.0 million at December 31, 2020. Time deposits over $100,000 totaled $27.9 million on June 30, 2021, a decrease of $0.4 million, or 1.33% from $28.3 million on December 31, 2020.

Deposits on June 30, 2021, and December 31, 2020, were as follows:

June 30, 2021

 

December 31, 2020

2021 vs 2020

(dollars in thousands)

Amount

 

% of Total

    

Amount

 

% of Total

    

$ Change

 

% Change

Noninterest-bearing deposits

$

143,254

38.8

%

$

132,626

37.9

%

$

10,628

8.0

%

Interest-bearing deposits:

Checking

36,809

10.0

%

32,601

9.3

%

4,208

12.9

%

Savings

100,807

27.3

%

97,036

27.8

%

3,771

3.9

%

Money market

21,715

5.9

%

19,077

5.5

%

2,638

13.8

%

Total interest-bearing checking,
savings and money market deposits

159,331

43.2

%

148,714

42.6

%

10,617

7.1

%

Time deposits under $100,000

38,405

10.4

%

40,010

11.4

%

(1,605)

(4.0)

%

Time deposits of $100,00 or more

 

27,894

7.6

%

 

28,270

8.1

%

 

(376)

(1.3)

%

Total time deposits

 

66,299

18.0

%

68,280

19.5

%

(1,981)

(2.9)

%

 

Total interest-bearing deposits

 

225,630

61.2

%

216,994

62.1

%

8,636

4.0

%

Total Deposits

$

368,884

100.0

%

$

349,620

100.0

%

$

19,264

5.5

%

 

Lease Commitments. The Financial Accounting Standards Board (“FASB”) issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The Bank adopted this guidance on January 1, 2019. It was applied using a modified retrospective approach which allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the current period consolidated financial statements. For leases where the Bank is the lessee, operating leases are included in premises and equipment, net, and accrued expenses and other liabilities on the Consolidated Balance Sheet. The Bank currently does not have any finance leases. The initial adoption of this guidance had no material effect on the Bank and there was no cumulative-effect adjustment to beginning retained earnings. Management evaluates the effects of the lease guidance on a quarterly basis.

Operating lease Right-of-Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised.

- 36 -

Table of Contents

Future minimum payments of the Bank’s operating leases as of June 30, 2021 are as follows:

Year ending December 31,

    

Amount

(dollars in thousands)

2021

$

97

2022

 

177

2023

156

2024

161

2025

3

Thereafter

 

2

Total

$

596

Pension and Profit Sharing Plans. The Bank 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 plan provides for discretionary employer matching contributions to be determined annually by the Board of Directors. The plan covers substantially all employees.

For the six months ended June 30, 2021, the Bank accrued $223,000 for its projected 401(k) match contribution as well as other profit sharing benefits.

MARKET RISK AND INTEREST RATE SENSITIVITY

Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on liabilities. Our interest rate risk represents the level of exposure we have to fluctuations in interest rates and is primarily measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The Asset Liability Committee (“ALCO”) oversees our management of interest rate risk. The objective of the management of interest rate risk is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs, and protect us from any material financial consequences associated with changes in interest rate risk.

Interest rate risk is that risk to earnings or capital arising from movement of interest rates. It arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships across yield curves that affect bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The value of a bank’s assets, liabilities, and interest-rate related, off-balance sheet contracts is affected by a change in rates because the present value of future cash flows, and in some cases the cash flows themselves, is changed.

We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and the Board have chosen an interest rate risk profile that is consistent with our strategic business plan.

The Company’s Board of Directors has established a comprehensive interest rate risk management policy, which is administered by our ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology we employ. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the

- 37 -

Table of Contents

impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

We prepare a current base case and eight alternative simulations at least once a quarter and report the analysis to the Board of Directors. In addition, more frequent forecasts are produced when the direction or degree of change in interest rates are particularly uncertain to evaluate the impact of balance sheet strategies or when other business conditions so dictate.

The statement of condition is subject to quarterly testing for eight alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/ - 100, 200, 300, and 400 basis points (“bp”), although we may elect not to use particular scenarios that we determine are impractical in the current rate environment. It is our goal to structure the balance sheet so that net interest-earnings at risk over a 12-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

At June 30, 2021, the simulation analysis reflected that the Bank is in a neutral to slightly asset sensitive position. Management strives to manage higher costing fixed rate funding instruments, while seeking to increase assets that are more fluid in their repricing. An asset sensitive position, theoretically, is favorable in a rising rate environment since more assets than liabilities will re-price in a given time frame as interest rates rise. Similarly, a liability sensitive position, theoretically, is favorable in a declining interest rate environment since more liabilities than assets will re-price in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.

The foregoing analysis assumes that the Company’s assets and liabilities move with rates at their earliest repricing opportunities based on final maturity. Mortgage backed securities are assumed to mature during the period in which they are estimated to prepay and it is assumed that loans and other securities are not called prior to maturity. Certificates of deposit and IRA accounts are presumed to reprice at maturity. NOW savings accounts are assumed to reprice within three months although it is the Company’s experience that such accounts may be less sensitive to changes in market rates.

Static Balance Sheet/Immediate Change in Rates

Estimated Changes in Net Interest Income

    

`-200 bp

`-100 bp

`+100 bp

`+200 bp

Policy Limit

(15)

%  

(10)

%  

(10)

%  

(15)

%  

June 30, 2021

 

(9)

%

(6)

%  

10

%  

17

%

June 30, 2020

 

(6)

%  

(4)

%  

7

%  

13

%

- 38 -

Table of Contents

The following table sets forth the Company’s interest-rate sensitivity at June 30, 2021.

    

    

    

Over 1

    

    

Over 3 to

Through

Over

0-3 Months

12 Months

5 Years

5 Years

Total

(dollars in thousands)

Assets:

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

$

$

$

$

2,223

Federal funds and overnight deposits

 

24,545

 

 

 

 

24,545

Securities

 

 

452

 

2,223

 

154,916

 

157,591

Loans

 

456

 

4,151

 

61,371

 

166,006

 

231,984

Fixed assets

 

 

 

 

 

3,716

Other assets

12,715

Total assets

$

25,001

$

4,603

$

63,594

$

320,922

$

432,774

 

  

 

  

 

  

 

  

 

  

Liabilities:

 

  

 

  

 

  

 

  

 

  

Demand deposit accounts

$

$

$

$

$

143,254

NOW accounts

 

36,809

 

 

 

 

36,809

Money market deposit accounts

 

21,715

 

 

 

 

21,715

Savings accounts

 

100,807

 

 

 

 

100,807

IRA accounts

 

1,659

7,053

11,623

833

 

21,168

Certificates of deposit

 

8,752

0

 

15,951

0

 

20,397

0

 

31

-1

 

45,131

Short-term borrowings

25,237

 

25,237

Other liabilities

 

 

 

 

 

3,258

Stockholders’ equity:

 

 

 

 

 

35,395

Total liabilities and stockholders' equity

$

194,979

$

23,004

$

32,020

$

864

$

432,774

 

  

 

  

 

  

 

  

 

  

GAP

$

(169,978)

$

(18,401)

$

31,574

$

320,058

 

  

Cumulative GAP

$

(169,978)

$

(188,379)

$

(156,805)

$

163,253

 

  

Cumulative GAP as a % of total assets

 

(39.28)

%  

 

(43.53)

%  

 

(36.23)

%  

 

37.72

%  

 

As shown above, measures of net interest income at risk were slightly more favorable at June 30, 2021 than at June 30, 2020 over a 12-month modeling period. All measures remained within prescribed policy limits in the up and down interest rate scenarios. Given the current rate environment, down shocks may not be meaningful as market rates can only be shocked down to zero. The primary contributor to the more favorable position was the more asset sensitive balance sheet.

The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of the Company’s net assets.

Static Balance Sheet/Immediate Change in Rates

Estimated Changes in Economic Value of Equity (EVE)

    

`-200 bp

`-100 bp

`+100 bp

`+200 bp

Policy Limit

(15)

%  

(10)

%  

(10)

%  

(15)

%  

June 30, 2021

 

(37)

%  

(19)

%  

9

%

6

%

June 30, 2020

 

(23)

%  

(23)

%  

27

%  

45

%

- 39 -

Table of Contents

Inasmuch as a large portion of the Company’s deposits are non-interest bearing, in an increasing interest rate environment the Company’s interest income increases at a proportionally greater rate than its total interest expense, thereby resulting in higher net interest income. Conversely, in a declining interest rate environment the decreases in the Company’s interest income will be greater than decreases in its already low interest expense, thereby resulting in lower net interest income. In a rising interest rate environment, the Company is positioned to generate less economic value of equity as asset values fall faster than funding sources because the liabilities reprice much slower than our assets, especially considering our interest earning assets are much greater than our interest bearing liabilities. The Company’s economic value of equity worsens in declining interest rate environments as the majority of our liabilities cannot continue to decrease much from their current low levels thus the economic value of liabilities and assets both worsen.

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 nine 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, 2021, totaled $26.8 million, an increase of $10.3 million, or 27.83% from the $37.1 million at December 31, 2020.

As of June 30, 2021, the Bank was permitted to draw on a $109.2 million 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 and investment securities. At December 31, 2020, there were $20.0 million in short-term borrowings from FHLB and $9.9 million in long-term borrowings from the Federal Reserve Discount Window outstanding. As of June 30, 2021, there were $20.0 million in short-term and $5.2 million in long-term borrowings from the Federal Reserve Discount Window outstanding. During the second quarter of 2021, the Bank borrowed $5.2 million under the Payroll Protection Program Liquidity Facility (“PPPLF”) to fund $5.2 million in Commercial SBA PPP loans. See “Item 5. Other information” for further details on the PPPLF. In addition, the Bank has two unsecured federal funds lines of credit in the amount of $9.0 million and $8.0 million, of which $0 was outstanding as of June 30, 2021, and a secured Discount Window line of credit at the Federal Reserve Bank in the amount of $10.9 million, of which $0 was outstanding as of June 30, 2021.

The Company’s stockholders’ equity decreased $1,698,000, or 4.58% during the six-month period ended June 30, 2021. The decrease was primarily due a $1.5 million reduction of retained earnings from the adoption of the CECL accounting standard for credit losses in the first six months of 2021 and unrealized losses (net of taxes) on the Company’s available-for-sale investment securities and derivative contracts totaling $0.8 million. The decrease in unrealized gains primarily resulted from increasing market interest rates during the first six months of 2021, which decreased the fair value of the investment securities.

- 40 -

Table of Contents

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. 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 our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2015, federal bank regulatory agencies issued final results to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). Effective January 1, 2015, the final rules required the Company and the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. These are the initial capital requirements, which were phased in over a four-year period. The rules were fully phased in on January 1, 2019, and require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

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, 2021, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 8.58%, a Tier 1 risk-based capital ratio of 13.45%, a common equity Tier 1 risk-based capital ratio of 13.45%, and a total risk-based capital ratio of 14.29%. The Company’s capital amounts and ratios at June 30, 2021 and December 31, 2020 were as follows:

To Be Well Capitalized

To Be Considered

Under Prompt Corrective

Actual

Adequately Capitalized

Action Provisions

June 30, 2021

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

(dollars in thousands)

Common equity tier 1

$

36,160

13.45

%

$

12,100

4.50

%  

$

17,478

6.50

%

Total capital

$

38,419

14.29

%

$

21,511

8.00

%  

$

26,889

10.00

%

Tier 1 capital

$

36,160

13.45

%

$

16,133

6.00

%  

$

21,511

8.00

%

Tier 1 leverage

$

36,160

8.58

%

$

16,865

4.00

%  

$

21,082

5.00

%

To Be Well Capitalized

To Be Considered

Under Prompt Corrective

Actual

Adequately Capitalized

Action Provisions

December 31, 2020

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

(dollars in thousands)

Common equity tier 1

$

36,442

13.09

%

$

12,532

4.50

%

$

18,101

6.50

%

Total capital

$

37,951

13.63

%

$

22,278

8.00

%

$

27,848

10.00

%

Tier 1 capital

$

36,442

 

13.09

%

$

16,709

 

6.00

%

$

22,278

 

8.00

%

Tier 1 leverage

$

36,442

9.12

%

$

15,980

4.00

%

$

19,975

5.00

%

- 41 -

Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s accounting policies are more fully described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, 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 (“ACL”) consists of the allowance for loan losses and the reserve for unfunded commitments.  In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASC 326”).  The ASC, as amended is intended to provide financial statement users with more decision useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income.

The Company early adopted ASC 326 during the first fiscal quarter 2021 and based on the application of the modified retrospective method it became effective on January 1, 2021 for all financial assets measured at amortized cost primarily loans receivable and off-balance-sheet credit exposures.  Results for reporting periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company recorded a decrease to retained earnings of $1,472,000 as of January 1, 2021 for the cumulative effect of adopting ASC 326.

As a result of our adoption of ASC 326, our methodology for estimating the ACL changed significantly from December 31, 2020.  The standard replaced the “incurred loss” approach with an “expected loss” approach known as current expected credit loss (“CECL”).  The CECL methodology requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures) and it removes the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was deemed to be “incurred.”

The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.  Historical loss experience is generally the starting point for estimating expected credit losses.  We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was based.  Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.

Management’s determination of the amount of the ACL is a critical accounting estimate as it requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

Going forward, the impact of utilizing the CECL methodology to calculate the ACL will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.  Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility in our reported earnings.  For further information regarding the Bank’s allowance for credit losses, see “Allowance for Credit Losses”, above.

- 42 -

Table of Contents

Valuation of the Securities Portfolio.  The Company early adopted ASC 326 during the first fiscal quarter 2021 and based on the application of the modified retrospective method it became effective on January 1, 2021 for all financial assets measured at amortized cost.  Under ASC 326, the Company is required to use an allowance approach when recognizing credit loss for its Available-For-Sale (“AFS”) debt securities.  This is measured as the difference between the investment security’s amortized cost basis and the amount expected to be collected over the investment security’s lifetime.  Specifically, the length of time the security has been in an unrealized loss position will no longer be used to determine whether a credit loss exists.  Impairment must be evaluated at the individual security level during each reporting period, through a comparison of the present value of expected cash flows from the security with the amortized cost basis of the security.  

The Company conducts its assessment at the individual security level.  When an AFS investment security is considered impaired, the Company determines whether the decline is credit loss related or due to other factors.  To evaluate the nature of the impairment, the Company compares, at the reporting date, the present value of future cash flows expected to be received to the amortized cost basis.  An impairment more than the calculated allowance related to credit losses is then recorded through other comprehensive income in equity, net of applicable taxes.

AFS investment securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss.  Municipal bonds are considered to have issuer(s) of high credit quality (rated AA or higher) and the decline in fair value is due to changes in interest rates and other market conditions.

Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating.  The absence of a rating does not imply substandard quality.  Non-rated corporate securities may be purchased from issuers operating in and around the Company’s operating footprint. 

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.

Deferred Income Taxes. Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not that such amount will be realized based on consideration of available evidence.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established.  We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination presumed to occur.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.  The judgment about the level of future taxable income is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a “smaller reporting company” and, as such, disclosure pursuant to this Item 3 is not required.

ITEM 4.

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 recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and

- 43 -

Table of Contents

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 have concluded that the system is effective. 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are party to litigation arising from the banking, financial, and other activities we conduct. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results, or liquidity.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.      MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.      OTHER INFORMATION

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has negatively impacted the global economy and the markets in which the Company operates. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future country and state restrictions regarding virus containment. An extended period of global supply chain, workforce availability and economic disruption could materially affect the Company’s business, the results of operations, and financial condition. While this business disruption is expected to be temporary, the current circumstances change from one day to the next and the impacts of COVID-19 on the Company’s business operations, including the duration, its impact on assets, liabilities and net income, cannot be reasonably estimated at this time. During the second quarter of 2020, at the request of borrowers facing financial difficulties, the Bank modified and deferred payment on 225 loans totaling approximately $39.8 million in principal and approximately $598,800 in principal and interest payments. As of June 30, 2021, all deferred payment loans are again paying as agreed. In October 2020, the Company began processing payments for loans that have been forgiven under SBA guidelines. The Company anticipates that the impacts of the COVID-19 pandemic will continue to have a material impact on the Company’s business, results of operations, financial position and cash flows in 2021, and this impact may continue beyond 2021.

The Company has business continuity plans that cover a variety of potential impacts to business operations. These plans are periodically reviewed and tested and have been designed to protect the ongoing viability of bank operations in the event of a disruption such as a pandemic.

The Company has implemented employee and customer safety guidelines consistent with the Centers for Disease Control and Prevention and the State of Maryland. In conjunction with Maryland’s efforts to fully re-open the economy, all branch locations were reopened on April 5, 2021. The Bank continues to use its established safety protocols and procedures in the branches and on the main campus. Due to the emergence of the predominant strain of the COVID-19 Delta variant and its higher infectious and transmissibility rate, the Company reimplemented its face mask policy which

- 44 -

Table of Contents

requires all employees in the branches and on campus to wear face masks when reporting to work and interacting with other employees and customers. Additionally, the Company has decided to delay the transition of returning to the office for those employees that are working from home.

In response to the COVID-19 pandemic, Congress created, and on March 27, 2020, the President signed into law, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Included in the CARES Act was the creation of the Paycheck Protection Program (PPP) pursuant to which Small Business Administration (SBA) eligible lenders provide low-interest, SBA guaranteed loans to borrowers who meet the requirements of the PPP so that the borrowers can keep their workers on the payroll. To bolster the effectiveness of the PPP, the Federal Reserve System has supplied liquidity to participating financial institutions, including the Bank, through term financing backed by PPP loans to small businesses. The PPP Liquidity Facility (the “PPPL Facility”) extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. To support the use of the PPPL Facility, the banking regulatory agencies are allowing banking organizations to exclude loans pledged as collateral to the PPPL Facility from a banking organization's total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets, and standardized total risk-weighted assets, as applicable. The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System and Office of the Comptroller of the Currency issued an interim final rule on April 7, 2020, that allows banking organizations to neutralize the regulatory capital effects of participating in the PPPL Facility. In addition, loans made under the PPP receive a zero percent risk weight under the agencies' regulatory capital rules regardless of whether they are pledged as collateral to the PPPL Facility. However, such loans will be included in a banking organization's leverage ratio requirement unless they are pledged as collateral to the PPPL Facility. The Bank worked with existing customers to provide PPP loans, and between April 3, 2020 and May 21, 2020 the Bank approved, and obtained SBA approval, for 133 loan requests totaling $17.4 million under the PPP. The Bank approved, and obtained SBA approval, on an additional 51 loan requests totaling $6.7 million between January 28, 2021 and May 14, 2021. These loans are listed as loan type Commercial SBA PPP loans in the Bank’s loan portfolio in “Note 5 – Loans Receivable and Allowance for Loan Losses” in this report. In October 2020, the Company began processing loans that have been forgiven under SBA guidelines.

The Company is highly focused on navigating the current challenges brought on by the COVID-19 pandemic.  While it is expected to see continued adverse impact to earnings in the near term, the Company is confident in its leadership, solid balance sheet and strong risk management to manage it through this time.

- 45 -

Table of Contents

ITEM 6.

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

Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, 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)

3.4

By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, 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 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)

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)

31.1

Rule 15d-14(a) Certification of Chief Executive Officer (filed herewith)

31.2

Rule 15d-14(a) Certification of Chief Financial Officer (filed herewith)

32

Section 1350 Certifications: Certification by the Principal Executive Officer and Principal Accounting Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

Inline XBRL Instance Document (filed herewith)

101.SCH

Inline XBRL Taxonomy Extension Schema Document (filed herewith)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)

101.PRE

104

Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

- 46 -

Table of Contents

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 13, 2021

By:

/s/ John D. Long

  John D. Long

  President, Chief Executive Officer

By:

/s/ Jeffrey D. Harris

  Jeffrey D. Harris

  Chief Financial Officer

- 47 -