SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-24047
MARYLAND 52-1782444
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 CRAIN HIGHWAY, S.E., GLEN BURNIE, MARYLAND 21061
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (410) 766-3300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of March 23, 2000, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $13.7 million based on the most recent sales price of $19.25 per share of the registrant's Common Stock as of such date as reported on the OTC Bulletin Board (R). For purposes of this calculation only, it is assumed that directors, executive officers and beneficial owners of more than 5% of the registrant's outstanding voting stock are affiliates.
Number of shares of Common Stock outstanding as of March 23, 2000: 1,096,885
DOCUMENTS INCORPORATED BY REFERENCE
PART I
The Company's principal executive office is located at 101 Crain Highway, S.E., Glen Burnie, Maryland 21061. Its telephone number at such office is (410) 766-3300.
MARKET AREA
The Bank considers its principal market area for lending and deposit products to consist of Northern Anne Arundel County, Maryland which consists of those portions of the county north of U.S. Route 50. Northern Anne Arundel County includes mature suburbs of the City of Baltimore which in recent years have experienced modest population growth and are characterized by an aging population. Management believes that the majority of the working population in its market area either commutes to Baltimore or is employed at the nearby Baltimore Washington International Airport. Anne Arundel County is generally considered to have more affordable housing than other suburban Baltimore areas and has begun to attract younger persons and minorities on this basis. This inflow, however, has not been sufficient to affect current population trends.
FINANCIAL MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed legislation which could have a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes affiliations between banking, securities and insurance firms and authorizes bank holding companies and national banks to engage in a variety of new financial activities. Under the G-L-B Act, any bank holding company whose depository institution subsidiaries have satisfactory Community Reinvestment Act ("CRA") records may elect to become a financial holding company if it certifies to the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") that all of its depository institution subsidiaries are well-capitalized and well-managed. Financial holding companies may engage in any activity that the Federal Reserve Board, after consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to a financial activity. Financial holding companies may also engage in activities that are complementary to financial activities and do not pose a substantial risk to the safety and soundness of their depository institution subsidiaries or the financial system generally. The G-L-B Act specifies that activities that are financial in nature include lending and investing activities, insurance and annuity underwriting and brokerage, financial, investment and economic advice, selling interests in pooled investment vehicles, securities underwriting, engaging in activities currently permitted to bank holding companies (including activities in which bank holding companies may currently engage outside the United States) and merchant banking through a securities or insurance underwriting affiliate. The Federal Reserve Board, in consultation with the Department of Treasury, may approve additional financial activities.
The G-L-B Act permits well capitalized and well managed national banks with satisfactory CRA records to invest in financial subsidiaries that engage in activities that are financial in nature (or incidental thereto) on an agency basis. National banks that are among the 50 largest insured banks and have at least one issue of investment grade debt outstanding may invest in financial subsidiaries that engage in activities as principal other than insurance underwriting, real estate development or merchant banking. All national banks are given the authority to underwrite municipal revenue bonds. The aggregate total consolidated assets of a national bank's financial subsidiaries may not exceed the lesser of 45% of the bank's total consolidated assets or $50 billion. A national bank would be required to deduct its investments in financial subsidiaries from its regulatory capital. National banks must also adopt procedures for protecting the bank against risks associated with the financial subsidiary and to preserve the separate corporate identity of the financial subsidiary. Financial subsidiaries of state and national banks (which include any subsidiary engaged in an activity not permitted to a national bank directly) would be treated as affiliates for purposes of the limitations on aggregate transactions with affiliates in Sections 23A and 23B of the Federal Reserve Act and for purposes of the anti-tying restrictions of the Bank Holding Company Act. State-chartered banks would be prohibited from investing in financial subsidiaries unless they would be well capitalized after deducting the amount of their investment from capital and observe the other safeguards applicable to national banks.
The G-L-B Act imposes functional regulation on bank securities and insurance activities. Banks will only be exempt from SEC regulation as securities brokers if they limit their activities to those described in the G-L-B Act. Banks that advise mutual funds will be subject to the same SEC regulation as other investment advisors. Bank common trust funds will be regulated as mutual funds if they are advertised or offered for sale to the general public. National banks and their subsidiaries will be prohibited from underwriting insurance products other than those which they were lawfully underwriting as of January 1, 1999 and are prohibited from underwriting title insurance or tax-free annuities. National banks may only sell title insurance in states in which state-chartered banks are authorized to sell title insurance. The G-L-B Act directs the federal banking agencies to promulgate regulations governing sales practices in connection with permissible bank sales of insurance.
The G-L-B Act imposes new requirements on financial institutions with respect to customer privacy. The G-L-B Act generally prohibits disclosure of customer information to non-affiliated third parties unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to customers annually. Financial institutions, however, will be required to comply with state law if it is more protective of customer privacy than the G-L-B Act. The G-L-B Act directs the federal banking agencies, the National Credit Union Administration, the Secretary of the Treasury, the Securities and Exchange Commission and the Federal Trade Commission, after consultation with the National Association of Insurance Commissioners, to promulgate implementing regulations within six months of enactment. The privacy provisions will become effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal Home Loan Bank System. The G-L-B Act imposes new capital requirements on the Federal Home Loan Banks and authorizes them to issue two classes of stock with differing dividend rates and redemption requirements. The G-L-B Act deletes the current requirement that the Federal Home Loan Banks annually contribute $300 million to pay interest on certain government obligations in favor of a 20% of net earnings formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank advances by community financial institutions (under $500 million in assets) to include funding loans to small businesses, small farms and small agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank system voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions including a prohibition against ATM surcharges unless the customer has first been provided notice of the imposition and amount of the fee. The G-L-B Act reduces the frequency of CRA examinations for smaller institutions and imposes certain reporting requirements on depository institutions that make payments to non-governmental entities in connection with the CRA.
LENDING ACTIVITIES
The Bank offers a full range of consumer and commercial loans. The Bank's lending activities include residential and commercial real estate loans, construction loans, land acquisition and development loans, equipment and automobile lease financing, commercial loans and consumer installment lending including indirect automobile lending. Substantially all of the Bank's loan customers are residents of Anne Arundel County and surrounding areas of Central Maryland. The Bank solicits loan applications for commercial loans from small to medium sized businesses located in its market area. The Bank believes that this is a market in which a relatively small community bank, like the Bank, has a competitive advantage in personal service and flexibility. The Bank's consumer lending currently consists primarily of automobile loans originated through local dealers. The Bank has expanded its indirect automobile loans by entering into arrangements with individual automobile dealers. The Bank's lease financing portfolio consists of loans purchased from third party originators.
After several years of portfolio run-off, the Company's loan portfolio increased during the past two fiscal years, as the result of the introduction of an indirect automobile lending program in 1998. The Bank's loan portfolio had decreased in size in prior years primarily due to declines in the size of construction loan portfolio and in its installment and commercial loan portfolios. The declines in the construction portfolio reflected the significant increase in such lending in fiscal year 1994 which was not sustained in subsequent years. The run-off in the commercial portfolio reflected the Bank's decision to decrease its equipment and automobile lease-based lending because of the difficulties encountered in monitoring the financial condition of borrowers on purchased leases. The declines in the installment and commercial loan portfolios also reflected in part the substantial charge-offs which the Bank took during fiscal years 1996 and 1995.
The following table provides information on the composition of the loan portfolio at the indicated dates.
AT DECEMBER 31,
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1999 1998 1997 1996 1995
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$ % $ % $ % $ % $ %
------- ------- --------- ------- -------- ------- -------- ------- --------- ----
(DOLLARS IN THOUSANDS)
Mortgage:
Residential............ $ 34,099 22.03% $33,931 26.28% $38,048 32.68% $36,505 27.95% $38,142 24.60%
Commercial............. 42,342 27.36 43,915 34.02 43,276 37.17 47,757 36.57 46,888 30.24
Construction and land
development........ 6,095 3.94 2,383 1.85 4,888 4.20 5,515 4.22 14,265 9.20
Consumer:
Installment........... 16,203 10.47 17,119 13.26 18,862 16.20 22,281 17.06 27,898 17.99
Credit card........... 1,348 0.88 1,398 1.08 1,397 1.20 1,434 1.10 1,484 0.96
Indirect automobile... 50,967 32.93 24,630 19.08 -- -- -- -- -- --
Commercial............... 3,701 2.39 5,714 4.43 9,964 8.56 17,095 13.09 26,366 17.01
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans......... 154,755 100.00% 129,090 100.00% 116,435 100.00% 130,587 100.00% 155,043 100.00%
====== ====== ====== ====== ======
Unearned income on loans. (727) (748) (751) (854) (873)
-------- ------- ------- ------- -------
Gross loans net of
unearned income.. 154,028 128,342 115,684 129,733 154,170
Allowance for credit
losses................... (2,922) (2,841) (4,139) (5,061) (3,698)
-------- ------- ------- ------- -------
Loans, net .............. $151,106 $125,501 $111,545 $124,672 $150,472
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The following table sets forth the maturities for various categories of the loan portfolio at December 31, 1999. Demand loans and loans which have no stated maturity are treated as due in one year or less. At December 31, 1999, the Bank had $7,903,000 in loans due after one year with variable rates and $133,766,000 in such loans with fixed rates. The Bank's long-term real estate loans allow the Bank to call the loan after three years in order to adjust the interest rate if necessary. The Bank has generally not exercised its call option and the following table assumes no exercise of the Bank's call option.
DUE OVER
DUE WITHIN ONE TO FIVE DUE OVER
ONE YEAR YEARS FIVE YEARS TOTAL
-------- ----- ---------- -----
(IN THOUSANDS)
Real estate -- mortgage:
Residential......................... $ 2,094 $ 1,840 $ 30,165 $ 34,099
Commercial.......................... 3,196 8,219 30,927 42,342
Real estate -- construction........... 1,416 733 3,946 6,095
Installment........................... 1,772 12,193 2,238 16,203
Credit Card........................... 1,348 -- -- 1,348
Indirect automobile................... 28 49,531 1,408 50,967
Commercial............................ 3,232 305 164 3,701
--------- ----------- -------- ----------
$ 13,086 $ 72,821 $ 68,848 $ 154,755
========= =========== ======== ==========
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REAL ESTATE LENDING. The Bank offers long-term mortgage financing for residential and commercial real estate as well as shorter term construction and land development loans. Residential mortgage and residential construction loans are originated with fixed rates while commercial mortgages may be originated on either a fixed or variable rate basis. Commercial construction loans are generally originated on a variable rate basis. The Bank's long-term, fixed-rate mortgages include a provision allowing the Bank to call the loan after three years in order to adjust the interest rate. The Bank, however, has never exercised this right. Substantially all of the Bank's real estate loans are secured by properties in northern Anne Arundel County, Maryland. Under the Bank's loan policies, the maximum permissible loan- to-value ratio for owner-occupied residential mortgages is 80% of the lesser of the purchase price or appraised value. The Bank, however, will make loans secured by owner-occupied residential real estate with loan-to-value ratios up to 95% provided the borrower obtains private mortgage insurance for the portion of the loan in excess of 80%. For residential investment properties, the maximum loan-to-value ratio is 75%. The maximum permissible loan-to-value ratio for residential and commercial construction loans is 80%. The maximum loan-to-value ratio for permanent commercial mortgages is 75%. The maximum loan-to-value ratio for land development loans is 70% and for unimproved land is 65%. The Bank also offers home equity loans secured by the borrower's primary residence provided that the aggregate indebtedness on the property does not exceed 80% of its value.
COMMERCIAL LENDING. The Bank's commercial loan portfolio consists principally of demand and time loans for commercial purposes and purchased lease financings. The Bank's business demand and time lending includes various working capital loans, lines of credit and letters of credit for commercial customers. Demand loans require the payment of interest until called while time loans require a single payment of principal and interest at maturity. Such loans may be made on a secured or an unsecured basis. All such loans are underwritten on the basis of the borrower's creditworthiness rather than the value of the collateral. The Bank's lease financing portfolio includes leases on various types of commercial equipment that have been purchased from various vendors. Because of the difficulties encountered in monitoring the financial condition of borrowers on purchased leases, the Bank is no longer purchasing equipment leases and is allowing this portfolio to run off.
INSTALLMENT LENDING. The Bank makes consumer and commercial installment loans for the purchase of automobiles, boats, other consumer durable goods, capital goods and equipment. Such loans provide for repayment in regular installments and are secured by the goods financed. Also included in installment loans are overdraft loans and
other credit repayable in installments. As of December 31, 1999, approximately 11.5% of the installment loans in the Bank's portfolio had been originated for commercial purposes and 88.5% had been originated for consumer purposes.
INDIRECT AUTOMOBILE LENDING. The Bank commenced its indirect automobile lending program in January 1998. The Bank finances new and used automobiles for terms of up to 60 months. Used vehicles must be no more than five years old and the maximum loan term is reduced for higher mileage vehicles. The Bank does not lend more than the invoice price on new vehicles and on used vehicles will not lend more than the fair market value as published in a nationally recognized used vehicle pricing guide. The Bank requires all borrowers to obtain vendor's single interest coverage protecting the Bank against loss. The Bank originates indirect loans through a network of 14 dealers which are primarily new car dealers located in Anne Arundel County. Participating dealers take loan applications from their customers and transmit them to the Bank for approval. If the loan is approved, the Bank will immediately fund the principal of the loan and credit the dealer's reserve account for the premium due to the dealer. Funds are disbursed from the dealer reserve account on a monthly basis net of any unpaid interest resulting from borrower prepayments or defaults on other loans purchased from the dealer. The Bank does not offer dealer floor plan financing.
CREDIT CARD AND RELATED LOANS. Credit card and related loans consist of outstanding balances on credit cards and overdraft lines of credit. The Bank offered no annual fee VISA(R) and MasterCard(R) credit cards to qualified customers. Credit card billing and payment processing was done for the Bank by an unaffiliated third party which received a fee for such services. In February, 2000, however, the Bank sold its portfolio of credit card loans. The Bank's overdraft protection line of credit is offered as a convenience to qualified customers.
Although the risk of non-payment for any reason exists with respect to all loans, certain other specific risks are associated with each type of loan. The primary risks associated with commercial loans, including commercial real estate loans, are the quality of the borrower's management and a number of economic and other factors which induce business failures and depreciate the value of business assets pledged to secure the loan, including competition, insufficient capital, product obsolescence, changes in the cost of production, environmental hazards, weather, changes in laws and regulations and general changes in the marketplace. Primary risks associated with residential real estate loans include fluctuating land and property values and rising interest rates with respect to fixed-rate, long-term loans. Residential construction lending exposes the Company to risks related to builder performance. Consumer loans, including indirect automobile loans, are affected primarily by domestic instability and a variety of factors that may lead to the borrower's unemployment, including deteriorating economic conditions in one or more segments of a local or broader economy. Because the Bank deals with borrowers through an intermediary on indirect automobile loans, this form of lending potentially carries greater risks of defects in the application process for which claims may be made against the Bank. Indirect automobile lending may also involve the Bank in consumer disputes under state "lemon" or other laws. The Bank seeks to control these risks by following strict underwriting and documentation guidelines and by only dealing with well-established dealerships who are contractually obligated to indemnify the Bank for such losses.
The Bank's lending activities are conducted pursuant to written policies approved by the Board of Directors intended to ensure proper management of credit risk. Loans are subject to a well defined credit process that includes credit evaluation of borrowers, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Regular portfolio reviews are performed by the Senior Credit Officer to identify potential underperforming credits, estimate loss exposure and to ascertain compliance with the Bank's policies. On a quarterly basis, the internal auditor performs an independent loan review in accordance with the Bank's loan review policy. For significant problem loans, management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral, and the effects of economic conditions.
The Bank's loan approval policy provides for various levels of individual lending authority. The maximum lending authority granted by the Bank to any one individual is $500,000. A combination of approvals from certain officers may be used to lend up to an aggregate of $750,000. The Bank's Executive Committee is authorized to approve loans up to $1.0 million. Larger loans must be approved by the full Board of Directors.
Under Maryland law, the maximum amount which the Bank is permitted to lend to any one borrower and their related interests may generally not exceed 10% of the Bank's unimpaired capital and surplus which is defined to include the Bank's capital, surplus, retained earnings and 50% of its reserve for possible loan losses. Under this authority, the Bank would have been permitted to lend up to $1.65 million to any one borrower at December 31, 1999. By interpretive ruling of the Commissioner of Financial Regulation, Maryland banks have the option of lending up to the amount that would be permissible for a national bank which is generally 15% of unimpaired capital and surplus (defined to include a bank's total capital for regulatory capital purposes plus any loan loss allowances not included in regulatory capital). Under this formula, the Bank would have been permitted to lend up to $2.5 million to any one borrower at December 31, 1999. It is currently the Bank's policy to limit its exposure to any one borrower to no more than $1.3 million in the aggregate unless the loan is approved by a 75% vote of the Board of Directors with respect to new borrowings. At December 31, 1999, the largest amount outstanding to any one borrower and their related interests was $2,482,000 which was within the Bank's lending limit at the time when made.
NON-PERFORMING LOANS
It is the current policy of the Bank to discontinue the accrual of interest when a loan becomes 90 days or more delinquent and circumstances indicate that collection is doubtful. For fiscal years prior to the 1997 fiscal year, the Bank's policy was to consider real estate loans on a case-by-case basis subject to collateral.
The Bank seeks to control delinquencies through diligent collection procedures. For consumer loans, the Bank sends out payment reminders on the seventh and twelfth days after a payment is due. If a consumer loan becomes 15 days past due, the account is transferred to the Bank's collections department which will contact the borrower by telephone and letter before the account becomes 30 days past due. If a consumer loan becomes more than 30 days past due, the Bank will continue its collection efforts and will move to repossession or foreclosure by the 45th day if the Bank has reason to believe that the collateral may be in jeopardy or the borrower has failed to respond to prior communications. The Bank will move to repossess or foreclose in all instances in which a consumer loan becomes more than 60 days delinquent. After repossession of a motor vehicle, the borrower has a 15-day statutory right to redeem the vehicle and is entitled to 10 days' notice before the sale of a repossessed vehicle. The Bank sells the vehicle as promptly as feasible after the expiration of these periods. If the amount realized from the sale of the vehicle is less than the loan amount, the Bank will seek a deficiency judgment against the borrower. The Bank follows similar collection procedures with respect to commercial loans.
The following table sets forth the amount of the Bank's restructured loans, non-accrual loans and accruing loans 90 days or more past due at the dates indicated.
AT DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Restructured loans........................... $ 243 $ 137 $ 344 $ -- $ --
======== ======== ========= ========= ==========
Non-accrual loans:
Real estate -- mortgage:
Residential............................... $ 237 $ 336 $ 1,078 $ 2,065 $ 812
Commercial................................ 135 505 761 1,935 274
Real estate -- construction............... 280 316 608 0 0
Installment............................... 315 463 665 168 165
Credit card & related .................... 0 0 0 0 4
Commercial................................ 45 105 369 378 1,120
-------- --------- --------- --------- ----------
Total non-accrual loans............... 1,012 1,725 3,481 4,546 2,375
-------- --------- --------- --------- ----------
Accruing loans past due 90 days or more:
Real estate -- mortgage:
Residential............................... 43 0 5 87 1,467
Commercial................................ 0 0 0 0 1,500
Real estate -- construction............... 0 0 0 0 0
Installment............................... 0 0 0 0 300
Credit card & related .................... 0 18 0 0 28
Commercial................................ 0 0 0 0 610
-------- --------- --------- --------- ----------
Total accruing loans past due 90 days
or more............................. 43 18 5 87 3,905
-------- --------- --------- --------- ----------
Total non-accrual and past due loans.. $ 1,055 $ 1,743 $ 3,486 $ 4,633 $ 6,280
======== ========= ========= ========= ==========
Non-accrual and past due loans to
gross loans......................... 0.68% 1.36% 2.99% 3.55% 4.05%
======== ========= ========= ========= ==========
Allowance for credit losses to
non-accrual and past due loans...... 276.97% 162.99% 118.73% 109.24% 58.89%
======== ========= ========= ========= ==========
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For the year ended December 31, 1999, interest of approximately $169,000, would have been accrued on non-accrual loans if such loans had been current in accordance with their original terms. During such period there was no interest on such loans included in income. During the year ended December 31, 1999, the Bank would have recorded $24,300 in interest on restructured loans if such loans were performing in accordance with their original terms. During 1999, the Bank recognized $17,660 in interest income on restructured loans.
Approximately $891,000, or 88.09%, of the Bank's non-accrual loans at December 31, 1999 were attributable to five borrowers. Charge-offs of $566,213 have previously been taken on these loans. Three of these borrowers with loans totaling $448,071 were in bankruptcy at that date. Because of the legal protections afforded to borrowers in bankruptcy, collections on such loans are difficult and the Bank anticipates that such loans may remain delinquent for an extended period of time. Each of these loans is secured by collateral with a value well in excess of the current active balance of the Bank's loan.
At December 31, 1999, there were no loans outstanding not reflected in the above table as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrower's ability to pay.
Transactions in the allowance for credit losses during the last five fiscal years were as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
(DOLLARS IN THOUSANDS)
Beginning balance........................... $ 2,841 $ 4,139 $ 5,061 $ 3,698 $ 2,764
--------- --------- --------- --------- ---------
Loans charged off
Real estate -- mortgage:
Residential............................ 0 51 270 250 1,044
Commercial............................. 50 0 0 797 497
Real estate -- construction.............. (27) 189 435 0 0
Installment.............................. 477 473 171 786 270
Credit card & related ................... 92 0 45 182 194
Commercial............................... 81 382 697 3,453 5,056
--------- --------- --------- --------- ---------
Total............................. 673 1,095 1,618 5,468 7,061
--------- --------- --------- --------- ---------
Recoveries
Real estate -- mortgage:
Residential............................ 32 51 25 22 23
Commercial............................. 16 26 17 81 10
Real estate -- construction.............. 36 1 0 0 0
Installment.............................. 259 116 89 57 11
Credit card & related ................... 4 4 5 2 0
Commercial............................... 107 99 290 73 26
--------- --------- --------- --------- ---------
Total.............................. 454 297 426 235 70
--------- --------- --------- --------- ---------
Net charge-offs............................. 219 798 1,192 5,233 6,991
Provisions charged to operations............ 300 (500) 270 6,596 7,925
--------- ---------- --------- --------- ---------
Ending balance.............................. $ 2,922 $ 2,841 $ 4,139 $ 5,061 $ 3,698
========= ========= ========= ========= =========
Average loans............................... $ 142,077 $ 118,372 $ 119,161 $ 146,922 $ 156,219
Net charge-offs to average loans ........... 0.15% 0.67% 1.00% 3.56% 4.48%
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The Bank's high level of loan charge-offs during fiscal years 1996 and 1995 was primarily attributable to its lending relationships with Mr. Brian Davis and various affiliated entities. Such loans primarily consisted of loans for purchases of trucks and other non-real estate secured loans which are categorized under commercial loans in the above
table. In addition, during fiscal year 1996, the Bank began charging off all non-real estate secured loans upon 90 days delinquency which contributed to a continued high level of charge-offs.
The following table shows the allowance for credit losses broken down by loan category as of December 31, 1999, 1998, 1997 and 1996. Such information for 1995 is not available.
AT DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
--------------- ------------
RESERVE PERCENT OF LOANS RESERVE PERCENT OF LOANS
FOR EACH IN EACH CATEGORY FOR EACH IN EACH CATEGORY
PORTFOLIO CATEGORY TO TOTAL LOANS CATEGORY TO TOTAL LOANS
--------- -------- -------------- -------- ----------------
(DOLLARS IN THOUSANDS)
Real estate -- mortgage:
Residential................. $ 200 22.03% $ 273 26.28%
Commercial.................. 613 27.36 311 34.02
Real estate -- construction... 296 3.94 335 1.85
Installment................... 177 10.47 143 13.26
Credit Card.................. 92 0.88 60 1.08
Indirect automobile........... 793 32.93 312 19.08
Commercial................... 526 2.39 966 4.43
Unallocated................... 225 -- 441 --
-------- ------ -------- ------
Total..................... $ 2,922 100.00% $ 2,841 100.00%
======== ====== ======== ======
AT DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996
--------------- ------------
RESERVE PERCENT OF LOANS RESERVE PERCENT OF LOANS
FOR EACH IN EACH CATEGORY FOR EACH IN EACH CATEGORY
PORTFOLIO CATEGORY TO TOTAL LOANS CATEGORY TO TOTAL LOANS
--------- -------- -------------- -------- ----------------
(DOLLARS IN THOUSANDS)
Real estate -- mortgage:
Residential................. $ 389 32.68% $ 432 27.95%
Commercial.................. 987 37.17 987 36.57
Real estate -- construction... 390 4.20 690 4.22
Installment................... 159 16.20 448 17.06
Credit Card.................. 47 1.20 49 1.10
Commercial................... 1,186 8.56 2,455 13.09
Unallocated................... 981 -- 0 --
-------- ------ -------- ------
Total..................... $ 4,139 100.00% $ 5,061 100.00%
======== ====== ======== ======
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INVESTMENT SECURITIES
The Bank maintains a substantial portfolio of investment securities to provide liquidity as well as a source of earnings. The Bank's investment securities portfolio consists primarily of U.S. Treasury securities as well as securities issued by U.S. Government agencies including mortgage-backed securities. The Bank formerly maintained a substantial portfolio in obligations of certain states and their political subdivisions. This portfolio has been eliminated because the Company was no longer able to use the full tax advantages of this portfolio.
The following table presents at amortized cost the composition of the investment portfolio by major category at the dates indicated.
AT DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
U.S. Treasury securities .......................... $ 2,739 $ 5,082 $ 9,068
U.S. Government agencies and
mortgage-backed securities....................... 40,833 59,008 63,414
Obligations of states and political subdivisions... -- -- 8,073
Other securities and stock......................... 652 936 936
--------- --------- ---------
Total investment securities........................ $ 44,224 $ 65,026 $ 81,491
========= ========= =========
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The following table sets forth the scheduled maturities, book values and weighted average yields for the Company's investment securities portfolio at December 31, 1999.
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS TOTAL
------------------ -------------------- ----------------- -------------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
U.S. Treasury securities ........ $ 500 5.50% $ 2,239 5.93% $ -- --% $ -- --% $ 2,739 5.85%
U.S. Government agencies and
mortgage-backed securities..... -- -- 6,898 5.83 8,996 6.39 24,939 6.35 40,833 6.49
Other securities and stock....... 652 8.54 -- -- -- -- -- -- 652 8.54
------ ---- -------- ---- -------- ---- ------- ---- ------- -----
Total investment securities. $1,152 7.22% $ 9,137 5.85% $ 8,996 6.39% $24,939 6.35% $44,224 6.48%
====== ==== ======== ==== ======== ==== ======= ==== ======= =====
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At December 31, 1999, the Bank had no investments in securities of a single issuer (other than the U.S. Government securities and securities of federal agencies and government-sponsored enterprises) which aggregated more than 10% of stockholders' equity.
DEPOSITS AND OTHER SOURCES OF FUNDS
The funds needed by the Bank to make loans are primarily generated by deposit accounts solicited from the communities surrounding its main office and seven branches in northern Anne Arundel County. Consolidated total deposits were $194,089,995 as of December 31, 1999. The Bank uses borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta to supplement funding from deposits. The Bank was permitted to borrow up to $25.5 million under a line of credit from the FHLB of Atlanta as of December 31, 1999.
DEPOSITS. The Bank's deposit products include regular savings accounts (statements), money market deposit accounts, demand deposit accounts, NOW checking accounts, IRA and SEP accounts, Christmas Club accounts and certificates of deposit. Variations in service charges, terms and interest rates are used to target specific markets. Ancillary products and services for deposit customers include safe deposit boxes, money orders and travelers checks, night depositories, automated clearinghouse transactions, wire transfers, ATMs, telephone banking, and a customer call center. The Bank is a member of the Cirrus(R) and Star(R) ATM networks.
The Bank obtains deposits principally through its network of eight offices. The Bank does not solicit brokered deposits. At December 31, 1999, the Bank had approximately $10.7 million in certificates of deposit and other time
deposits of $100,000 or more including IRA accounts. The following table provides information as to the maturity of all time deposits of $100,000 or more at December 31, 1999.
AMOUNT
(IN THOUSANDS)
--------------
Three months or less.................................. $ 4,451
Over three through six months......................... 1,319
Over six through 12 months............................ 1,217
Over 12 months........................................ 3,742
----------
Total............................................. $ 10,729
==========
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BORROWINGS. In addition to deposits, the Bank from time to time obtains advances from the FHLB of Atlanta of which it is a member. FHLB of Atlanta advances may be used to provide funds for residential housing finance and for small business lending. The Bank may draw on a $25.5 million line of credit from the FHLB of Atlanta. As of December 31, 1999, an advance of $2.0 million was outstanding on this line. The Bank's advance matures in 2000 and bears a 4.55% rate of interest. The FHLB advance is secured by a floating lien on the Bank's residential first mortgage loans and various federal government and agency securities. The Bank also has a secured line of credit in the amount of $5.0 million from another commercial bank but has not drawn on this line.
COMPETITION
The Bank faces competition from other community banks and financial institutions and larger intra- and inter- state banks and financial institutions which compete vigorously (currently, sixteen FDIC-insured depository institutions operate within two miles of the Bank's headquarters). Former directors of the Bank, including a former Chief Executive Officer, have established a new bank with a main office in Glen Burnie close to the Bank's headquarters which has solicited business from many Bank customers. With respect to indirect lending, the Bank faces competition from other banks and the financing arms of automobile manufacturers. The Bank competes in this area by offering competitive rates and responsive service to dealers.
The Bank's interest rates, loan and deposit terms, and offered products and services are governed, to a large extent, by such competition. The Bank attempts to provide superior service within its community and to know and facilitate services to its customers. It seeks commercial relationships with small to medium size businesses which, it believes, would welcome personal service and flexibility. While it believes it is the seventh largest deposit holder in Anne Arundel County, Maryland, with an estimated 4.84% market share as of June 30, 1999 (the latest date for which relevant data is available from the FDIC), it believes its greatest competition comes from smaller community banks which offer similar personalized services.
OTHER ACTIVITIES
The Company also owns all outstanding shares of capital stock of GBB Properties, Inc. ("GBB"), another Maryland corporation which was organized in 1994 and which is engaged in the business of acquiring, holding and disposing of real property, typically acquired in connection with foreclosure proceedings (or deeds in lieu of foreclosure) instituted by the Bank or acquired in connection with branch expansions by the Bank.
EMPLOYEES
At December 31, 1999, the Bank had 131 full-time equivalent employees. Neither the Company nor GBB currently has any employees.
SUPERVISION AND REGULATION
REGULATION OF THE COMPANY
GENERAL. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "BHCA"). As such, the Company is registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and subject to Federal Reserve Board regulation, examination, supervision and reporting requirements. As a bank holding company, the Company is required to furnish to the Federal Reserve Board annual and quarterly reports of its operations at the end of each period and to furnish such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Company is also subject to regular inspection by Federal Reserve Board examiners.
Under the BHCA, a bank holding company must obtain the prior approval of the Federal Reserve Board before: (1) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency of 1994 (the "Riegle-Neal Act") authorized the Federal Reserve Board to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Riegle-Neal Act also prohibits the Federal Reserve Board from approving such an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the Riegle-Neal Act. Under Maryland law, a bank holding company is prohibited from acquiring control of any bank if the bank holding company would control more than 30% of the total deposits of all depository institutions in the State of Maryland unless waived by the Commissioner of Financial Regulation.
Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. The State of Maryland did not pass such a law during this period. Interstate acquisitions of branches will be permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions will also be subject to the nationwide and statewide insured deposit concentration amounts described above.
The BHCA also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The activities of the Company are subject to these legal and regulatory limitations under the BHCA and the Federal Reserve Board's regulations thereunder. Notwithstanding the Federal Reserve Board's prior approval of specific nonbanking activities, the Federal Reserve Board has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any
subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company.
Effective with the enactment of the G-L-B Act on November 12, 1999, bank holding companies whose financial institution subsidiaries are well capitalized and well managed and have satisfactory Community Reinvestment Act records can elect to become "financial holding companies" which will be permitted to engage in a broader range of financial activities than are currently permitted to bank holding companies. Financial holding companies are authorized to engage in, directly or indirectly, financial activities. A financial activity is an activity that is: (i) financial in nature; (ii) incidental to an activity that is financial in nature; or (iii) complementary to a financial activity and that does not pose a safety and soundness risk. The G-L-B Act includes a list of activities that are deemed to be financial in nature. Other activities also may be decided by the Federal Reserve Board to be financial in nature or incidental thereto if they meet specified criteria. A financial holding company that intends to engage in a new activity to acquire a company to engage in such an activity is required to give prior notice to the Federal Reserve Board. If the activity is not either specified in the G-L-B Act as being a financial activity or one that the Federal Reserve Board has determined by rule or regulation to be financial in nature, the prior approval of the Federal Reserve Board is required.
The Maryland Financial Institutions Code prohibits a bank holding company from acquiring more than 5% of any class of voting stock of a bank or bank holding company without the approval of the Commissioner of Financial Regulation except as otherwise expressly permitted by federal law or in certain other limited situations. The Maryland Financial Institutions Code additionally prohibits any person from acquiring voting stock in a bank or bank holding company without 60 days' prior notice to the Commissioner if such acquisition will give the person control of 25% or more of the voting stock of the bank or bank holding company or will affect the power to direct or to cause the direction of the policy or management of the bank or bank holding company. Any doubt whether the stock acquisition will affect the power to direct or cause the direction of policy or management shall be resolved in favor of reporting to the Commissioner. The Commissioner may deny approval of the acquisition if the Commissioner determines it to be anti-competitive or to threaten the safety or soundness of a banking institution. Voting stock acquired in violation of this statute may not be voted for five years.
CAPITAL ADEQUACY. The Federal Reserve Board has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See "Regulation of the Bank -- Capital Adequacy."
DIVIDENDS AND DISTRIBUTIONS. The Federal Reserve Board has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the company's capital needs, asset quality, and overall financial condition.
Bank holding companies are required to give the Federal Reserve Board notice of any purchase or redemption of their outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company's consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve Board order, directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Bank holding companies whose capital ratios exceed the thresholds for "well capitalized" banks on a consolidated basis are exempt from the foregoing requirement if they were rated composite 1 or 2 in their most recent inspection and are not the subject of any unresolved supervisory issues.
REGULATION OF THE BANK
GENERAL. As a state-chartered bank with deposits insured by the FDIC but which is not a member of the Federal Reserve System (a "state non-member bank"), the Bank is subject to the supervision of the Commissioner of Financial Regulation and the FDIC. The Commissioner and FDIC regularly examine the operations of the Bank, including but not limited to capital adequacy, reserves, loans, investments and management practices. These examinations are for the protection of the Bank's depositors and not its stockholders. In addition, the Bank is required to furnish quarterly and annual call reports to the Commissioner and FDIC. The FDIC's enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.
The Bank's deposits are insured by the FDIC to the legal maximum of $100,000 for each insured depositor. Some of the aspects of the lending and deposit business of the Bank that are subject to regulation by the Federal Reserve Board and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and savings deposit accounts. In addition, the Bank is subject to numerous federal and state laws and regulations which set forth specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms and discrimination in credit transactions.
CAPITAL ADEQUACY. The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the capital regulations state that only the strongest bank holding companies and banks, with composite examination ratings of 1 under the rating system used by the federal bank regulators, would be permitted to operate at or near such minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization's capital adequacy by its primary regulator. Any bank or bank holding company experiencing or anticipating significant growth would be expected to maintain capital well above the minimum levels. In addition, the Federal Reserve Board has indicated that whenever appropriate, and in particular when a bank holding company is undertaking expansion, seeking to engage in new activities or otherwise facing unusual or abnormal risks, it will consider, on a case-by-case basis, the level of an organization's ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital.
The risk-based capital rules of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. Risk-based capital is composed of two elements: Tier 1 capital and Tier 2 capital. Tier 1 capital consists primarily of common stockholders' equity, certain perpetual preferred stock (which must be noncumulative in the case of banks), and minority interests in the equity accounts of consolidated subsidiaries; less all intangible assets, except for certain purchased mortgage servicing rights and credit card relationships. Tier 2 capital elements include, subject to certain limitations, the allowance for losses on loans and leases; perpetual preferred stock that does not qualify as Tier 1 capital and long-term preferred stock with an original maturity of at least 20 years from issuance; hybrid capital instruments, including perpetual debt and mandatory convertible securities; and subordinated debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of 8%, with at least 4% as Tier 1 capital. For the purpose of calculating these ratios: (i) Tier 2 capital is limited to no more than 100% of Tier 1 capital; and (ii) the aggregate amount of certain types of Tier 2 capital is limited. In addition, the risk-based capital regulations limit the allowance for loan losses includable as capital to 1.25% of total risk-weighted assets.
FDIC regulations and guidelines additionally specify that state non-member banks with significant exposure to declines in the economic value of their capital due to changes in interest rates may be required to maintain higher risk-based capital ratios. The federal banking agencies, including the FDIC, have proposed a system for measuring and assessing the exposure of a bank's net economic value to changes in interest rates. The federal banking agencies, including the FDIC, have stated their intention to propose a rule establishing an explicit capital charge for interest rate risk based upon the level of a bank's measured interest rate risk exposure after more experience has been gained with the proposed measurement process. Federal Reserve Board regulations do not specifically take into account interest rate risk in measuring the capital adequacy of bank holding companies.
The FDIC has issued regulations which classify state non-member banks by capital levels and which authorize the FDIC to take various prompt corrective actions to resolve the problems of any bank that fails to satisfy the capital standards. Under such regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has or exceeds the following capital levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of 5%. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite examination rating. A bank not meeting these criteria is treated as undercapitalized, significantly undercapitalized, or critically undercapitalized depending on the extent to which the bank's capital levels are below these standards. A state non-member bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation will be subject to severe regulatory sanctions. As of December 31, 1999, the Bank was well capitalized as defined by the FDIC's regulations.
BRANCHING. Maryland law provides that, with the approval of the Commissioner, Maryland banks may establish branches within the State of Maryland without geographic restriction and may establish branches in other states by any means permitted by the laws of such state or by federal law. The Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by state banks, only in states which specifically allow for such branching. The Riegle-Neal Act also requires the appropriate federal banking agencies to prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production. These regulations must include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to meet the credit needs of the communities which they serve.
DIVIDEND LIMITATIONS. Pursuant to the Maryland Financial Institutions Code, Maryland banks may only pay dividends from undivided profits or, with the prior approval of the Commissioner, their surplus in excess of 100% of required capital stock. The Maryland Financial Institutions Code further restricts the payment of dividends by prohibiting a Maryland bank from declaring a dividend on its shares of common stock until its surplus fund equals the amount of required capital stock or, if the surplus fund does not equal the amount of capital stock, in an amount in excess of 90% of net earnings. In addition, the Bank is prohibited by federal statute from paying dividends or making any other capital distribution that would cause the Bank to fail to meet its regulatory capital requirements. Further, the FDIC also has authority to prohibit the payment of dividends by a state non-member bank when it determines such payment to be an unsafe and unsound banking practice.
DEPOSIT INSURANCE. The Bank is required to pay semi-annual assessments based on a percentage of its insured deposits to the FDIC for insurance of its deposits by the Bank Insurance Fund ("BIF"). Under the Federal Deposit Insurance Act, the FDIC is required to set semi-annual assessments for BIF-insured institutions to maintain the
designated reserve ratio of the BIF at 1.25% of estimated insured deposits or at a higher percentage of estimated insured deposits that the FDIC determines to be justified for that year by circumstances raising a significant risk of substantial future losses to the BIF.
Under the risk-based deposit insurance assessment system adopted by the FDIC, the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC, which is determined by the institution's capital level and supervisory evaluations. Based on the data reported to regulators for the date closest to the last day of the seventh month preceding the semi-annual assessment period, institutions are assigned to one of three capital groups -- "well capitalized, adequately capitalized or undercapitalized." Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution's primary supervisory authority and such other information as the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance fund. Under the current assessment schedule, well-capitalized banks with the best supervisory ratings are not required to pay any premium for deposit insurance. All BIF-insured banks, however, will be required to begin paying an assessment to the FDIC in an amount equal to 2.12 basis points times their assessable deposits to help fund interest payments on certain bonds issued by the Financing Corporation, an agency established by the federal government to finance takeovers of insolvent thrifts.
TRANSACTIONS WITH AFFILIATES. A state non-member bank or its subsidiaries may not engage in "covered transactions" with any one affiliate in an amount greater than 10% of such bank's capital stock and surplus, and for all such transactions with all affiliates a state non-member bank is limited to an amount equal to 20% of capital stock and surplus. All such transactions must also be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. An affiliate of a state non-member bank is any company or entity which controls or is under common control with the state non-member bank and, for purposes of the aggregate limit on transactions with affiliates, any subsidiary that would be deemed a financial subsidiary of a national bank. In a holding company context, the parent holding company of a state non-member bank (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the state non-member bank. The BHCA further prohibits a depository institution from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain limited exceptions.
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. Loans to directors, executive officers and principal stockholders of a state non-member bank must be made on substantially the same terms as those prevailing for comparable transactions with persons who are not executive officers, directors, principal stockholders or employees of the Bank unless the loan is made pursuant to a compensation or benefit plan that is widely available to employees and does not favor insiders. Loans to any executive officer, director and principal stockholder together with all other outstanding loans to such person and affiliated interests generally may not exceed 15% of the bank's unimpaired capital and surplus and all loans to such persons may not exceed the institution's unimpaired capital and unimpaired surplus. Loans to directors, executive officers and principal stockholders, and their respective affiliates, in excess of the greater of $25,000 or 5% of capital and surplus (up to $500,000) must be approved in advance by a majority of the board of directors of the bank with any "interested" director not participating in the voting. State non-member banks are prohibited from paying the overdrafts of any of their executive officers or directors. In addition, loans to executive officers may not be made on terms more favorable than those afforded other borrowers and are restricted as to type, amount and terms of credit.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information about the Company's executive officers.
NAME AGE POSITIONS ---- --- --------- F. William Kuethe, Jr. 67 President and Chief Executive Officer John I. Young 62 Executive Vice President and Chief Operating Officer Michael G. Livingston 45 Senior Vice President and Chief Lending Officer John E. Porter 45 Senior Vice President and Chief Financial Officer |
F. WILLIAM KUETHE, JR. has been President and Chief Executive Officer of the Company and the Bank since 1995. He also was director of the Bank from 1963 through 1989. He was President of Glen Burnie Mutual Savings Bank from 1960 through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker with banking experience from 1960 to present, at all levels. He is the father of Frederick W. Kuethe, III, a director of the Company.
JOHN I. YOUNG was appointed Executive Vice President and Chief Operating Officer of the Bank in December 1999 after joining the Bank as Senior Vice President in March 1999. Prior to joining the Bank, he had been president of Young-Harris, Inc., a financial industry consulting company since 1980. Mr. Young was president of American Bank Services Corp. from January 1977 to 1980 and was Senior Vice President of Operations of Equitable Trust Bank from 1958 until December 1976. Mr. Young is a member of the Independent Bankers Association of America, the Maryland Bankers Association and an associate member of the Robert Morris Association. He is also the incoming President of the St. Andrew's Society of Baltimore.
MICHAEL G. LIVINGSTON was appointed Senior Vice President in January 1998 and has been Chief Lending Officer of the Bank since 1996. He was Regional Vice President and commercial loan officer with Citizens Bank from March 1993 until April 1996. He was Comptroller with Land Services Group from April 1992 through January 1993.
JOHN E. PORTER was appointed Senior Vice President in January 1998. He has been Treasurer and Chief Financial Officer of the Company since 1995 and Vice President, Treasurer and Chief Financial Officer of the Bank since 1990. He has been Secretary/Treasurer of GBB since 1995.
The following table sets forth certain information with respect to the Bank's offices:
YEAR OWNED/ APPROXIMATE
OPENED LEASED BOOK VALUE SQUARE FOOTAGE DEPOSITS
------ ------ ---------- -------------- --------
MAIN OFFICE:
101 Crain Highway, S.E. 1953 Owned $ 1,080,729 10,000 $69,547,835
Glen Burnie, MD 21061
BRANCHES:
Odenton
1405 Annapolis Road 1969 Owned 160,258 6,000 30,894,193
Odenton, MD 21113
Riviera Beach
8707 Ft. Smallwood Road 1973 Owned 165,934 2,500 23,935,585
Pasadena, MD 21122
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YEAR OWNED/ APPROXIMATE
OPENED LEASED BOOK VALUE SQUARE FOOTAGE DEPOSITS
------ ------ ---------- -------------- --------
Crownsville
1221 Generals Highway 1979 Owned $ 398,819 3,000 $33,655,679
Crownsville, MD 21032
Severn
811 Reece Road 1984 Owned 324,340 2,500 19,043,535
Severn, MD 21144
South Crain
7984 Crain Highway 1995 Leased 132,065 2,600 13,893,352
Glen Burnie, MD 21061
Ferndale
7173 Balt. &
Annapolis Blvd 1998 Leased 300,130 2,100 2,730,055
Glen Burnie, MD 21061
Severna Park
790 Ritchie Highway 1999 Leased 138,399 1,250 389,761
Severna Park, MD 21146
OPERATIONS CENTER:
106 Padfield Court 1991 Owned 1,169,877 16,200 n/a
Glen Burnie, MD 21061
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At December 31, 1999, GBB owned one parcel of real estate obtained from a foreclosure by the Bank. The book value of this property was $143,000. The property consists of office condominiums. GBB intends to sell this property. GBB has also purchased land for a future branch site with a book value of $82,774. At December 31, 1999, the Bank owned two foreclosed real estate properties having a book value of $415,827, which consisted of a building lot and commercial property which the Bank is holding for sale.
From time to time, the Company and the Bank is involved in various legal actions relating to its business activities. At December 31, 1999, there were no actions to which the Company or the Bank was a party which involved claims for money damages exceeding 10% of the Company's consolidated current assets in any one case or in any group of proceedings presenting in large degree the same legal and factual issues.
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1999.
PART II
The Company's stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board(R) under the symbol "GLBZ." There is not currently an active trading market for the Common Stock. As of December 31, 1999, the number of record holders of the Common Stock was 491. The following table sets forth the high and low sales prices for the Common Stock for each full quarterly period during 1999 and 1998, based on trades reported on the OTC Bulletin Board (R) or by Legg Mason Wood Walker, Inc., the principal market maker for the Company's stock. Also shown are dividends declared per share for these periods. Data has been adjusted to give retroactive effect to a six-for-five stock split effected through a stock dividend paid on January 11, 2000.
1999 1998
--------------------------------- ----------------------------
QUARTER ENDED HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------------- ----- --- --------- ----- --- ---------
March 31, $21.146 $18.542 $ 0.083 $20.625 $19.583 $ 0.083
June 30, 19.375 19.167 0.083 21.35 20.933 0.083
September 30, 19.167 17.917 0.125 21.667 20.833 0.083
December 31, 19.167 16.771 0.125 23.333 16.667 0.167
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The following table presents consolidated selected financial data for the Company and its subsidiaries for each of the periods indicated. Dividends and earnings per share have been adjusted to give retroactive effect to stock splits and stock dividends accounted for as stock splits.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATIONS DATA:
Net Interest Income......................... $ 9,925 $ 9,794 $ 10,567 $ 10,884 $ 11,339
Provision for Credit Losses................. 300 (500) 270 6,596 7,925
Other Income................................ 2,828 3,122 1,728 2,230 1,904
Other Expense............................... 9,822 11,776 11,593 9,019 8,740
Net Income (Loss)........................... 1,445 833 747 (1,020) (1,727)
SHARE DATA:
Basic Net Income (Loss) Per Share........... $ 1.15 $ 0.66 $ 0.59 $ (0.80) $ (1.39)
Diluted Net Income (Loss) Per Share......... 1.15 0.66 0.59 (0.80) (1.39)
Cash Dividends Declared
Per Common Share.......................... 0.42 0.42 0.25 0.64 0.65
Weighted Average Common
Shares Outstanding:
Basic............................... 1,261,166 1,253,275 1,275,017 1,271,744 1,246,899
Diluted............................. 1,261,166 1,253,637 1,275,017 1,271,744 1,246,899
FINANCIAL CONDITION DATA:
Total Assets................................ $ 213,439 $ 217,571 $ 231,900 $ 254,325 $ 246,165
Loans Receivable, Net....................... 151,107 125,501 111,545 124,672 150,472
Total Deposits.............................. 194,090 199,611 207,110 232,746 221,121
Total Stockholders' Equity.................. 15,102 14,169 18,965 18,586 20,537
PERFORMANCE RATIOS:
Return on Average Assets.................... 0.66% 0.38% 0.32% (0.41)% (0.73)%
Return on Average Equity.................... 9.97 4.54 3.95 (5.29) (7.42)
Net Interest Margin(1)...................... 4.96 4.94 5.09 5.04 5.42
Dividend Payout Ratio....................... 43.48 75.75 50.85 * *
CAPITAL RATIOS:
Average Equity to Average
Assets.................................... 6.67% 8.40% 8.01% 7.82% 9.89%
Leverage Ratio.............................. 6.87 5.96 7.60 7.20 8.20
Total Risk-Based Capital
Ratio.................................... 10.80 10.50 16.00 14.00 13.70
ASSET QUALITY RATIOS:
Allowance for Credit Losses to
Gross Loans............................... 1.89% 2.21% 3.55% 3.88% 2.39%
Non-accrual and Past Due Loans to
Gross Loans............................... 0.68 1.36 2.99 3.55 4.05
Allowance for Credit Losses to
Non-accrual and Past Due Loans............ 276.97 162.99 118.73 109.24 58.89
Net Loan Charge-offs to
Average Loans............................. 0.15 0.67 1.00 3.56 4.48
|
OVERVIEW
1999 marked the Company's third straight year of higher earnings as many favorable operating trends continued. Most notably, 1999 saw a significant reduction in non-interest expense as the Company resolved the litigation which had required the Company to incur high expenses from professional fees and litigation charges in prior years. The Bank's net interest income improved due to a combination of continued loan growth and a moderation in deposit costs. Loan portfolio growth was due primarily to the Bank's indirect automobile lending which was begun in 1998 and has grown to a $51.0 million portfolio by the end of 1999. Asset quality continued to improve as non-performing loans declined both in dollar terms and as a percentage of the portfolio. Loan charge-offs were reduced significantly as a result of the Bank's improved collections procedures. Earnings for 1999 also benefitted from a one-time gain of approximately $483,000 (after applicable income and excise taxes and net of a 25% safe harbor contribution) resulting from the curtailment of the Bank's defined benefit pension plan.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, unfavorable judicial decisions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory 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.
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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GENERAL. For the year ended December 31, 1999, the Company reported consolidated net income of $1,445,350 ($1.15 basic and diluted earnings per share) compared to a consolidated net profit of $833,192 ($0.66 basic and diluted earnings per share) for the year ended December 31, 1998 and a consolidated net profit of $747,247 ($0.59 basic and diluted earnings per share) for the year ended December 31, 1997. The increase in net income during the 1999 period was principally attributable to a $1,954,790 reduction in other expenses due mainly to the absence of litigation charges and a reduction in professional fees. During the 1998 period, the Company incurred $1,225,003 in litigation charges. The reduced level of other expenses during 1999 was partially offset by an $800,000 increase in the provision for loan losses from a net recapture into income of $500,000 in 1998 to a provision of $300,000 in 1999. Other income also declined by $294,488 from $3,122,369 in 1998 to $2,827,881 in 1999 due mainly to net losses of $63,968 on sales of investment securities in 1999 as compared to net gains of $527,320 in 1998. Other income for 1999 included a one-time curtailment gain of $1,311,997 on the termination of the Bank's pension plan. In connection with the curtailment of the pension plan, the Bank accrued a 25% safe harbor contribution of $328,000 included in employee benefit expense and federal and state excise and income taxes of approximately $304,000, resulting in a net curtailment gain of approximately $483,000. The increase in net income during the 1998 period as compared to 1997 was principally attributable to the receipt of $1,126,077 in proceeds from insurance settlements during the year and the recapture into income of $500,000 in allowances for credit losses. These increases in income offset a decrease in net interest income and an increase in non-interest expense which included amounts paid in settlement of various litigation.
NET INTEREST INCOME. The primary component of the Company's net income is its net interest income which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them. Net interest income is determined by the spread between the yields earned on the Company's interest-earning assets and the rates paid on interest-bearing liabilities as well as the relative amounts of such assets and liabilities. Net interest income, divided by average interest-earning assets, represents the Company's net interest margin.
Consolidated net interest income for the year ended December 31, 1999 was $9,925,203 compared to $9,793,550 for the year ended December 31, 1998 and $10,567,211 for the year ended December 31, 1997. The $131,653 increase in net interest income for the most recent year was due to a reduction of $545,200 in interest expense on deposit accounts from $6,048,828 in 1998 to $5,503,628 in 1999 due to a decrease in deposit balances, partially offset by a reduction in interest income of $340,464. The overall decline in interest income was attributable to a decrease in the average volume of the Company's securities portfolio during the period and, to a lesser extent, to a declining yield in the loan portfolio. Interest income from loans actually increased by $1,225,706 from $10,590,864 in 1998 to $11,816,570 in 1999 due to a $23,705,000, or 20.0%, increase in the average balance of loans outstanding during 1999. During 1998, the Bank instituted an automobile indirect lending program which accounted for the bulk of the increase in loans.
The decrease in net interest income for fiscal year 1998 as compared to fiscal year 1997 was primarily attributable to a significant decline in interest income which fell $1,587,696 (9.1%). The decline in interest income was attributable primarily to a reduced average volume of earning assets and secondarily to a declining yield on assets. The most significant reductions in earning assets involved the investment securities portfolio. The Company used the proceeds from maturing and called investment securities to cover deposit outflows. The Company also experienced a 66 basis point decline in the yield on the investment securities portfolio as the Company shifted its investment securities portfolio into repricable GNMA securities from state, county and municipal obligations. Interest expense declined $814,035, or 11.8%, for the year ended December 31, 1998. Net interest margin for the year ended December 31, 1999 was 4.96% compared to 4.94% and 5.09% for the years ended December 31, 1998 and 1997, respectively.
The following table allocates changes in income and expense attributable to the Company's interest-earning assets and interest-bearing liabilities for the periods indicated between changes due to changes in rate and changes in volume. Changes due to rate/volume are allocated to changes due to volume.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
----------------------------------- --------------------------------
CHANGE DUE TO: CHANGE DUE TO:
INCREASE/ --------------------- INCREASE/ --------------------
DECREASE RATE VOLUME DECREASE RATE VOLUME
-------- ---- ------ -------- ---- ------
(IN THOUSANDS)
ASSETS
Interest-earning assets:
Federal funds sold..................... $ (146) $ (22) $ (124) $ (40) $ 30 $ (70)
--------- -------- ------- --------- -------- ---------
Interest-bearing deposits.............. (251) 4 (255) 204 (7) 211
--------- -------- ------- --------- -------- ---------
Investment securities:
U.S. Treasury securities, obligations of
U.S. government agencies and
mortgage-backed securities........ (945) (42) (903) (727) (370) (357)
Obligations of states and
political subdivisions(1)......... (326) -- (326) (1,177) 31 (1,208)
All other investment securities...... (14) 1 (15) 7 2 5
--------- -------- ------- -------- -------- ---------
Total investment securities....... (1,285) (41) (1,244) (1,897) (337) (1,560)
--------- -------- ------- -------- -------- ---------
Loans, net of unearned income:
Demand, time and lease .............. (360) (23) (337) (509) 11 (520)
Mortgage and construction............ (284) (248) (36) (360) (122) (238)
Installment and credit card.......... 1,868 (509) 2,377 609 (32) 641
--------- -------- ------- -------- -------- ---------
Total gross loans(2).............. 1,224 (780) 2,004 (260) (143) (117)
--------- -------- ------- -------- -------- ---------
Allowance for credit losses.......... -- -- -- -- -- --
--------- -------- ------- -------- -------- ---------
Total net loans................... 1,224 (780) 2,004 (260) (143) --
--------- -------- ------- -------- -------- ---------
Total interest-earning assets............. $ (458) $ (839) $ 381 $ (1,993) $ (457) $ (1,536)
========= ======== ======= ========= ========= =========
LIABILITIES
Interest-bearing deposits:
Savings and NOW........................ $ (279) $ (280) $ 1 $ (248) $ (86) $ (162)
Money market........................... (19) (19) 0 (76) (5) (71)
Other time deposits.................... (248) (221) (27) (468) (12) (456)
--------- -------- ------- --------- --------- ---------
Total interest-bearing deposits...... (546) (520) (26) (792) (103) (689)
Non-interest-bearing deposits............. -- -- -- -- -- --
Borrowed funds............................ 72 1 71 (21) 3 (24)
--------- -------- ------- -------- -------- ---------
Total interest-bearing liabilities........ $ (474) $ (519) $ 45 $ (813) $ (100) $ (713)
========= ======== ======= ========= ========= =========
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The following table provides information for the designated periods with respect to the average balances, income and expense and annualized yields and costs associated with various categories of interest-earning assets and interest-bearing liabilities.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ --------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------ ------- -------- ------ ------- -------- -----
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Federal funds sold................ $ 2,330 $ 116 4.97% $ 4,414 $ 262 5.94% $ 5,755 $ 302 5.25%
Interest-bearing deposits......... 440 26 5.91 5,433 277 5.10 1,397 73 5.23
--------- --------- ------ --------- --------- ------ --------- --------- ----
Investment securities:
U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities................... 57,347 3,542 6.18 71,774 4,487 6.25 77,045 5,214 6.77
Obligations of States and
political subdivisions(1).... -- -- -- 3,550 326 9.18 18,114 1,503 8.30
All other investment securities 737 56 7.60 936 270 7.48 871 63 7.23
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total investment securities. 58,084 3,598 6.19 76,260 4,883 6.40 96,030 6,780 7.06
--------- --------- ------ --------- --------- ------ --------- --------- ----
Loans, net of unearned income:
Demand, time and lease......... 4,353 391 8.98 7,909 751 9.50 13,459 1,260 9.36
Mortgage and construction...... 80,814 7,041 8.71 81,212 7,325 9.02 83,805 7,685 9.17
Installment and credit card.... 56,910 4,385 7.71 29,251 2,517 8.60 21,897 1,908 8.71
--------- --------- ------ --------- --------- ----- --------- --------- ----
Total gross loans(2)........ 142,077 11,817 8.32 118,372 10,593 8.95 119,161 10,853 9.11
Allowance for credit losses. 2,800 3,668 4,460
--------- --------- ---------
Total net loans.............. 139,277 11,817 8.48 114,704 10,593 9.24 114,701 10,853 9.46
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total interest-earning assets 200,131 15,557 7.77 200,811 16,015 7.98 217,883 18,008 8.26
--------- ------ --------- ------ --------- ----
Cash and due from banks.............. 7,288 6,406 7,125
Other assets......................... 9,890 11,207 11,170
--------- --------- ---------
Total assets................ $ 217,309 $ 218,424 $ 236,178
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
Savings and NOW.................... $ 61,902 $ 1,169 1.89% $ 61,752 $ 1,448 2.34% $ 68,269 $ 1,696 2.48%
Money market....................... 19,581 527 2.69 19,575 546 2.79 22,116 622 2.81
Other time deposits................ 72,320 3,807 5.26 72,834 4,055 5.57 81,006 4,523 5.58
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total interest-bearing deposits.. 153,803 5,503 3.58 154,161 6,049 3.92 171,391 6,841 3.99
Borrowed funds....................... 2,043 119 5.82 811 47 5.80 1,261 68 5.39
--------- --------- ------ --------- --------- ----- --------- --------- ----
Total interest-bearing liabilities 155,846 5,622 3.61 154,972 6,096 3.93 172,652 6,909 4.00
--------- --------- --------- --------- --------- ---------
Non-interest-bearing deposits........ 44,270 42,095 43,543
Other liabilities.................... 2,695 3,014 1,056
Stockholders' equity................. 14,498 18,343 18,927
--------- --------- ---------
Total liabilities and equity......... $ 217,309 $ 218,424 $ 236,178
========= ========= =========
Net interest income.................. $ 9,935 $ 9,919 $ 11,099
========= ========= =========
Net interest spread.................. 4.16% 4.04 % 4.26%
====== ======= ====
Net interest margin.................. 4.96% 4.94 % 5.09%
====== ======= ====
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PROVISION FOR CREDIT LOSSES. During the year ended December 31, 1999, the Company made a provision for credit losses of $300,000 compared to $(500,000) and $270,000 in provisions during the years ended December 31, 1998 and 1997, respectively. The level of the provision for 1999 reflects the loan growth during the year. The recapture
of loss reserves during 1998 reflects improved asset quality and lower charge-off activity during 1998. At December 31, 1999, the allowance for loan losses equaled 276.97% of non-accrual and past due loans compared to 179.5% and 118.7% at December 31, 1998 and 1997, respectively. During the year ended December 31, 1999, the Company recorded net charge-offs of $219,429 compared to $798,336 and $1,191,196 in net charge-offs during the years ended December 31, 1998 and 1997. The higher provision during fiscal year 1997 reflect the amount determined by the Company to be necessary to maintain the allowance for credit losses to an adequate level after significant increases in loan charge-offs during that year.
OTHER INCOME. Other income decreased $294,488 (9.43%) during the year ended December 31, 1999 compared to the prior year period. The decrease in other income was attributable primarily to net losses of $63,968 on sales of investment securities during 1999 as compared to net gains of $527,320 in 1998. This decline was partially offset by a non-recurring curtailment gain of $1,311,997 upon termination of the Bank's pension plan. The 1998 period had included a large nonrecurring gain of $1,126,077 upon the settlement of certain insurance matters. Other income increased $1,394,555 (81%) during the year ended December 31, 1998 compared to the year ended December 31, 1997. The bulk of the increase in other income during 1998 was attributable to $1,126,077 in proceeds from insurance settlements received during the year. Included in this figure was $1,125,000 received from the Bank's fidelity bond company in settlement of claims related to the activities of a former employee. Other income during 1998 also benefitted from a $256,000, or 95%, increase in gains on sales and calls of investment securities. In order to improve its interest rate sensitivity for fiscal 1998, the Bank sold $16.0 million in long-term, fixed-rate state, county and municipal securities and invested the proceeds in adjustable-rate, mortgage-backed securities issued by the Government National Mortgage Association ("GNMA").
OTHER EXPENSES. Other expenses decreased by $1,954,790 or 16.60% for the year ended December 31, 1999 as compared to a net increase of $183,418 or 1.6% for the year ended December 31, 1998 over the year ended December 31, 1997. The decrease in other expenses was mainly due to the absence of any litigation charges during 1999. During 1998 the Company incurred $1,225,003 in litigation charges. Other noninterest expenses also decreased significantly from $4,112,919 in 1998 to $2,850,745 in 1999 due to a $1,448,519 or 66.95% reduction in professional fees, offset by increases in other expense items. Included in other expenses for 1998 were $1,225,003 in litigation charges, a $228,842, or 23%, increase over 1997. These charges related to the settlement of claims against the Bank in connection with payment of checks over fraudulent endorsements. Also included in other expenses for 1998 are $2,163,448 in professional service fees relating primarily to the litigation in which the Company was involved during the year.
INCOME TAXES. During the year ended December 31, 1999, the Company recorded an income tax expense of $1,186,044 compared to tax expense of $806,247 during the year ended December 31, 1998 and a tax benefit of $315,284 during the year ended December 31, 1997. The increased tax level was due to the higher level of pre-tax income in 1999. Due primarily to its holdings of tax-exempt state, county and municipal securities, the Company recorded tax losses during the 1997 year. These net operating losses were applied to prior years' earnings resulting in tax benefits for the 1997 period. During 1998, however, the Company reduced its holdings of tax-exempt state, county and municipal securities and reinvested the proceeds in U.S. Government agency securities the income on which is not exempt from federal taxation. Accordingly, the Company had taxable income during 1998 and was required to provide for federal income taxes. The Company's income tax expense for 1998 also included $351,738 in disallowed claims for refunds of prior years' state taxes.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999, 1998 AND 1997
The Company's total assets decreased to $213,439,456 at December 31, 1999 after declining to $217,571,063 at December 31, 1998 from $231,899,594 at December 31, 1997. The decrease in assets during the year ended December 31, 1999 is a result primarily of a reduction in cash and cash equivalents along with a reduction from deposit balances. The reduction also reflects a reduction in the investment securities portfolio as the Company used cash flows from sales and maturities of investment securities to fund its indirect lending program.
During 1999, the Company's loan portfolio grew to $151,106,560 at December 31, 1999 compared to $125,501,252 at December 31, 1998 and $111,545,262 at December 31, 1997. The growth in the loan portfolio was attributable almost entirely to the Bank's indirect automobile lending program which was introduced in January 1998 and grew to $50,967,000 at December 31, 1999. Construction and land development loans also increased from $2,382,657 at December 31, 1998 to $6,094,894 at December 31, 1999. The Bank's other loan portfolios held steady or declined during the year.
The Company's total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $43,974,495 at December 31, 1999, a $21,511,332 or 32.85% decrease from $65,485,827 at December 31, 1998. During the year ended December 31, 1999, investment securities totaling $32,524,280 either matured or were sold with the funds primarily reinvested in loans rather than additional investment securities. Proceeds were also used to fund, in part, net deposit outflows of $5,521,120. During fiscal year 1998, total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $65,485,827 at December 31, 1998, a $16,371,844 or 20.0%, decrease from $81,857,671 at December 31, 1997. The Company used the proceeds from maturing and called securities to fund deposit outflows during the period.
Deposits as of December 31, 1999 totaled $194,089,995, a decrease of $5,521,120 (2.77%) for the year. Demand deposits as of December 31, 1999 totaled $45,144,293, a $216,483 (0.48%) decrease from $45,360,776 at December 31, 1998. NOW and Super NOW accounts as of December 31, 1999 declined by $2,037,973 or 9.89% to $18,562,778. Money market accounts decreased by $2,421,012 (12.08%) for the year to total $17,628,665 on December 31, 1999. Savings deposits increased by $150,833, or 0.37%. Time deposits over $100,000 totaled $6,345,179 on December 31, 1999, an increase of $586,910 (10.19%) from December 31, 1998. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $65,292,304 on December 31, 1999, a $1,583,395 (2.37%) decrease from December 31, 1998.
The Company experienced a $933,776, or 6.59% increase in total stockholders' equity for the year ended December 31, 1999. The increase in stockholders' equity was attributable to the retention of earnings from the period less cash dividends paid and additional share issuances pursuant to the employee stock purchase plan, the stockholder purchase plan and the dividend reinvestment plan, partially offset by an other comprehensive loss of $435,823 resulting from unrealized losses on securities classified as available for sale. The Company experienced a $4,795,917, or 25.3% decrease in total stockholders' equity for the year ended December 31, 1998. The decrease in stockholders' equity was attributable to the repurchase of 213,168 shares of common stock from First Mariner Bancorp for an aggregate purchase price of $5,580,764 in November 1998.
ASSET/LIABILITY MANAGEMENT
Net interest income, the primary component of the Company's net income, arises from the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative amounts of such assets and liabilities. The Company manages its assets and liabilities by coordinating the levels of and gap between interest-rate sensitive assets and liabilities to minimize changes in net interest income and in the economic value of its equity despite changes in market interest rates. The Bank's Asset/Liability and Risk Management Committee meets on a monthly basis to monitor compliance with the Board's objectives. Among other tools used by the Asset/Liability and Risk Management Committee to monitor interest rate risk is a "gap" report which measures the dollar difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing within a given time period. Generally, during a period of rising interest rates, a negative gap position would adversely affect net interest income, while a positive gap would result in an increase in net interest income, while, conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income.
During recent periods, the Company has maintained a negative gap position that has benefitted earnings as interest rates have fallen. In order to reduce its negative gap position, the Company has recently begun investing in mortgage-backed and other government securities which have rates that adjust to market rates. The Company also maintains a significant portfolio of available-for-sale securities that can be quickly converted to more liquid assets if needed.
The following table sets forth the Bank's interest-rate sensitivity at December 31, 1999.
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.......... $ -- $ -- $ -- $ -- $ 8,317
Federal funds and overnight
deposits...................... 566 -- -- -- 566
Securities....................... 5,651 10,641 12,700 15,236 44,228
Loans............................ 13,470 11,035 63,328 64,587 154,028
Fixed assets..................... -- -- -- -- 4,253
Other assets..................... -- -- -- -- 2,047
------------- -------------- ------------ ------------- ------------
Total assets.................. $ 19,687 $ 21,676 $ 76,028 $ 79,823 $ 213,439
============= ============== ============ ============= ============
Liabilities:
Demand deposit accounts.......... $ -- $ -- $ -- $ -- $ 45,144
NOW accounts..................... 18,563 -- -- -- 18,563
Money market deposit accounts.... 17,629 -- -- -- 17,629
Savings accounts................. 41,117 -- -- -- 41,117
IRA accounts..................... 4,727 5,769 8,173 1,291 19,960
Certificates of deposit.......... 14,479 19,685 17,002 511 51,677
Other liabilities................ -- -- -- -- 4,247
Stockholders' equity.......... -- -- -- -- 15,102
------------- -------------- ------------ ------------- ------------
Total liabilities and
stockholders' equity........ $ 96,515 $ 25,454 $ 25,175 $ 1,802 $ 213,439
============= ============== ============ ============= ============
GAP................................. $ (76,828) $ (3,778) $ 50,853 $ 78,021
Cumulative GAP...................... (76,828) (80,606) (29,753) 48,268
Cumulative GAP as a % of
total assets...................... (36.0)% (37.8)% (13.9)% 22.6%
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The foregoing analysis assumes that the Bank'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.
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 the primary source of funds supporting the Bank's lending and investment activities. The Bank also uses borrowings from the FHLB of Atlanta to supplement deposits. FHLB advances may only be used for residential and small business lending.
The Bank's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold 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.
Cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of December 31, 1999, totaled $8,883,322, a decrease of $7,135,994 (44.55%) from the December 31, 1998 total of $16,019,316. Most of this decrease was in interest bearing deposits at other financial institutions which totaled $10,245 at December 31, 1999 compared to $4,958,337 at the end of 1998.
As of December 31, 1999, the Bank was permitted to draw on a $25,560,000 line of credit from the FHLB of Atlanta. Borrowings under the line are secured by a floating lien on the Bank's residential mortgage loans and its portfolio of U.S. Government and Agency Securities. As of December 31, 1999, $2.0 million was outstanding under this line. In addition the Bank has a secured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn.
Federal banking regulations require the Company and the Bank to maintain specified levels of capital. At December 31, 1999, the Company was in compliance with these requirements with a leverage ratio of 6.8%, a Tier 1 risk-based capital ratio of 9.5% and total risk-based capital ratio of 10.8%. At December 31, 1999, the Bank met the criteria for designation as a well capitalized depository institution under FDIC regulations.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, nearly all of the Company's assets and liabilities are monetary in mature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
The Company's Consolidated Financial Statements appear in this Annual Report on Form 10-K beginning on the page immediately following Item 14 hereof.
PART III
For information concerning the Board of Directors and executive officers of the Company, the information contained under the section captioned "Proposal I -- Election of Directors" in the Company's definitive proxy statement for the Company's 2000 Annual Meeting of Stockholders (the "Proxy Statement") which will be filed with the Commission on or before April 29, 2000 and is incorporated herein by reference.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof" in the Proxy Statement.
(B) SECURITY OWNERSHIP OF MANAGEMENT
Information required by this item is incorporated herein by reference to the sections captioned "Securities Ownership of Management" in the Proxy Statement.
(C) CHANGES IN CONTROL
Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.
The information required by this item is incorporated herein by reference to the section captioned "Certain Transactions" in the Proxy Statement.
PART IV
(1) Financial Statements. The following is a list of the consolidated financial statements which are being filed as part of this Annual Report on Form 10-K.
Page
------
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997 F-2
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997 F-3
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-4
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Page
------
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
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(2) Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.
(3) Exhibits. The following is a list of exhibits filed as part of this Annual Report on Form 10-K and is also the Exhibit Index.
NO. DESCRIPTION
--- -----------
3.1 Articles of Incorporation *
3.2 By-Laws **
3.3 Articles Supplementary, dated November 16, 1999 ***
4.1 Rights Agreement, dated as of February 13, 1998, between Glen
Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as
amended and restated as of December 27, 1999 *
10.1 + Glen Burnie Bancorp Director Stock Purchase Plan ****
10.2 The Bank of Glen Burnie Employee Stock Purchase Plan *****
10.3 + Change-in-Control Severance Plan ******
10.4 + The Bank of Glen Burnie Executive and Director Deferred
Compensation Plan
21 Subsidiaries of the registrant *******
23 Consent of Trice Geary & Myers LLC
27 Financial Data Schedule
---------------
+ Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
|
* Incorporated herein by reference to Amendment No. 1 to the Registrant's Form 8-A filed December 27, 1999.
** Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998.
*** Incorporated herein by reference to the Registrant's Current Report on Form 8-K filed December 8, 1999.
**** Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 33-62280).
***** Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-46943).
****** Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1997.
******* Incorporated herein by reference from the similarly numbered exhibit to Registrant's Registration Statement on Form S-1 (Commission File No. 333-37073).
(B) REPORTS ON FORM 8-K. On December 8, 1999, the Company filed a Current Report on Form 8-K reporting under Item 5 that the Company had elected to become subject to Sections 3-804 and 3-805 of Subtitle 8 of Title 3 of the Maryland General Corporation Law ("MGCL").
On December 10, 1999, the Company filed a Current Report on Form 8-K reporting under Item 5 that the Board of Directors of the Company had approved a First Amendment, dated December 9, 1999 (the "First Amendment") to its Rights Agreement dated as of February 13, 1998 by and between the Company and The Bank of Glen Burnie, as Rights Agent (the "Rights Agreement"). The purpose of the First Amendment was to exempt from the definition of Acquiring Person any person who inadvertently acquires the beneficial ownership of 10% or more of the outstanding Common Stock (but not more than 10 1/4%) and divests sufficient shares such that he or she is no longer the beneficial
owner of 10% or more of the outstanding Common Stock within five business days after being requested to do so by the Company.
On December 27, 1999, the Company filed a Current Report on Form 8-K reporting under Item 5 that the Company had amended its Articles of Incorporation to reduce the par value of its common stock from $10 per share to $1 per share and to increase its authorized shares of common stock from 5,000,0000 to 15,000,000 and also amended the Stockholders Rights Plan to reflect the change in par value, to eliminate certain unnecessary exemptions from the definition of Acquiring Person and to make certain other changes.
(C) EXHIBITS. The exhibits required by Item 601 of Regulation S-K are either filed as part of this Annual Report on Form 10-K or incorporated by reference herein.
(D) FINANCIAL STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT. There are no other financial statements and financial statement schedules which were excluded from the Annual Report to Stockholders pursuant to Rule 14a-3(b)(1) which are required to be included herein.
[LETTERHEAD OF TRICE GEARY & MYERS LLC]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland
We have audited the accompanying consolidated balance sheets of Glen Burnie Bancorp and subsidiaries as of December 31, 1999, 1998, and 1997, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Glen Burnie Bancorp and subsidiaries as of December 31, 1999, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ Trice Geary & Myers LLC --------------------------- Salisbury, Maryland February 9, 2000, except for Note 21 as to which the date is February 15, 2000 |
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 8,317,450 $ 8,197,344 $ 8,127,732
Interest bearing deposits in other financial institutions 10,245 4,958,337 1,558,879
Federal funds sold 555,627 2,863,635 18,850,000
------------- ------------- -------------
Cash and cash equivalents 8,883,322 16,019,316 28,536,611
Investment securities available for sale, at fair value 15,317,253 32,924,539 40,678,867
Investment securities held to maturity (fair value
1999 $27,041,751; 1998 $32,539,731; 1997 $41,566,019) 28,657,242 32,561,288 41,178,804
Ground rents, at cost 254,025 257,025 262,525
Loans, less allowance for credit losses
1999 $2,921,631; 1998 $2,841,060; 1997 $4,139,396 151,106,560 125,501,252 111,545,262
Premises and equipment, at cost, less
accumulated depreciation 4,253,324 4,420,382 4,319,423
Accrued interest receivable 1,279,067 1,401,660 1,556,971
Prepaid income taxes - - 636,318
Deferred income tax benefits 49,137 892,912 1,385,395
Other real estate owned 558,827 1,099,326 748,231
Other assets 3,080,699 2,493,363 1,051,187
------------- ------------- -------------
TOTAL ASSETS $ 213,439,456 $ 217,571,063 $ 231,899,594
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 45,144,293 $ 45,360,776 $ 47,651,375
Interest-bearing 148,945,702 154,250,339 159,458,897
------------- ------------- -------------
Total deposits 194,089,995 199,611,115 207,110,272
Short-term borrowings 2,464,936 1,143,904 889,398
Dividends payable 136,666 123,039 81,146
Accrued interest payable on deposits 152,555 160,597 177,922
Other liabilities 1,492,855 2,363,735 4,676,266
------------- ------------- -------------
TOTAL LIABILITIEs 198,337,007 203,402,390 212,935,004
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding 1999 1,093,496 shares;
1998 894,938; 1997 1,092,768 shares 1,093,496 894,938 1,092,768
Surplus 10,149,247 9,788,889 14,770,821
Retained earnings 4,013,171 3,202,488 2,876,069
Accumulated other comprehensive income (loss) (153,465) 282,358 224,932
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,102,449 14,168,673 18,964,590
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,439,456 $ 217,571,063 $ 231,899,594
============= ============= =============
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME ON:
Loans, including fees $ 11,816,570 $ 10,590,864 $ 10,845,819
U.S. Treasury securities 279,412 461,808 662,237
U.S. Government agency securities 3,254,811 4,024,712 4,551,441
State and municipal securities - 202,052 978,892
Federal funds sold 115,613 261,880 301,614
Other 81,971 347,525 136,534
------------ ------------ ------------
Total interest income 15,548,377 15,888,841 17,476,537
------------ ------------ ------------
INTEREST EXPENSE ON:
Deposits 5,503,628 6,048,828 6,840,952
Short-term borrowings 119,546 46,463 68,374
------------ ------------ ------------
Total interest expense 5,623,174 6,095,291 6,909,326
------------ ------------ ------------
NET INTEREST INCOME 9,925,203 9,793,550 10,567,211
PROVISION FOR CREDIT LOSSES 300,000 (500,000) 270,000
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 9,625,203 10,293,550 10,297,211
------------ ------------ ------------
OTHER INCOME:
Service charges on deposit accounts 891,913 908,733 945,613
Other fees and commissions 687,939 560,239 511,292
(Losses) gains on investment securities (63,968) 527,320 270,909
Curtailment gain on pension plan termination 1,311,997 - -
Proceeds from insurance settlements - 1,126,077 -
------------ ------------ ------------
Total other income 2,827,881 3,122,369 1,727,814
------------ ------------ ------------
OTHER EXPENSES:
Salaries and wages 3,925,075 3,742,152 3,712,206
Employee benefits 1,596,044 1,309,591 1,547,888
Occupancy 573,052 502,216 482,160
Furniture and equipment 876,774 884,599 781,664
Litigation charges - 1,225,003 996,161
Other expenses 2,850,745 4,112,919 4,072,983
------------ ------------ ------------
Total other expenses 9,821,690 11,776,480 11,593,062
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,631,394 1,639,439 431,963
FEDERAL AND STATE INCOME TAX EXPENSE (BENEFITS) 1,186,044 806,247 (315,284)
------------ ------------ ------------
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.15 $ 0.66 $ 0.59
============ ============ ============
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Reclassification relating to adoption
of SFAS No. 133 at October 1, 1998 - 270,038 -
Unrealized holding gains (losses) arising during the
period (net of deferred taxes (benefits) 1999 ($296,905);
1998 ($6,043); 1997 $64,325) (472,279) (9,644) 102,320
Reclassification adjustment for (gains) losses included in net
income (net of deferred taxes (benefits) 1999 ($22,919);
1998 $127,598; 1997 $89,391) 36,456 (202,968) (142,193)
----------- ----------- -----------
Total other comprehensive income (loss) (435,823) 57,426 (39,873)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,009,527 $ 890,618 $ 707,374
=========== =========== ===========
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Accumulated
Other Total
Common Stock Retained Comprehensive Stockholders'
Shares Par Value Surplus Earnings Income (Loss) Equity
------------ ------------ ------------ ------------ -------------- -------------
Balances, December 31, 1996 883,858 $ 883,858 $ 14,147,630 $ 3,290,077 $ 264,805 $ 18,586,370
Net income - - - 747,247 - 747,247
Shares issued with stock dividends 26,782 26,782 623,191 (649,973) - -
Stock split effected in form of 20%
stock dividend 182,128 182,128 - (182,128) - -
Cash dividends, $.25 per share - - - (329,154) - (329,154)
Other comprehensive loss, net of tax - - - - (39,873) (39,873)
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1997 1,092,768 1,092,768 14,770,821 2,876,069 224,932 18,964,590
Net income - - - 833,192 - 833,192
Shares issued under employee
stock purchase plan 935 935 18,934 - - 19,869
Shares issued under stockholder
stock purchase plan 7,388 7,388 185,623 - - 193,011
Shares repurchased and retired (213,168) (213,168) (5,367,596) - - (5,580,764)
Cash dividends, $.42 per share - - - (506,773) - (506,773)
Dividends reinvested under dividend
reinvestment plan 7,015 7,015 159,500 - - 166,515
Vested stock options - - 21,607 - - 21,607
Other comprehensive income, net
of tax - - - - 57,426 57,426
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1998 894,938 894,938 9,788,889 3,202,488 282,358 14,168,673
------------ ------------ ------------ ------------ ------------ ------------
Net income - - - 1,445,350 - 1,445,350
Shares issued under employee
stock purchase plan 2,015 2,015 39,351 - - 41,366
Shares issued under stockholder
stock purchase plan 9,470 9,470 219,730 - - 229,200
Shares repurchased and retired (8) (8) (130) - - (138)
Cash dividends, $.42 per share - - - (452,418) - (452,418)
Dividends reinvested under dividend
reinvestment plan 4,832 4,832 101,317 - - 106,149
Stock split effected in form of 20%
stock dividend 182,249 182,249 - (182,249) - -
Expired stock options - - (14,201) - - (14,201)
Vested stock options - - 14,291 - - 14,291
Other comprehensive loss, net
of tax - - - - (435,823) (435,823)
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 1,093,496 $ 1,093,496 $ 10,149,247 $ 4,013,171 $ (153,465) $ 15,102,449
============ ============ ============ ============ ============ ============
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,445,350 $ 833,192 $ 747,247
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization, and accretion 831,034 953,579 664,428
Compensation expense from vested stock options, net 90 21,607 -
Provision for credit losses 300,000 (500,000) 270,000
Losses on real estate owned - 6,000 64,214
Deferred income taxes 1,117,994 456,350 20,659
(Gains) losses on disposals of assets, net 43,273 (478,839) (241,183)
Changes in assets and liabilities:
Decrease in accrued interest receivable 122,593 155,311 380,957
(Increase) decrease in prepaid income taxes and
other assets (741,174) (732,269) 251,382
Decrease in accrued interest payable (8,042) (17,325) (37,055)
Increase (decrease) in other liabilities (870,880) 1,209,969 (1,031,483)
------------ ------------ ------------
Net cash provided by operating activities 2,240,238 1,907,575 1,089,166
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held to maturity mortgage-backed securities 2,490,926 674,870 -
Maturities of other held to maturity investment securities 7,754,438 20,485,350 23,405,000
Maturities of available for sale mortgage-backed securities 5,018,593 6,749,884 1,780,092
Maturities of other available for sale investment securities 1,991,087 1,525,000 7,785,900
Sales of debt securities 14,985,136 25,899,152 19,095,130
Purchases of held to maturity investment securities (6,357,408) (27,992,219) (16,314,976)
Purchases of held to maturity mortgage-backed securities - (9,521,417) -
Purchases of available for sale mortgage-backed securities - - (16,126,491)
Purchases of other available for sale investment securities (5,498,437) (4,527,891) (1,188,100)
Redemption of FHLB stock 284,100 - -
(Increase) decrease in loans, net (25,729,005) (13,453,506) 17,457,529
Purchases of loans from other financial institutions - - (4,779,164)
Proceeds from sales of other real estate 402,693 - 420,577
Purchases of other real estate (59,523) (359,579) (451,950)
Proceeds from sales of premises and equipment 42,920 - -
Purchases of premises and equipment (439,450) (993,614) (727,320)
------------ ------------ ------------
Net cash provided (used) by investing activities (5,113,930) (1,513,970) 30,356,227
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in noninterest-bearing deposits, NOW
accounts, money market accounts, and savings accounts, net (4,524,635) (4,194,857) (15,436,924)
Decrease in time deposits, net (996,485) (3,304,300) (10,198,779)
Increase in short-term borrowings 1,321,032 254,506 341,461
Cash dividends paid (438,791) (464,880) (292,201)
Common stock dividends reinvested 106,149 166,515 -
Repurchase and retirement of common stock (138) (5,580,764) -
Issuance of common stock 270,566 212,880 -
------------ ------------ ------------
Net cash used by financing activities (4,262,302) (12,910,900) (25,586,443)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,135,994) (12,517,295) 5,858,950
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,019,316 28,536,611 22,677,661
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,883,322 $ 16,019,316 $ 28,536,611
============ ============ ============
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 5,631,216 $ 6,112,616 $ 6,946,381
Income taxes refunded - - (755,597)
Total increase (decrease) in unrealized appreciation
(depreciation) on securities available for sale (710,042) 93,559 (64,961)
|
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank of Glen Burnie (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 of Maryland (the "State") agencies and undergoes periodic examinations by those regulatory authorities. The accounting policies of the Bank conform to generally accepted accounting principles and to general practices within the banking industry.
Significant accounting policies not disclosed elsewhere in the consolidated financial statements are as follows:
Principles of Consolidation:
The consolidated financial statements include the accounts of Glen Burnie Bancorp (the "Company") and its subsidiaries, The Bank of Glen Burnie and GBB Properties, Inc., a company engaged in the acquisition and disposition of other real estate. Intercompany balances and transactions have been eliminated. The Parent Only financial statements (see Note 19) of the Company account for the subsidiaries using the equity method of accounting.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Securities Held to Maturity:
Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the effective interest rate method over the period to maturity. Securities transferred into held to maturity from the available for sale portfolio are recorded at fair value at time of transfer with unrealized gains or losses reflected in equity and amortized over the remaining life of the security.
Securities Available for Sale:
Marketable debt and equity securities not classified as held to maturity are classified as available for sale. Securities available for sale may be sold in response to changes in interest rates, loan demand, changes in prepayment risk and other factors. Changes in unrealized appreciation (depreciation) on securities available for sale are reported in other comprehensive income. Realized gains (losses) on securities available for sale are included in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. The gains and losses on securities sold are determined by the specific identification method. Premiums and discounts are recognized in interest income using the effective interest rate method over the period to maturity. Additionally, declines in the fair value of individual investment securities below their cost that are other than temporary are reflected as realized losses in the consolidated statements of income.
Federal Home Loan Bank ("FHLB") stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of Statement of Financial Accounting Statements ("SFAS") No 115, Accounting for Certain Investments in Debt and Equity Securities, because its ownership is restricted and it lacks a market. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLBs or another member institution.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loans and Allowance for Credit Losses:
Loans are generally carried at the amount of unpaid principal, adjusted for deferred loan fees, which are amortized over the term of the loan using the effective interest rate method. Interest on loans is accrued based on the principal amounts outstanding. It is the Bank's policy to discontinue the accrual of interest when a loan is specifically determined to be impaired or when principal or interest is delinquent for ninety days or more. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Cash collections on such loans are applied as reductions of the loan principal balance and no interest income is recognized on those loans until the principal balance has been collected. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. The carrying value of impaired loans is based on the present value of the loan's expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral.
The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrower's ability to pay.
While management believes it has established the allowance for credit losses in accordance with generally accepted accounting principles and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future the Bank's regulators or its economic environment will not require further increases in the allowance.
Other Real Estate Owned ("OREO"):
OREO comprises properties acquired in partial or total satisfaction of problem loans. The properties are recorded at the lower of cost or fair value (appraised value) at the date acquired. Losses arising at the time of acquisition of such properties are charged against the allowance for credit losses. Subsequent write-downs that may be required and expenses of operation are included in other income or expenses. Gains and losses realized from the sale of OREO are included in other expenses. Loans converted to OREO through foreclosure proceedings totaled $59,523, $359,579, and $610,557 for the years ended December 31, 1999, 1998, and 1997, respectively. Sales of OREO that were financed by the Bank totaled $178,787 for 1997. No sales of OREO were financed by the Bank for 1999 or 1998.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the terms of the leases or their estimated useful lives. Expenditures for improvements which extend the life of an asset are capitalized and depreciated over the asset's remaining useful life. Gains or losses realized on the disposition of premises and equipment are reflected in the consolidated statements of income. Expenditures for repairs and maintenance are charged to other expenses as incurred. Computer software is recorded at cost and amortized over three to five years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets:
Cost incurred related to goodwill represents the excess of the cost of a branch acquired over the fair value of the net assets at date of acquisition. Goodwill of $544,652 is being amortized on the straight- line method over 10 years. Accumulated amortization was $231,477, $177,012, and $122,547 at December 31, 1999, 1998, and 1997, respectively. Amortization expense totaled $54,465 for the years ended December 1999, 1998, and 1997.
Long-Lived Assets:
The carrying value of long-lived assets and certain identifiable intangibles, including goodwill, is reviewed by the Bank for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Income Taxes:
The provision for Federal and State income taxes is based upon the results of operations, adjusted for tax-exempt income. Deferred income taxes are provided by applying enacted statutory tax rates to temporary differences between financial and taxable bases.
Temporary differences which give rise to deferred tax assets relate principally to the allowance for credit losses, unearned income on loans, other real estate owned, accrued compensation and pension benefits, unused expense deductions, operating losses, and tax credit carryovers.
Temporary differences which give rise to deferred tax liabilities relate principally to accumulated depreciation, accretion of discount on investment securities, and prepaid pension expense.
Credit Risk:
The Bank has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank had deposits and Federal funds sold of approximately $3,048,000 with one financial institution as of December 31, 1999.
Cash and Cash Equivalents:
The Bank has included cash and due from banks, interest bearing deposits in other financial institutions, and Federal funds sold as cash and cash equivalents for the purpose of reporting cash flows.
Earnings per share:
Basic earnings per common share are determined by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated including the average dilutive common stock equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.
Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Federal Reserve requires the Bank to maintain noninterest-bearing cash reserves against certain categories of average deposit liabilities. Such reserves averaged approximately $2,477,000, $2,094,000 and $2,464,000 during the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
----------------- ------------- ----------- ----------- -----------
Available for sale:
U.S. Treasury $ 991,895 $ - $ 9,378 $ 982,517
U.S. Government agency 5,491,665 - 209,145 5,282,520
Mortgage-backed 8,431,417 24,870 56,371 8,399,916
----------- ----------- ----------- -----------
14,914,977 24,870 274,894 14,664,953
Federal Home Loan Bank stock 652,300 - - 652,300
----------- ----------- ----------- -----------
$15,567,277 $ 24,870 $ 274,894 $15,317,253
=========== =========== =========== ===========
Held to maturity:
U.S. Treasury $ 1,747,488 $ 4,241 $ 5,081 $ 1,746,648
U.S. Government agency 16,851,527 - 1,139,994 15,711,533
Mortgage-backed 10,058,227 - 474,657 9,583,570
----------- ----------- ----------- -----------
$28,657,242 $ 4,241 $ 1,619,732 $27,041,751
=========== =========== =========== ===========
|
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
----------------- ----------- ----------- ----------- -----------
Available for sale:
U.S. Treasury $ 2,584,565 $ 129,844 $ - $ 2,714,409
U.S. Government agency 16,430,674 249,927 8,340 16,672,261
Mortgage-backed 12,512,882 90,225 1,638 12,601,469
----------- ----------- ----------- -----------
31,528,121 469,996 9,978 31,988,139
Federal Home Loan Bank stock 936,400 - - 936,400
----------- ----------- ----------- -----------
$32,464,521 $ 469,996 $ 9,978 $32,924,539
=========== =========== =========== ===========
Held to maturity:
U.S. Treasury $ 2,497,627 $ 54,164 $ - $ 2,551,791
U.S. Government agency 15,486,672 41,176 92,043 15,435,805
Mortgage-backed 14,576,989 19,248 44,102 14,552,135
----------- ----------- ----------- -----------
$32,561,288 $ 114,588 $ 136,145 $32,539,731
=========== =========== =========== ==========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES (continued)
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
----------------- ----------- ----------- ----------- -----------
Available for sale:
U.S. Treasury $ 4,081,080 $ 58,197 $ 1,183 $ 4,138,094
U.S. Government agency 12,141,760 66,145 42,385 12,165,520
State and municipal 6,959,106 311,471 2,251 7,268,326
Mortgage-backed 16,194,063 26,140 49,676 16,170,527
----------- ----------- ----------- -----------
39,376,009 461,953 95,495 39,742,467
Federal Home Loan Bank stock 936,400 - - 936,400
----------- ----------- ----------- -----------
$40,312,409 $ 461,953 $ 95,495 $40,678,867
=========== =========== =========== ===========
Held to maturity:
U.S. Treasury $ 4,986,658 $ 69,633 $ 3,651 $ 5,052,640
U.S. Government agency 35,077,853 277,037 24,452 35,330,438
State and municipal 1,114,293 68,648 - 1,182,941
----------- ----------- ----------- -----------
$41,178,804 $ 415,318 $ 28,103 $41,566,019
=========== =========== =========== ===========
|
Effective October 1, 1998, the Bank adopted the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which provides for a special opportunity to reclassify held to maturity securities to available for sale. In connection therewith, the Bank reclassified held to maturity securities with amortized cost approximating $20,300,000 as available for sale, resulting in an increase in accumulated other comprehensive income of approximately $270,000, net of deferred taxes of approximately $170,000.
Contractual maturities of investment securities at December 31, 1999, 1998, and 1997 are shown below. Actual maturities may differ from contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities have no stated maturity and primarily reflect investments in various Pass-through and Participation Certificates issued by the Federal National Mortgage Association and the Government National Mortgage Association. Repayment of mortgage-backed securities is affected by the contractual repayment terms of the underlying mortgages collateralizing these obligations and the current level of interest rates.
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1999 Cost Value Cost Value
----------------- ----------- ----------- ----------- -----------
Due within one year $ - $ - $ 500,047 $ 500,134
Due over one to five years 5,483,560 5,310,974 3,653,770 3,577,422
Due over five to ten years 1,000,000 954,063 6,990,185 6,635,625
Due over ten years - - 7,455,013 6,745,000
Mortgage-backed, due in monthly
installments 8,431,417 8,399,916 10,058,227 9,583,570
----------- ----------- ----------- -----------
$14,914,977 $14,664,953 $28,657,242 $27,041,751
=========== =========== =========== ===========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES (continued)
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1998 Cost Value Cost Value
----------------- ------------- ------------- ------------- --------------
Due within one year $ 1,499,909 $ 1,509,844 $ 1,250,357 $ 1,259,844
Due over one to five years 13,445,861 13,690,797 1,247,271 1,291,953
Due over five to ten years 4,069,469 4,186,029 7,489,009 7,517,969
Due over ten years - - 7,997,662 7,917,830
Mortgage-backed, due in monthly
installments 12,512,882 12,601,469 14,576,989 14,552,135
------------- ------------- ------------- --------------
$ 31,528,121 $ 31,988,139 $ 32,561,288 $ 32,539,731
============= ============= ============= ==============
|
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1997 Cost Value Cost Value
----------------- ------------- ------------- ------------- -------------
Due within one year $ 1,615,229 $ 1,617,252 $ 1,000,000 $ 999,060
Due over one to five years 9,164,702 9,335,742 18,176,856 18,333,563
Due over five to ten years 6,735,960 6,946,219 15,888,529 16,046,560
Due over ten years 5,666,055 5,672,727 6,113,419 6,186,836
Mortgage-backed, due in monthly
installments 16,194,063 16,170,527 - -
------------- ------------- ------------- -------------
$ 39,376,009 $ 39,742,467 $ 41,178,804 $ 41,566,019
============= ============= ============= =============
|
Proceeds from sales of securities prior to maturity were $14,985,138, $25,889,152 and $19,095,130 for the years ended December 31, 1999, 1998, and 1997, respectively. Gains of $59,647 and losses of $123,614 were realized on those sales for 1999. Gains of $418,519 and losses of $5,011 were realized on those sales for 1998. Gains of $251,535 and losses of $26,840 were realized on those sales for 1997. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade. Income tax benefit (expense) relating to net gains/losses on sales of investment securities was $24,704, ($159,697), and ($86,732) for the years ended December 31, 1999, 1998, and 1997, respectively.
Securities with amortized costs of approximately $1,742,000, $2,994,000, and $2,997,000 were pledged as collateral for short-term borrowings and financial instruments with off-balance sheet risk at December 31, 1999, 1998, and 1997, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS
Major categories of loans are as follows:
1999 1998 1997
------------ ------------ ------------
Mortgage:
Residential $ 34,098,848 $ 33,931,494 $ 38,048,174
Commercial 42,342,103 43,915,342 43,275,731
Construction and land development 6,094,894 2,382,657 4,888,634
Lease financing 341,277 1,059,382 3,285,439
Demand and time 3,359,785 4,654,006 6,678,218
Installment 68,518,095 43,147,377 20,259,198
------------ ------------ ------------
154,755,002 129,090,258 116,435,394
Unearned income on loans (726,811) (747,946) (750,736)
------------ ------------ ------------
154,028,191 128,342,312 115,684,658
Allowance for credit losses (2,921,631) (2,841,060) (4,139,396)
------------ ------------ ------------
$151,106,560 $125,501,252 $111,545,262
============ ============ ============
|
During 1998 the Bank instituted an automotive indirect lending program, where vehicle collateralized loans made by dealers to consumers are acquired by the Bank. The Bank's installment loan portfolio included approximately $50,967,000 and $24,630,000 of such loans at December 31, 1999 and 1998, respectively.
The Bank makes loans to customers located primarily in Anne Arundel County and surrounding areas of Central Maryland. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region.
Executive officers, directors, and their affiliated interests enter into loan transactions with the Bank in the ordinary course of business. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers. They do not involve more than normal risk of collectibility or present other unfavorable terms. At December 31, 1999, 1998, and 1997, the amounts of such loans outstanding were $1,417,716, $1,495,082, and $1,270,382, respectively. During 1999, loan additions and repayments were $55,695 and $133,061, respectively.
The allowance for credit losses is as follows:
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $2,841,060 $ 4,139,396 $ 5,060,592
Provision for credit losses 300,000 (500,000) 270,000
Recoveries 454,277 296,617 426,604
Loans charged off (673,706) (1,094,953) (1,617,800)
---------- ----------- -----------
Balance, end of year $2,921,631 $ 2,841,060 $ 4,139,396
========== =========== ===========
|
Loans on which the accrual of interest has been discontinued amounted to $1,011,826, $1,724,782, and $3,481,434 at December 31, 1999, 1998, and 1997, respectively. Interest that would have been accrued under the terms of these loans was $168,644, $269,112, and $307,950 for the years ended December 31, 1999, 1998, and 1997, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS (continued)
Information regarding loans classified by the Bank as impaired are summarized as follows:
1999 1998 1997
---------- ---------- ----------
Loans classified as impaired $1,043,944 $2,528,851 $3,718,021
Allowance for credit losses on impaired loans 217,907 423,571 718,787
Average balance of impaired loans 1,842,757 2,417,615 5,251,152
|
Following is a summary of cash receipts on impaired loans and how they were applied:
Cash receipts applied to reduce principal balance $ 83,828 $ 62,811 $ 107,155
Cash receipts recognized as interest income - 7,313 97,948
---------- ---------- ----------
Total cash receipts $ 83,828 $ 70,124 $ 205,103
========== ========== ==========
|
At December 31, 1999, the total recorded investment in troubled debt restructurings amounted to $243,137. The average recorded investment in troubled debt restructurings amounted to $252,477 for the year ended December 31, 1999. The allowance for credit losses relating to troubled debt restructurings was $73,635 at December 31, 1999. Interest income on troubled debt restructurings of $17,660 was recognized for cash payments received in 1999. All investments in troubled debt were performing under the terms of the modified agreements.
At December 31, 1998, the total recorded investment in troubled debt restructurings amounted to $136,874. The average recorded investment in troubled debt restructurings amounted to $134,625 for the year ended December 31, 1998. The allowance for credit losses relating to troubled debt restructurings was $70,000 at December 31, 1998. Interest income on troubled debt restructurings of $10,670 was recognized for cash payments received in 1998. All investments in troubled debt were performing under the terms of the modified agreements, with the exception of one loan classified as impaired in the amount of $156,947 as of December 31, 1998.
At December 31, 1997, the total recorded investment in troubled debt restructurings amounted to $334,061. The average recorded investment in troubled debt restructurings amounted to $346,540 for the year ended December 31, 1997. The allowance for credit losses relating to troubled debt restructurings was $49,112 at December 31, 1997. Interest income on troubled debt restructurings of $16,408 was recognized for cash payments received in 1997. All investments in troubled debt were performing under the terms of the modified agreements.
The Bank has no commitments to loan additional funds to the borrowers of restructured, impaired or non-accrual loans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Useful
lives 1999 1998 1997
--------- ------------- -------------- -------------
Land $ 591,377 $ 509,803 $ 509,803
Buildings 5-50 years 4,004,737 3,900,421 3,710,425
Equipment and fixtures 5-30 years 4,385,699 4,125,205 3,865,902
Construction in progress 10,333 21,675 102,879
------------- -------------- -------------
8,992,146 8,584,104 8,189,009
Accumulated depreciation (4,738,822) (4,163,722) (3,869,586)
------------- -------------- -------------
$ 4,253,324 $ 4,420,382 $ 4,319,423
============= ============== =============
|
Depreciation expense was $575,100, $596,716, and $532,637 for the years ended December 31, 1999, 1998, and 1997, respectively. Amortization of software and intangible assets was $187,046, $179,369, and $123,676 for the years ended December 31, 1999, 1998, and 1997, respectively.
The Bank leases its South Crain Highway, Ferndale Shopping Center and Severna Park branches. Minimum lease obligations under the South Crain Highway branch is $71,800 per year through September 2004, adjusted annually by the CPI. Minimum lease obligations under the Ferndale Shopping Center branch is $30,000 per year through May 2003. Minimum lease obligations under the Severna Park branch is $36,650 per year through May 2003, adjusted annually by the CPI. The Bank is also required to pay all maintenance costs under all these leasing arrangements. Total rent expense was $85,980, $53,591, and $32,153 for the years ended December 31, 1999, 1998, and 1997, respectively.
During 1999, GBB Properties, Inc. purchased land for $82,774 to be used for the future development of a branch site.
NOTE 6. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
1999 1998 1997
----------- ----------- ---------
Notes payable - U.S. Treasury $ 464,936 $ 143,904 $ 889,398
FHLB advances 2,000,000 1,000,000 -
----------- ----------- ---------
$ 2,464,936 $ 1,143,904 $ 889,398
=========== =========== =========
|
The Bank owned 6,523 shares of common stock of the FHLB at December 31, 1999. The Bank is required to maintain an investment of .3% of total assets, adjusted annually. This investment was a condition for obtaining a variable rate credit facility with the FHLB. The credit available under this facility is determined at 12% of the Bank's total assets, adjusted quarterly based on call reports, or approximately $25,560,000 at December 31, 1999. At December 31, 1999 and 1998, the Bank had outstanding advances of $2,000,000 and $1,000,000, bearing interest at 4.55% and 5.15%, respectively, and maturing within the next year. There were no borrowings outstanding under this credit arrangement at December 31, 1997. The credit facility is secured by a floating lien on the Bank's residential mortgage loan portfolio and by investment securities with amortized cost of approximately $750,000 and $1,000,000 at December 31, 1999 and 1998, respectively. Average borrowings were approximately $1,506,000 and $256,000 during 1999 and 1998, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. SHORT-TERM BORROWINGS (continued)
Notes payable to the U.S. Treasury are Federal treasury tax and loan deposits accepted by the Bank from its customers to be remitted on demand to the Federal Reserve Bank. The Bank pays interest on these balances at a slight discount to the Federal funds rate. The note payable is secured by investment securities with an amortized cost of approximately $995,000 and $1,494,000 at December 31, 1999 and 1998, respectively.
The Bank also has available $5,000,000 in short-term credit facility, secured by Federal funds sold, from another bank for short term liquidity needs, if necessary. There were no borrowings outstanding under this credit arrangement at December 31, 1999, 1998, and 1997.
NOTE 7. DEPOSITS
Major classifications of interest-bearing deposits are as follows:
1999 1998 1997
-------------- -------------- ---------------
NOW and SuperNOW $ 18,562,778 $ 20,600,751 $ 20,581,703
Money Market 17,628,665 20,049,677 19,876,925
Savings 41,116,776 40,965,943 43,062,001
Certificates of Deposit, $100,000 or more 6,345,179 5,758,269 5,260,809
Other time deposits 65,292,304 66,875,699 70,677,459
-------------- -------------- --------------
$ 148,945,702 $ 154,250,339 $ 159,458,897
============== ============== ==============
|
Interest expense on deposits is as follows:
1999 1998 1997
-------------- -------------- --------------
NOW and SuperNOW $ 230,708 $ 377,632 $ 462,395
Money Market 527,466 546,382 622,464
Savings 938,117 1,069,853 1,233,294
Certificates of Deposit, $100,000 or more 435,885 443,489 466,360
Other time deposits 3,371,452 3,611,472 4,056,439
-------------- -------------- --------------
$ 5,503,628 $ 6,048,828 $ 6,840,952
============== ============== ==============
|
At December 31, 1999, the scheduled maturities of time deposits are approximately as follows:
1999
--------------
2000 $ 43,897,000
2001 17,794,000
2002 4,661,000
2003 1,786,000
2004 and thereafter 3,499,000
--------------
$ 71,637,000
==============
|
Deposit balances of executive officers and directors and their affiliated interests totaled approximately $369,000, $356,000, and $485,000 at December 31, 1999, 1998, and 1997, respectively.
The Bank had no brokered deposits at December 31, 1999, 1998, and 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES
The components of income tax expense (benefits) for the years ended December 31, 1999, 1998, and 1997 are as follows:
1999 1998 1997
---------- ---------- ----------
Current
Federal $ 68,050 $ (1,841) $ (218)
State - 351,738 (335,725)
---------- ---------- ----------
Total current 68,050 349,897 (335,943)
---------- ---------- ----------
Deferred income taxes (benefits)
Federal 989,815 352,880 (27,040)
State 128,179 103,470 47,699
---------- ---------- ----------
Total deferred 1,117,994 456,350 20,659
---------- ---------- ----------
Income tax expense (benefits) $1,186,044 $ 806,247 $ (315,284)
========== ========== ==========
|
The 1998 current State provision consists of disallowed prior years' refund claims.
A reconciliation of income tax expense (benefits) computed at the statutory rate of 34 percent to the actual income tax expense (benefits) for the years ended December 31, 1999, 1998, and 1997 is as follows:
1999 1998 1997
---------- ---------- ---------
Income before income taxes $2,631,394 $1,639,439 $ 431,963
========== ========== =========
Taxes computed at Federal income tax rate $ 894,674 $ 557,409 $ 146,867
Federal excise tax on pension plan termination 196,800 - -
Increase (decrease) resulting from
Tax-exempt income - (61,361) (296,323)
State income taxes, net of Federal income tax benefit 84,598 300,437 (221,579)
Other 9,972 9,762 55,751
---------- ---------- ---------
Income tax expense (benefits) $1,186,044 $ 806,247 $(315,284)
========== ========== =========
|
Sources of deferred income taxes and the tax effects of each for the years ended December 31, 1999, 1998, and 1997 are as follows:
1999 1998 1997
----------- ----------- -----------
Depreciation $ (11,998) $ 13,318 $ (23,201)
Securities discount accretion 2,858 (19,471) 4,280
Provision for credit losses 139,705 658,694 295,799
Unearned income on loans - - 31,469
Deferred compensation and pension benefit plans 739,075 (76,205) (61,589)
Charitable contributions 32,430 (15,844) (9,971)
Write-downs on other real estate owned 4,773 (2,317) 25,736
AMT credits 126,090 (16,764) (242,422)
Net operating loss carryover 85,061 (85,061) -
Other - - 558
----------- ----------- -----------
Deferred income tax expense $ 1,117,994 $ 456,350 $ 20,659
=========== =========== ===========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES (continued)
The components of the net deferred income tax benefits as of December 31, 1999, 1998, and 1997 are as follows:
1999 1998 1997
------------- -------------- -------------
Deferred income tax benefits:
Allowance for credit losses $ - $ 123,966 $ 782,660
Deferred compensation and benefit plans 79,534 728,247 179,869
Other real estate owned - 4,773 2,456
Charitable contributions 29,372 61,802 45,958
Alternative minimum tax credits 671,213 797,303 780,539
Net operating loss carryover - 85,061 -
Net unrealized depreciation on investment
securities available for sale 96,560 - -
------------- -------------- -------------
Total deferred income tax benefits 876,679 1,801,152 1,791,482
------------- -------------- -------------
Deferred income tax liabilities:
Accumulated depreciation 192,330 204,328 191,010
Allowance for credit losses 15,739 - -
Securities discount accretion 22,417 19,559 39,030
Prepaid pension plan contributions 597,056 506,694 34,521
Net unrealized appreciation on investment
securities available for sale - 177,659 141,526
------------- -------------- -------------
Total deferred income tax liabilities 827,542 908,240 406,087
------------- -------------- -------------
Net deferred income tax benefits $ 49,137 $ 892,912 $ 1,385,395
============= ============== =============
|
Management has determined that no valuation allowance is required as it is more likely than not that the net deferred income tax benefits will be fully realizable in future years.
NOTE 9. PENSION AND PROFIT SHARING PLANS
Through 1998, the Bank had a defined benefit pension plan covering substantially all of its employees. Benefits are based on the employee's average rate of earnings for the five consecutive years before retirement. The Bank's funding policy is to contribute annually an amount between the minimum and maximum actuarially determined contribution, using the frozen entry age actuarial cost method. Assets of the plan are held in a trust fund principally comprised of growth and income mutual funds managed by another bank.
The Bank officially terminated the plan on December 27, 1999 and received IRS approval for plan termination in February 2000. The Bank plans to settle all accrued benefits under the plan in the second quarter of 2000. The Bank has established a defined contribution plan as a replacement plan. Upon termination of the pension plan all participants became 100% vested. All accrued benefits under the terminated pension plan will be provided to participants through the purchase of annuities, or, in the case of actively employed participants, at their option, in the form of a lump sum rollover to the new defined contribution plan.
As a result of the termination of the defined benefit plan in 1999, the Bank has recognized a curtailment gain of $1,311,997, included in other income. The Bank has also accrued a 25% safe harbor contribution of $328,000, included in employee benefit expense, and excise taxes of $196,800, payable on curtailment gains recognized, included in Federal and state income tax expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. PENSION AND PROFIT SHARING PLANS (continued)
The following table sets forth the financial status of the pension plan at December 31, 1999, 1998, and 1997:
1999 1998 1997
------------- -------------- -------------
Projected benefit obligation at January 1, $ 4,423,566 $ 4,124,137 $ 3,804,330
Service cost - 208,699 218,504
Interest 261,367 346,128 317,295
Actual benefit payments (144,739) (189,504) (138,314)
Interest on distributions (7,223) (6,850) (9,232)
Decrease from curtailment (1,435,130) - -
Increase from change in discount rate 1,607,050 -
Other adjustments 86,473 (59,044) (68,446)
------------- -------------- -------------
Projected benefit obligation at December 31, $ 4,791,364 $ 4,423,566 $ 4,124,137
============= ============== =============
Accumulated benefit obligation:
Vested $ 4,791,364 $ 4,315,501 $ 2,671,233
Nonvested - 108,065 119,829
------------- -------------- -------------
$ 4,791,364 $ 4,423,566 $ 2,791,062
============= ============== =============
Plan assets at January 1, $ 5,699,073 $ 4,670,182 $ 3,720,145
Actual contributions - - 223,083
Actual distributions (144,739) (189,504) (138,314)
Actual returns 1,491,587 1,218,395 865,268
------------- -------------- -------------
Plan assets at December 31, $ 7,045,921 $ 5,699,073 $ 4,670,182
============= ============== =============
Plan assets at fair value $ 7,045,921 $ 5,699,073 $ 4,670,182
Projected benefit obligation (4,791,364) (4,423,566) (4,124,137)
------------- -------------- -------------
Plan assets in excess of
projected benefit obligation 2,254,557 1,275,507 546,045
Unrecognized prior service cost - 123,133 148,730
Unrecognized net gain (684,244) (1,425,979) (556,714)
Unrecognized net asset from transition (24,336) (36,505) (48,674)
------------- -------------- -------------
Prepaid (accrued) pension expense included in other assets $ 1,545,977 $ (63,844) $ 89,387
============= ============== =============
Net pension expense includes the following:
Service cost $ - $ 201,699 $ 218,504
Interest cost 254,144 339,278 311,064
Actual return on assets (1,491,587) (1,218,395) (865,268)
Net amortization and deferral 939,619 830,649 568,715
------------- -------------- -------------
Net pension expense (benefit) $ (297,824) $ 153,231 $ 233,015
============= ============== =============
Assumptions used in the accounting for net pension
expense were:
Discount rates 5.5% 8.5% 8.5%
Rate of increase in compensation levels 6.5% 6.5% 6.5%
Long-term rate of return on assets 8.5% 8.5% 8.5%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. PENSION AND PROFIT SHARING PLANS (continued)
The Bank also has a defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code that is funded through a profit sharing agreement and voluntary employee contributions. The Bank's contributions to the plan are determined annually by the Board of Directors. The plan covers substantially all employees. The Bank's contributions to the plan included in employee benefit expense were $187,704, $102,757 and $83,500 for the years ended December 31, 1999, 1998 and 1997, respectively. Effective January 1, 1999, the plan was amended to provide for discretionary employer matching contributions to be determined annually by the Board of Directors.
NOTE 10. POST-RETIREMENT HEALTH CARE BENEFITS
The Bank provides health care benefits to employees who retire at age
65. The plan is funded only by the Bank's monthly payments of insurance
premiums due. The following table sets forth the financial status of
the plan at December 31, 1999, 1998, and 1997:
1999 1998 1997
------------- -------------- -------------
Accumulated post-retirement benefit obligation:
Retirees $ 308,960 $ 239,773 $ 191,817
Other active participants, fully eligible - 27,741 -
Other active participants, not fully eligible 786,293 493,449 482,529
------------- -------------- -------------
1,095,253 760,963 674,346
Unrecognized net gain 11,504 347,097 359,178
Unrecognized transition obligation (500,984) (534,383) (567,782)
Unrecognized past service cost 109,746 - -
------------- -------------- -------------
Accrued post-retirement benefit cost $ 715,519 $ 573,677 $ 465,742
============= ============== =============
|
Net post-retirement benefit expense for the years ended December 31, 1999, 1998, and 1997 includes the following:
Service cost $ 71,739 $ 56,771 $ 75,736
Interest cost 67,844 48,979 72,930
Amortization of unrecognized transition obligation 33,399 33,399 33,399
Amortization of net gain - (13,052) (1,669)
Amortization of past service cost (6,924) - -
------------- -------------- -------------
Net post-retirement benefit expense $ 166,058 $ 126,097 $ 180,396
============= ============== =============
Assumptions used in the accounting for net
post-retirement benefit expense were:
Health care cost trend rate 5.0% 5.0% 5.0%
Discount rate 6.5% 6.8% 7.0%
|
If the assumed health care cost trend rate were increased to 6% for 1999, 1998 and 1997, the total of the service and interest cost components of net periodic post-retirement health care benefit cost would increase by $37,610, $28,471, and $36,820, for the years ended December 31, 1999, 1998, and 1997, respectively, and the accumulated post-retirement benefit obligation would increase to $203,668, $154,568, and $217,216 as of December 31, 1999, 1998, and 1997, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. OTHER BENEFIT PLANS (see also Note 14)
In March 1998, the Bank established and funded a grantor trust for $1,500,000 as part of a change in control severance plan covering substantially all employees. Participants in the plan are entitled to cash severance benefits upon termination of employment, for any reason other than just cause, should a "change in control" of the Company occur.
In March 1998, the Company and Bank also established and the Bank funded a grantor trust for $2,000,000 for indemnification of the officers and directors of the Bank and/or Company for any litigation expenses incurred in connection with any "change of control" of the Company.
Subsequent to the repurchase of the Company's common stock under a "Redemption Agreement" and entering into a standstill agreement (see Note 14), and effective as of December 31, 1998, all assets held by these trusts were returned to the Bank. The severance trust continues to exist on an unfunded status, while the litigation trust was terminated on December 31, 1998.
In March 1998, the Bank established and funded a grantor trust for $285,000 as part of an employment agreement with the Chief Operating Officer of the Bank. The agreement provides for the payment of benefits upon termination of employment, for a reason other than just cause, after a "change in control" of the Company.
In January 2000, the Bank officially terminated the grantor trust referred to above, due to the resignation of the Chief Operating Officer of the Bank during 1999. Balances held in the trust of approximately $307,000 at time of termination, which are included in other assets at December 31, 1999, were subsequently returned to the Bank.
NOTE 12. OTHER OPERATING EXPENSES
Other operating expenses include the following:
1999 1998 1997
------------- -------------- -------------
Professional services $ 714,929 $ 2,163,448 $ 1,995,049
Stationery, printing and supplies 251,388 241,029 275,020
Postage and delivery 235,110 239,519 270,976
FDIC assessment 22,481 81,162 92,456
Directors fees and expenses 134,092 151,737 168,061
Marketing 342,737 305,794 249,958
Data processing 222,709 205,839 135,326
Correspondent bank services 98,896 114,689 119,479
Telephone 102,757 95,572 69,873
Liability insurance 91,783 89,149 89,146
Losses and expenses on real estate owned (OREO) 38,218 33,414 143,045
Other 595,645 391,567 464,594
------------- -------------- -------------
$ 2,850,745 $ 4,112,919 $ 4,072,983
============= ============== =============
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. LITIGATION CHARGES
In 1997, the Company incurred losses of $996,161 relating to two claims involving fraudulent check endorsement issues. These nonrecurring charges are included in other expenses for 1997.
In 1998, the Company accrued for losses of $420,000 and incurred additional actual losses of $805,003 relating to legal claims involving fraudulent check endorsement issues and\or bankruptcies. These nonrecurring charges were included in other expenses for 1998. In 1999, the Company settled on these claims for $220,000.
NOTE 14. REPURCHASE AND RETIREMENT OF COMPANY COMMON STOCK
During 1998, the Company was pursued by another competing financial institution (the institution) in a hostile take-over attempt. In November 1998, the Company reached an agreement with the institution to repurchase 213,168 shares of its common stock, or approximately 19.5% of its outstanding shares, for an aggregate purchase price of $5,580,764. In conjunction with the redemption agreement, the Company and the institution also entered into a standstill agreement through November 2008. Under the standstill agreement, the Company will make payments over five years totaling $675,510 beginning with a payment of $150,000 in January 1999 and four subsequent annual payments of $131,378.
During 1999, the Company made payments totaling $281,378, relating to the standstill agreement. These payments are included in other expenses for 1999.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Financial instruments:
The Bank is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements.
Outstanding loan commitments, unused lines of credit and letters of credit are as follows:
December 31,
----------------------------------------------
1999 1998 1997
------------- -------------- -------------
Loan commitments:
Construction and land development $ 740,000 $ 1,537,400 $ 150,000
Other mortgage loans 739,800 1,671,050 330,500
------------- -------------- -------------
$ 1,479,800 $ 3,208,450 $ 480,500
============= ============== =============
Unused lines of credit:
Home-equity lines $ 3,215,502 $ 3,029,929 $ 2,629,589
Commercial lines 9,981,462 6,149,939 7,524,017
Unsecured consumer lines 824,978 851,390 799,826
------------- -------------- -------------
$ 14,021,942 $ 10,031,258 $ 10,953,432
============= ============== =============
Letters of credit: $ 1,384,969 $ 2,012,626 $ 2,221,173
============= ============== =============
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENCIES (continued)
Loan commitments and lines of credit are agreements to lend to customers as long as there is no violation of any conditions of the contracts. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Many of the loan commitments and lines of credit are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include deposits held in financial institutions, U.S. Treasury securities, other marketable securities, accounts receivable, inventory, property and equipment, personal residences, income-producing commercial properties, and land under development. Personal guarantees are also obtained to provide added security for certain commitments.
Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other securities is deemed necessary.
The Bank's exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit and letters of credit are made on the same terms, including collateral, as outstanding loans. As of December 31, 1999, 1998, and 1997, $71,623, $67,168, and $70,168, respectively, have been provided as an allowance for credit losses related to these financial instruments with off-balance sheet risk, which is reflected as a reduction of loans.
NOTE 16. STOCKHOLDERS' EQUITY
Restrictions on dividends:
Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agencies. Regulatory approval is required to pay dividends which exceed the Bank's net profits for the current year plus its retained net profits for the preceding two years. Retained earnings from which dividends may not be paid without prior approval were approximately $2,276,000 at December 31, 1999, based on the earnings restrictions and minimum capital ratio requirements noted below.
In 1997 the Bank's payment of dividends was restricted by a Memorandum of Understanding (M.O.U.) which required prior approval of the FDIC and the State Banking Commissioner of the State of Maryland for the payment of dividends by the Bank in excess of 50% of its net operating income or if the Bank's Tier 1 capital ratio would be reduced below 6%. This M.O.U. was lifted in June 1998.
Change in par value of common stock:
In December 1999, the Company changed the par value of its common stock from $10 par value to $1 par value. $9 per share of par value has been reclassified as surplus. Prior year financial statements presented have been restated to conform to the current year's presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
Employee stock purchase benefit plans:
During 1998, the Company established a stock-based compensation plan, which is described below. The Bank applies Accounting Principles Board Opinion ("APB") No. 25 and related Interpretations in accounting for this plan. Net compensation cost of $90 and $21,607 have been recognized in the accompanying consolidated financial statements in 1999 and 1998, respectively. If compensation cost for the Company's stock-based compensation plan had been determined based on the fair value at the grant date for awards under this plan consistent with the methods outlined in SFAS No. 123 Accounting for Stock-Based Compensation, there would be no material change in reported net income.
Employees who have completed one year of service are eligible to participate in the employee stock purchase plan. The number of shares of common stock granted under options will bear a uniform relationship to compensation. The plan allows employees to buy stock under options granted at the lesser of 85 percent of the fair market value of the stock on the date of grant or exercise. Options granted will expire no later than 27 months from the grant date or upon termination of employment. Activity under this plan is as follows:
Grant
Shares Price
Granted on July 1, 1998, expiring October 1, 1999 5,794 $ 21.25
Expired (32)
Exercised (935)
-------
Outstanding December 31, 1998 4,827 $ 21.25
=======
Exercised (1,040) $ 21.25
Expired (3,787) $ 21.25
Granted on August 12, 1999, expiring November 12, 2000 4,095 $ 19.76
Exercised (975)
-------
Outstanding December 31, 1999 3,120 $ 19.76
=======
|
At December 31, 1999 and 1998, there were 23,090 and 24,065 shares of common stock reserved for issuance under the plan, respectively.
The Board of Directors may suspend or discontinue the plan at its discretion.
Dividend reinvestment and stock purchase plan:
The Company's dividend reinvestment and stock purchase plan allows all participating stockholders the opportunity to receive additional shares of common stock in lieu of cash dividends at 95 percent of the fair market value on the dividend payment date.
During 1999 and 1998, 4,832 and 7,015 shares of common stock, respectively, were purchased under the plan. During 1997, the Company had suspended participation in the plan. At December 31, 1999 and 1998, there were 281,666 and 199,335 shares of common stock reserved for issuance under the plan, respectively.
The Board of Directors may suspend or discontinue the plan at its discretion.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
Stockholder purchase plan:
The Company's stockholder purchase plan allows participating stockholders an option to purchase newly issued shares of common stock. The number of shares that may be purchased pursuant to options shall be determined by the Board of Directors. Options granted will expire no later than 3 months from the grant date. Each option will entitle the stockholder to purchase one share of common stock, and will be granted in proportion to stockholder share holdings. At the discretion of the Board of Directors, stockholders may be given the opportunity to purchase unsubscribed shares.
Grant
Shares Price
Granted on November 30, 1998, expiring January 29, 1999 110,396 $26.125
Exercised (7,388)
-------
Outstanding December 31, 1998 103,008 $26.125
=======
Exercised (3,347) $26.125
Expired (99,661) $26.125
Granted on June 24, 1999, expiring September 24, 1999 50,000 $23.250
Exercised (3,722)
Expired (46,278) $23.250
Granted on September 24, 1999, expiring December 24, 1999 50,000 $23.000
Exercised (2,401)
Expired (47,599) $23.000
-------
Outstanding December 31, 1999 -
=======
|
At December 31, 1999 and 1998 there were 103,142 and 112,612 shares of common stock reserved for issuance under the plan, respectively.
The Board of Directors may suspend or discontinue the plan at its discretion.
Regulatory capital requirements:
The Company and Bank are subject to various regulatory capital requirements administered by Federal and State banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting principles. The Company's and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 1999, 1998, and 1997, that the Company and Bank meet all capital adequacy requirements to which it is subject.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
As of December 31, 1999, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed the Bank's category.
A comparison of capital as of December 31, 1999, 1998, and 1997 with minimum requirements is approximately as follows:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------ ------ ------------- ----- ------------ --------
As of December 31, 1999
Total Capital
(to Risk Weighted Assets)
Company $ 16,912,000 10.8% $ 12,527,000 8.0% N/A
Bank 16,586,000 10.3% 12,870,000 8.0% $ 16,087,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 14,942,000 9.5% 6,265,000 4.0% N/A
Bank 14,563,000 9.0% 6,437,000 4.0% 9,655,000 6.0%
Tier I Capital
(to Average Assets)
Company 14,942,000 6.8% 8,815,000 4.0% N/A
Bank 14,563,000 6.6% 8,813,000 4.0% 11,016,000 5.0%
As of December 31, 1998
Total Capital
(to Risk Weighted Assets)
Company $ 14,785,000 10.5% $ 11,265,000 8.0% N/A
Bank 14,495,000 10.4% 11,150,000 8.0% $ 13,938,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 13,018,000 9.3% 5,599,000 4.0% N/A
Bank 12,736,000 9.1% 5,598,000 4.0% 8,397,000 6.0%
Tier I Capital
(to Average Assets)
Company 13,018,000 6.0% 8,722,000 4.0% N/A
Bank 12,736,000 5.8% 8,723,000 4.0% 10,904,000 5.0%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------ ------ ------------- ----- ------------ -----
As of December 31, 1997
Total Capital
(to Risk Weighted Assets)
Company $ 19,359,000 16.0% $ 9,656,000 8.0% N/A
Bank 18,908,000 15.7% 9,649,000 8.0% $ 12,061,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 17,818,000 14.8% 4,828,000 4.0% N/A
Bank 17,368,000 14.4% 4,824,000 4.0% 7,237,000 6.0%
Tier I Capital
(to Average Assets)
Company 17,818,000 7.6% 14,107,000 6.0% N/A
Bank 17,368,000 7.4% 14,089,000 6.0% 11,741,000 5.0%
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NOTE 17. EARNINGS PER COMMON SHARE
Earnings per common share are calculated as follows:
1999 1998 1997
--------------- --------------- --------------
Basic:
Net income $ 1,445,350 $ 833,192 $ 747,247
Weighted average common shares outstanding 1,261,166 1,253,275 1,275,017
Basic net income per share $ 1.15 $ 0.66 $ 0.59
Diluted:
Net income $ 833,192
Weighted average common shares outstanding 1,253,275
Dilutive effect of stock options 362
---------------
Average common shares outstanding - diluted 1,253,637
Diluted net income per share $ 0.66
|
Diluted earnings per share calculations were not required for 1999 and 1997 due to all options having an anti-dilutive effect and the Company having a simple capital structure, respectively.
During 1998, options relating to the stockholder purchase plan have an anti-dilutive effect, and therefore were not included in the diluted calculation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS
In accordance with the disclosure requirements of Statement of Financial Accounting Standards No. 107, the estimated fair value and the related carrying values of the Company's financial instruments are as follows:
1999 1998 1997
-------------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $8,317,450 $8,317,450 $8,197,344 $8,197,344 $8,127,732 $8,127,732
Interest-bearing deposits in
other financial institutions 10,245 10,245 4,958,337 4,958,337 1,558,879 1,558,879
Federal funds sold 555,627 555,627 2,863,635 2,863,635 18,850,000 18,850,000
Investment securities
available for sale 15,317,253 15,317,253 32,924,539 32,924,539 40,678,867 40,678,867
Investment securities held to
maturity 28,657,242 27,041,751 32,561,288 32,539,731 41,178,804 41,566,019
Loans, less allowance for
credit losses 151,106,560 138,422,000 125,501,252 125,980,000 111,545,262 109,301,000
Ground rents 254,025 254,025 257,025 257,025 262,525 262,525
Accrued interest receivable 1,279,067 1,279,067 1,401,660 1,401,660 1,556,971 1,556,971
Financial liabilities:
Deposits 194,089,995 194,002,000 199,611,115 201,124,000 207,110,272 207,622,000
Short-term borrowings 2,464,936 2,464,936 1,143,904 1,143,904 889,398 889,398
Dividends payable 136,666 136,666 123,039 123,039 81,146 81,146
Accrued interest payable 152,555 152,555 160,597 160,597 177,922 177,922
Unrecognized financial
instruments:
Commitments to extend
credit 15,501,742 15,430,119 13,239,708 13,172,540 11,433,932 11,363,764
Standby letters of credit 1,384,969 1,384,969 2,012,626 2,012,626 2,221,173 2,221,173
|
For purposes of the disclosures of estimated fair value, the following assumptions were used.
Loans:
The estimated fair value for loans is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Investment securities:
Estimated fair values are based on quoted market prices.
Deposits:
The estimated fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair value of certificates of deposit is based on the rates currently offered for deposits of similar maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Other assets and liabilities:
The estimated fair values for cash and due from banks, interest-bearing deposits in other financial institutions, Federal funds sold, accrued interest receivable and payable, and short-term borrowings are considered to approximate cost because of their short-term nature.
Other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill, and similar items.
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION
The Balance Sheets, Statements of Income, and Statements of Cash Flows for Glen Burnie Bancorp (Parent Only) are presented below:
Balance Sheets
-----------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 184,555 $ 239,226 $ 166,195
Investment in The Bank of Glen Burnie 14,722,533 13,886,563 18,514,844
Investment in GBB Properties, Inc. 235,706 165,637 365,341
Due from affiliates 96,321 4,789 -
Other assets - - 1,259
-------------- --------------- --------------
TOTAL ASSETS $ 15,239,115 $ 14,296,215 $ 19,047,639
============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividend payable $ 136,666 $ 123,039 $ 81,146
Due to affiliates - 4,503 1,903
-------------- --------------- --------------
TOTAL LIABILITIES 136,666 127,542 83,049
-------------- --------------- --------------
Stockholders' equity:
Common stock 1,093,496 894,938 1,092,768
Surplus 10,149,247 9,788,889 14,770,821
Retained earnings 4,013,171 3,202,488 2,876,069
Accumulated other comprehensive income, net of
taxes (benefits) (153,465) 282,358 224,932
-------------- --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 15,102,449 14,168,673 18,964,590
-------------- --------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,239,115 $ 14,296,215 $ 19,047,639
============== =============== ==============
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (continued)
Statements of Income
-----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Dividends and distributions from subsidiaries $ 350,000 $ 5,740,764 $ 312,097
Standstill agreement expense (281,378) - -
Other expenses, net of revenues of $279 in 1998 (1,078) (840) (3,704)
-------------- --------------- --------------
Income before income taxes and equity in
undistributed net income of subsidiaries 67,544 5,739,924 308,393
Income tax benefit 96,035 286 1,259
Change in undistributed net income of subsidiaries 1,281,771 (4,907,018) 437,595
-------------- --------------- --------------
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
============== =============== ==============
|
Statements of Cash Flows
---------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,445,350 $ 833,192 $ 747,247
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase (decrease) in other assets - 1,259 24,674
Increase in due from subsidiaries (91,533) (4,789) -
(Decrease) increase in due to subsidiaries (4,503) 2,600 1,903
Change in undistributable net income of subsidiaries (1,281,771) 4,907,018 (437,595)
-------------- --------------- --------------
Net cash provided by operating activities 67,543 5,739,280 336,229
-------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Contributed to Subsidiary (60,000) - -
-------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from dividend reinvestment plan 106,149 166,515 -
Proceeds from sales of common stock 270,566 212,880 -
Repurchase and retirement common stock (138) (5,580,764) -
Dividends paid (438,791) (464,880) (292,201)
-------------- --------------- --------------
Net cash used in financing activities (62,214) (5,666,249) (292,201)
-------------- --------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (54,671) 73,031 44,028
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 239,226 166,195 122,167
-------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 184,555 $ 239,226 $ 166,195
============== =============== ==============
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the Company's unaudited quarterly results of operations:
1999 Three months ended,
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
----------------------------------------------------------------------------------------------------------
Interest income $ 3,896 $ 3,957 $ 3,802 $ 3,895
Interest expense 1,427 1,410 1,379 1,406
Net interest income 2,469 2,547 2,423 2,489
Provision for credit losses 300 - - -
Net securities gains (losses) (93) 2 2 25
Income (loss) before income taxes 1,285 622 549 443
Net income 579 403 357 283
Net income per share (basic and diluted) $ 0.46 $ 0.32 $ 0.28 $ 0.22
|
1998 Three months ended,
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
----------------------------------------------------------------------------------------------------------
Interest income $ 3,977 $ 3,986 $ 3,930 $ 3,996
Interest expense 1,499 1,537 1,520 1,540
Net interest income 2,478 2,449 2,410 2,456
Provision for credit losses - (500) - -
Net securities gains 111 165 219 32
Income (loss) before income taxes 460 895 371 (86)
Net income 84 516 230 3
Net income per share (basic and diluted) $ 0.10 $ 0.47 $ 0.21 $ 0.00
|
1997 Three months ended,
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
----------------------------------------------------------------------------------------------------------
Interest income $ 4,131 $ 4,290 $ 4,468 $ 4,587
Interest expense 1,621 1,697 1,755 1,836
Net interest income 2,510 2,593 2,713 2,751
Provision for credit losses - - - 270
Net securities gains 44 223 1 3
Income (loss) before income taxes 184 140 (256) 364
Net income 168 193 11 375
Net income per share (basic and diluted) $ 0.15 $ 0.18 $ 0.01 $ 0.34
|
NOTE 21. SUBSEQUENT EVENT
On February 15, 2000, the Bank sold its entire credit card portfolio, which was considered part of the installment loan portfolio, to another financial institution. The outstanding balance of the portfolio as of the date of settlement was $1,064,857.
As a result of the sale, the Bank recognized a gain of approximately $59,000. The Bank was also required to maintain a loan loss reserve with the financial institution of approximately $48,000, that was funded with part of the settlement proceeds. The loan loss reserve is for a one year period, with any remaining reserve returned to the Bank. The Bank has no additional responsibilities for loan losses in excess of the initial reserve.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLEN BURNIE BANCORP
March 9, 2000 By: /s/ F. William Kuethe, Jr.
-------------------------------------
F. William Kuethe, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ F. William Kuethe, Jr. March 9, 2000
-----------------------------------
F. William Kuethe, Jr.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ John I. Young March 9, 2000
-----------------------------------
John I. Young
Executive Vice President, Chief Operating
Officer and Director
By: /s/ John E. Porter March 9, 2000
-----------------------------------
John E. Porter
Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
By: /s/ John E. Demyan March 9, 2000
-----------------------------------
John E. Demyan
Chairman of the Board and Director
By: /s/ Theodore L. Bertier, Jr. March 9, 2000
-----------------------------------
Theodore L. Bertier, Jr.
Director
By: /s/ Shirley E. Boyer March 9, 2000
-----------------------------------
Shirley E. Boyer
Director
By: /s/ Thomas Clocker March 9, 2000
-----------------------------------
Thomas Clocker
Director
By: /s/ Alan E. Hahn March 9, 2000
-----------------------------------
Alan E. Hahn
Director
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By: /s/ Charles L. Hein March 9, 2000
-----------------------------------
Charles L. Hein
Director
By: /s/ F. W. Kuethe, III March 9, 2000
-----------------------------------
F. W. Kuethe, III
Director
By: /s/ William N. Scherer, Sr. March 9, 2000
-----------------------------------
William N. Scherer, Sr.
Director
By: /s/ Karen B. Thorwarth March 9, 2000
-----------------------------------
Karen B. Thorwarth
Director
By: /s/ Mary Lou Wilcox March 9, 2000
-----------------------------------
Mary Lou Wilcox
Director
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EXHIBIT 10.4
THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR
DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT.......................................................................1
1.2 BENEFICIARY...................................................................1
1.3 CODE..........................................................................1
1.4 COMPENSATION..................................................................1
1.5 COMPENSATION DEFERRAL ACCOUNT.................................................1
1.6 COMPENSATION DEFERRALS........................................................1
1.7 DESIGNATION DATE..............................................................1
1.8 EFFECTIVE DATE................................................................2
1.9 ELIGIBLE INDIVIDUAL...........................................................2
1.10 EMPLOYER......................................................................2
1.11 ENTRY DATE....................................................................2
1.12 PARTICIPANT...................................................................2
1.13 PARTICIPANT ENROLLMENT AND ELECTION FORM......................................2
1.14 PLAN..........................................................................2
1.15 PLAN YEAR.....................................................................2
1.16 TRUST.........................................................................2
1.17 TRUSTEE.......................................................................2
1.18 VALUATION DATE................................................................2
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS..................................................................3
2.2 RE-EMPLOYMENT.................................................................3
2.3 CHANGE OF EMPLOYMENT CATEGORY.................................................3
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 PARTICIPANT COMPENSATION DEFERRALS............................................3
3.2 COMPENSATION DEFERRAL ACCOUNT.................................................4
3.3 CONTRIBUTIONS TO THE TRUST....................................................4
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ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS...........................5
4.2 ACCOUNTING FOR DISTRIBUTIONS..................................................5
4.3 SEPARATE ACCOUNTS.............................................................5
4.4 INTERIM VALUATIONS............................................................5
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS..................................6
4.6 EXPENSES......................................................................7
4.7 TAXES.........................................................................7
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT................................7
5.2 HARDSHIP DISTRIBUTIONS........................................................8
5.3 APPLICATION TO TRUSTEE........................................................8
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT........................................................................8
6.2 METHOD OF PAYMENT.............................................................9
6.3 RE-EMPLOYMENT OF PARTICIPANT..................................................9
6.4 DEATH BENEFITS................................................................9
6.5 WITHHOLDING..................................................................10
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES.................................................10
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES............................10
ii
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ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY.....................................................11
8.2 UNIFORMITY OF DISCRETIONARY ACTS.............................................12
8.3 LITIGATION...................................................................12
8.4 CLAIMS PROCEDURE.............................................................12
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND...............................................................13
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN.........................13
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN................................13
10.2 AUTOMATIC TERMINATION OF PLAN................................................13
10.3 SUSPENSION OF DEFERRALS......................................................14
10.4 ALLOCATION AND DISTRIBUTION..................................................14
10.5 SUCCESSOR TO EMPLOYER........................................................14
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST.......................................................14
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER.........................................14
12.2 CONSTRUCTION.................................................................15
12.3 SPENDTHRIFT PROVISION........................................................15
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THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
RECITALS
This The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (the "Plan") is adopted by The Bank of Glen Burnie (the "Employer") for certain of its executive employees and members of its Board of Directors. The purpose of the Plan is to offer those employees and members of the Board of Directors an opportunity to elect to defer the receipt of compensation in order to provide deferred compensation benefits taxable pursuant to section 451 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be a "top-hat" plan (i.e., an unfunded deferred compensation plan maintained for a select group of management or highly-compensated employees) under sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA") and a Board of Directors deferred compensation plan.
Accordingly, the following Plan is adopted.
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's Plan account, including contribution credits and deemed income, gains and losses (as determined by the Employer, in its discretion) credited thereto. A Participant's or Beneficiary's Account shall be determined as of the date of reference.
1.2 BENEFICIARY means any person or person so designated in accordance with the provisions of Article 7.
1.3 CODE means the Internal Revenue Code of 1986 and the regulations thereunder, as amended from time to time.
1.4 COMPENSATION means the total current cash remuneration paid by the Employer to an Eligible Individual with respect to his or her service for the Employer.
1.5 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1.6 COMPENSATION DEFERRALS is defined in Section 3.2.
1.7 DESIGNATION DATE means the date or dates as of which a designation of deemed investment directions by an individual pursuant to Section 4.5, or any change in a prior
designation of deemed investment directions by an individual pursuant to Section 4.5, shall become effective. The Designation Dates in any Plan Year shall be designated by the Employer.
1.8 EFFECTIVE DATE means the effective date of the Plan, which shall be March 9, 2000.
1.9 ELIGIBLE INDIVIDUAL means, for any Plan Year (or applicable portion thereof), a person who is determined by the Employer, or its designee, to be a member of a select group of management or highly compensated employees of the Employer or a member of the Employer's Board of Directors, and who is designated by the Employer, or its designee, to be an Eligible Individual under the Plan. By each December 31 (or before the Effective Date for the Plan's first Plan Year), the Employer shall notify those individuals, if any, who will be Eligible Individuals for the next Plan Year. If the Employer determines that an individual first becomes an Eligible Individual during a Plan Year, the Employer shall notify such individual of its determination and of the date during the Plan Year on which the individual shall first become an Eligible Individual.
1.10 EMPLOYER means The Bank of Glen Burnie and its successors and assigns unless otherwise herein provided, or any other corporation or business organization which, with the consent of The Bank of Glen Burnie, or its successors or assigns, assumes the Employer's obligations hereunder, or any other corporation or business organization which agrees, with the consent of The Bank of Glen Burnie, to become a party to the Plan.
1.11 ENTRY DATE with respect to an individual means the first day of the pay period following the date on which the individual first becomes an Eligible Individual.
1.12 PARTICIPANT means any person so designated in accordance with the provisions of Article 2, including, where appropriate according to the context of the Plan, any former employee or former member of the Board of Directors who is or may become (or whose Beneficiaries may become) eligible to receive a benefit under the Plan.
1.13 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form or forms on which a Participant elects to defer Compensation or fees hereunder and/or on which the Participant makes certain other designations as required thereon.
1.14 PLAN means this The Bank of Glen Burnie Executive and Director Deferred Compensation Plan, as amended from time to time.
1.15 PLAN YEAR means the twelve (12) month period (or for the first Plan Year, the period beginning March 9, 2000 and ending on December 31, 2000) ending on the December 31 of each year during which the Plan is in effect.
1.16 TRUST means the Trust established pursuant to Article 11.
1.17 TRUSTEE means the trustee of the Trust established pursuant to Article 11.
1.18 VALUATION DATE means the last day of each Plan Year and any other date that the Employer, in its sole discretion, designates as a Valuation Date.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS. Every Eligible Individual on the Effective Date shall be eligible to become a Participant on the Effective Date. Every other Eligible Individual shall be eligible to become a Participant on the first Entry Date occurring on or after the date on which he or she becomes an Eligible Individual. No individual shall become a Participant, however, if he or she is not an Eligible Individual on the date his or her participation is to begin.
Participation in the Participant Compensation Deferral feature of the Plan is voluntary. In order to participate in the Participant Compensation Deferral feature of the Plan, an otherwise Eligible Individual must make written application in such manner as may be required by Section 3.2 and by the Employer and must agree to make Compensation Deferrals as provided in Article 3.
2.2 RE-EMPLOYMENT. If a Participant whose employment or Director status with the Employer is terminated is subsequently re-employed or subsequently becomes a Director of the Employer, he or she shall become a Participant in accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant remains in the employ of the Employer, but ceases to be an Eligible Individual, he or she shall not be eligible to make Compensation Deferrals hereunder.
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules established by the Employer, a Participant may elect to defer Compensation which is not yet payable and which would otherwise be paid to the Participant. Amounts so deferred will be considered a Participant's "Compensation Deferrals". Ordinarily, a Participant shall make such an election with respect to a coming twelve (12) month Plan Year during the period beginning on the December 1 and ending on the December 31 of the prior Plan Year, or during such other period established by the Employer.
Compensation Deferrals shall be made through regular payroll or retainer/meeting fee deductions and/or through an election by the Participant to defer a bonus payment not yet payable to him or her at the time of the election. The Participant may reduce his or her regular payroll or retainer/meeting fee for a particular year by written notice delivered to the Employer at least thirty (30) days prior to the beginning of any regular payroll or Director's compensation period, of the payroll or retainer/meeting fee Compensation Deferral Amount, with such reduction being first effective for Compensation to be earned in that payroll or Director's compensation period. In the case of bonus payment deferrals, the Participant may reduce his or her bonus
payments due to be paid by the Employer by giving written notice to the Employer of the bonus payment Compensation Deferral amount prior to the date the applicable bonus is first due to be paid.
Once made, a Compensation Deferral regular payroll or retainer/meeting fee deduction election shall continue in force indefinitely, until reduced by the Participant on a subsequent Participant Enrollment and Election Form provided by the Employer as provided above or until increased during an annual enrollment period under the Plan. A bonus payment reduction election, or a reduction thereof pursuant to the foregoing, shall continue in force only for one bonus payment.
Notwithstanding the preceding, Participant Compensation Deferrals shall not exceed such maximum percentages as may be established by the Employer in its discretion and communicated to Participants from time to time. If a Participant?s Compensation Deferrals exceed such maximum percentage(s), the Employer shall have the right to reduce the percentage(s) of the Participant?s Compensation Deferrals by giving the Participant written notification of such reduction. As of the Effective Date, Compensation Deferrals made through regular payroll deductions by a Participant who is an employee of the Employer shall not exceed ten percent (100%) of the Participant?s base salary, but Compensation Deferrals made through retainer/meeting fee deductions or through an election by the Participant to defer a bonus payment shall not be subject to any limitation on the percentage of the Compensation Deferrals.
Compensation Deferrals shall be deducted by the Employer from the pay of a deferring Participant and shall be credited to the Compensation Deferral Account of the deferring Participant.
3.2 COMPENSATION DEFERRAL ACCOUNT. There shall be established and maintained by the Employer a separate Compensation Deferral Account in the name of each Participant to which shall be credited or debited: (a) amounts equal to the Participant's Compensation Deferrals; (b) amounts equal to any deemed earnings or losses (to the extent realized, based upon deemed fair market value of the Account's deemed assets, as determined by the Employer, in its discretion) attributable or allocable thereto; and (c) expenses and/or taxes charged to that Account.
A Participant shall at all times be 100% vested in amounts credited to his or her Participant Compensation Deferral Account.
3.3 CONTRIBUTIONS TO THE TRUST. An amount shall be contributed by the Employer to the Trust maintained under Section 11.1 equal to the amount(s) required to be credited to the Participant's Account under Sections 3.1 and 3.2. The Employer shall make a good faith effort to contribute these amounts to the Trust as soon as is practicable after such amounts are determined.
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to
Section 4.5, each Participant shall have the right to direct the Employer as to
how amounts in his or her Plan Account shall be deemed to be invested. Subject
to such limitations as may from time to time be required by law, imposed by the
Employer or the Trustee or contained elsewhere in the Plan, and subject to such
operating rules and procedures as may be imposed from time to time by the
Employer, prior to the date on which a direction will become effective, the
Participant shall have the right to direct the Employer as to how amounts in his
or her Account shall be deemed to be invested.
The Employer shall direct the Trustee to invest the account maintained in the Trust on behalf of the Participant pursuant to the deemed investment directions the Employer properly has received from the Participant. The value of the Participant's Account shall be equal to the value of the account maintained under the Trust on behalf of the Participant. As of each valuation date of the Trust, the Participant's Account will be credited or debited to reflect the Participant's deemed investments of the Trust.
The Participant's Plan Account will be credited or debited with the increase or decrease in the realizable net asset value or credited interest, as applicable, of the designated deemed investments, as follows. As of each Valuation Date, an amount equal to the net increase or decrease in realizable net asset value or credited interest, as applicable (as determined by the Employer or the Trustee, as applicable), of each deemed investment option within the Account since the preceding Valuation Date shall be allocated among all Participants' Accounts deemed to be invested in that investment option in accordance with the ratio which the portion of the Account of each Participant which is deemed to be invested within that investment option, determined as provided herein, bears to the aggregate of all amounts deemed to be invested within that investment option.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution hereunder, the distribution made hereunder to the Participant or his or her Beneficiary or Beneficiaries shall be charged to such Participant's Account. Such amounts shall be charged on a pro rata basis against the investments of the Trust in which the Participant's Account is deemed to be invested.
4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be established and maintained by the Employer to reflect the Account for each Participant with sub-accounts to show separately the applicable deemed investments of the Account.
4.4 INTERIM VALUATIONS. If it is determined by the Employer that the value of a Participant's Account as of any date on which distributions are to be made differs materially from the value of the Participant's Account on the prior Valuation Date upon which the distribution is to be based, the Employer, in its discretion, shall have the right to designate any
date in the interim as a Valuation Date for the purpose of revaluing the Participant's Account so that the Account will, prior to the distribution, reflect its share of such material difference in value.
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such limitations as may from time to time be required by law, imposed by the Employer or the Trustee or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Employer, prior to and effective for each Designation Date, each Participant may communicate to the Employer a direction as to how his or her Plan Accounts should be deemed to be invested (in any whole dollar amounts or percentage multiples) among such categories of deemed investments as may be made available by the Employer hereunder. Such direction may separately designate deemed investments (a) for that portion of the Participant's Account attributable to amounts that will be credited to the Participant's Account prior to the Designation Date on which such direction shall become effective, and (b) for that portion of the Participant's Account attributable to amounts that will be credited to the Participant's Account after the Designation Date on which such direction shall become effective, and shall be subject to the following rules:
(i) Any initial or subsequent deemed investment direction shall be in writing, on a form supplied by and filed with the Employer (or made in such other manner specified by the Employer), and shall be effective as of the next Designation Date after such filing.
(ii) All amounts credited to the Participant's Account shall be deemed to be invested in accordance with the then effective deemed investment direction, and as of the effective date of any new deemed investment direction, all or a portion of the Participant's Account at that date shall be reallocated among the designated deemed investment funds according to the percentages specified in the new deemed investment direction unless and until a subsequent deemed investment direction shall be filed and become effective. An election concerning deemed investment choices shall continue indefinitely until changed by the Participant in a manner permitted by the Employer.
(iii) If the Employer receives an initial or revised deemed investment direction which it deems to be incomplete, unclear or improper, the Participant's investment direction then in effect shall remain in effect (or, in the case of a deficiency in an initial deemed investment direction, the Participant shall be deemed to have filed no deemed investment direction) until the next Designation Date, unless the Employer provides for, and permits the application of, corrective action prior thereto.
(iv) If the Employer possesses (or is deemed to possess as provided in (c), above) at any time directions as to the deemed investment of less than all of a Participant's Account, the Participant shall be deemed to have directed that the undesignated portion of the Account be deemed to be invested in a money market, fixed income, or similar fund made available under the Plan as determined by the Employer in its discretion.
(v) Each Participant hereunder, as a condition to his or her participation hereunder, agrees to indemnify and hold harmless the Employer and its agents and representatives from any losses or damages of any kind relating to the deemed investment of the Participant's Account hereunder.
(vi) Each reference in this Section to a Participant shall be deemed to include, where applicable, a reference to a Beneficiary.
4.6 EXPENSES. Expenses, including Trustee fees, allocable to the administration or operation of an Account maintained under the Plan shall be paid by the Employer unless, in the discretion of the Employer, the Employer elects to charge such expenses, or any portion thereof, against the appropriate Participant's Account or Participants' Accounts. If an expense, or any portion thereof, is charged against a Participant's Account, at the discretion of the Employer, such expense, or any portion thereof, either (a) will reduce the contribution to the Trust under Section 3.3 next due to be made by the Employer in respect of the Account, or (b) will be paid from the Trust to the Employer out of assets of the Trust corresponding to the Participant's Account hereunder.
4.7 TAXES. Any taxes allocable to an Account (or portion thereof) maintained under the Plan which are payable prior to the distribution of the Account (or portion thereof), as determined by the Employer, shall be paid by the Employer unless, in the discretion of the Employer, the Employer elects to charge such taxes against the appropriate Participant's Account or Participants? Accounts. If a tax amount is charged against a Participant's Account, at the discretion of the Employer, such expense either (a) will reduce the contribution to the Trust under Section 3.3 next due to be made by the Employer in respect of the Account, or (b) will be paid from the Trust to the Employer out of assets of the Trust corresponding to the Participant's Account.
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account, which will be valued and payable according to the provisions of Article
6. Such a fixed payment date may be extended to later dates so long as elections
to so extend are made by the Participant prior to the then applicable fixed
date. Such a fixed payment date may not be accelerated.
Alternatively, on his or her Participant Enrollment and Election Form, a Participant may select payment or commencement of payment of his or her vested Account at his or her termination of employment or Director status with the Employer, or at the earlier of a fixed payment date or his or her termination of employment or Director status with the Employer. In either of these cases, the extension and non-acceleration rules discussed above shall apply to such fixed payment date and/or termination of employment or Director status date, as applicable.
Any fixed payment date elected by a Participant pursuant to the foregoing must be no earlier than the January 1 of the third calendar year in which the election is made.
If a Participant does not select a payment date pursuant to the foregoing, his or her vested Account shall be distributed or commence to be distributed, as provided in Article 6, at the termination of his or her employment or Director status with the Employer.
5.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the Participant, as hereinafter defined, the Participant may apply to the Employer for the distribution of all or any part of his or her vested Account. The Employer shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, if applicable, to allow such distribution, or, if applicable, to direct a distribution of part of the amount requested, or to refuse to allow any distribution. Upon a finding of financial hardship, the Employer shall make the appropriate distribution to the Participant from amounts held by the Employer in respect of the Participant's vested Account. In no event shall the aggregate amount of the distribution exceed either the full value of the Participant's vested Account or the amount determined by the Employer to be necessary to alleviate the Participant's financial hardship (which financial hardship may be considered to include any taxes due because of the distribution occurring because of this Section), and which is not reasonably available from other resources of the Participant. For purposes of this Section, the value of the Participant's vested Account shall be determined as of the date of the distribution.
"Financial hardship" means (a) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Code section 152(a)) of the Participant, (b) loss of the Participant's property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, each as determined to exist by the Employer. A distribution may be made under this Section only with the consent of the Employer.
5.3 APPLICATION TO TRUSTEE. On the date or dates on which a Participant or Beneficiary is entitled to payment under Section 5.1, the Participant or Beneficiary need not make application for payment to the Employer, but instead may make application for payment directly to the Trustee who shall pay the Participant or Beneficiary the appropriate amount directly from the Trust without the consent of the Employer. The Trustee shall report the amount of each such payment, and any withholding thereon, to the Employer.
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become entitled to receive, on or about the date or dates selected by the Participant on his or her Participant Enrollment and Election Form or, if none, on or about the date of the Participant?s termination of employment or Director status with the Employer (as provided in Article 5), a distribution in an aggregate amount equal to the Participant's vested Account. Any payment due hereunder from
the Trust which is not paid by the Trust for any reason will be paid by the Employer from its general assets.
6.2 METHOD OF PAYMENT.
(a) Cash Or In-Kind Payments. Payments under the Plan shall be made in cash or in-kind, as elected by the Participant, as permitted by the Employer and the Trustee in their sole and absolute discretion and subject to applicable restrictions on transfer as may be applicable legally or contractually.
(b) Timing and Manner of Payment. In the case of distributions to a Participant or his or her Beneficiary by virtue of an entitlement pursuant to Sections 5.1, an aggregate amount equal to the Participant's vested Account will be paid by the Trust or the Employer, as provided in Section 6.1, in a lump sum or in five (5), ten (10), or fifteen (15) substantially equal annual installments (adjusted for gains and losses), as selected by the Participant prior to the date on which amounts are first payable to the Participant.
If a Participant fails to designate properly the manner of payment of the Participant's benefit under the Plan, such payment will be in a lump sum.
If the whole or any part of a payment hereunder is to be in installments, the total to be so paid shall continue to be deemed to be invested pursuant to Sections 4.1 and 4.5 under such procedures as the Employer may establish, in which case any deemed income, gain, loss or expense attributable thereto (as determined by the Trustee, in its discretion) shall be reflected in the installment payments, in such equitable manner as the Trustee shall determine.
6.3 RE-EMPLOYMENT OF PARTICIPANT. If a Participant who has terminated his or her employment or Director status with the Employer is receiving installment distributions pursuant to Section 6.2 and is re-employed by the Employer (or becomes a member of the Employer?s Board of Directors), the remaining distributions due to the Participant shall be suspended until such times as the Participant once again becomes eligible for benefits under Sections 5.1 or 5.2, at which time such distribution shall commence, subject to the limitations and conditions contained in this Plan.
6.4 DEATH BENEFITS. If a Participant dies before terminating his or her employment or Director status with the Employer and before the commencement of payments to the Participant hereunder, the entire value of the Participant's Account shall be paid, at the time(s) selected by the Participant under Article 5 and in the manner provided in Section 6.2, to the person or persons designated in accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have begun but before he or she has received all payments to which he or she is entitled under the Plan, the remaining benefit payments shall be paid to the person or persons designated in accordance with Section 7.1 in the manner in which such benefits were payable to the Participant.
6.5 WITHHOLDING. All distributions under the Plan are subject to any applicable tax withholding, as determined by the Employer in its discretion.
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may designate any person or persons (who may be named contingently or successively) to receive such benefits as may be payable under the Plan upon or after the Participant's death, and such designation may be changed from time to time by the Participant by filing a new designation. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Employer, and will be effective only when filed in writing with the Employer during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Participant, the Employer shall pay any such benefit payment to the Participant's spouse, if then living, but otherwise to the Participant's then living descendants, if any, per stirpes, but, if none, to the Participant's estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Participant's personal representative, executor or administrator.
If a question arises as to the existence or identity of anyone entitled to receive a benefit payment as aforesaid, or if a dispute arises with respect to any such payment, then, notwithstanding the foregoing, the Employer, in its sole discretion, may distribute such payment to the Participant's estate without liability for any tax or other consequences which might flow therefrom, or may take such other action as the Employer deems to be appropriate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES; INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement or notice addressed to a Participant or to a Beneficiary at his or her last post office address as shown on the Employer's records shall be binding on the Participant or Beneficiary for all purposes of the Plan. The Employer shall not be obliged to search for any Participant or Beneficiary beyond the sending of a registered letter to such last known address. If the Employer notifies any Participant or Beneficiary that he or she is entitled to an amount under the Plan and the Participant or Beneficiary fails to claim such amount or make his or her location known to the Employer within three (3) years thereafter, then, except as otherwise required by law, if the location of one or more of the next of kin of the Participant is known to the Employer, the Employer may direct distribution of such amount to any one or more or all of such next of kin, and in such proportions as the Employer determines. If the location of none of the foregoing persons can be determined, the Employer shall have the right to direct that the amount payable shall be deemed to be a forfeiture, except that the dollar amount of the forfeiture, unadjusted for deemed gains or losses in the interim, shall be paid by the Employer if a claim for the benefit subsequently is made by the Participant or the Beneficiary to whom it was payable. If a benefit
payable to an unlocated Participant or Beneficiary is subject to escheat pursuant to applicable state law, the Employer shall not be liable to any person for any payment made in accordance with such law.
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided herein, the Employer, acting through its Board of Directors or the designee(s) thereof, shall have the sole responsibility for and the sole control of the operation and administration of the Plan, and shall have the power and authority to take all action and to make all decisions and interpretations which may be necessary or appropriate in order to administer and operate the Plan, including, without limiting the generality of the foregoing, the power, duty and responsibility to:
(a) Resolve and determine all disputes or questions arising under the Plan, and to remedy any ambiguities, inconsistencies or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and regulations adopted as above.
(d) Make determinations with respect to the eligibility of any Eligible Individual as a Participant and make determinations concerning the crediting of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure specialized advice or assistance, as it deems necessary or desirable in connection with the administration and operation of the Plan, and the Employer shall be entitled to rely conclusively upon, and shall be fully protected in any action or omission taken by it in good faith reliance upon, the advice or opinion of such firms or persons. The Employer shall have the power and authority to delegate from time to time by written instrument all or any part of its duties, powers or responsibilities under the Plan, both ministerial and discretionary, as it deems appropriate, to any person or committee, and in the same manner to revoke any such delegation of duties, powers or responsibilities. Any action of such person or committee in the exercise of such delegated duties, powers or responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Employer. Further, the Employer may authorize one or more persons to execute any certificate or document on behalf of the Employer, in which event any person notified by the Employer of such authorization shall be entitled to accept and conclusively rely upon any such certificate or document executed by such person as representing action by the Employer until such notified person shall have been notified of the revocation of such authority.
8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or operation of the Plan discretionary actions by the Employer are required or permitted, such actions shall be consistently and uniformly applied to all persons similarly situated, and no such action shall be taken which shall discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. Except as may be otherwise required by law, in any action or judicial proceeding affecting the Plan, no Participant or Beneficiary shall be entitled to any notice or service of process, and any final judgment entered in such action shall be binding on all persons interested in, or claiming under, the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a "Claimant") shall present the claim, in writing, to the Employer or the Trustee, and the Employer or the Trustee shall respond in writing. If the claim is denied, the written notice of denial shall state, in a manner calculated to be understood by the Claimant:
(a) The specific reason or reasons for the denial, with specific references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall be provided to the Claimant within ninety (90) days after the Employer's or Trustee's receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished by the Employer or Trustee to the Claimant within the initial ninety (90) day period and in no event shall such an extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. Any extension notice shall indicate the special circumstances requiring the extension and the date on which the Employer or Trustee expects to render a decision on the claim. Any claim not granted or denied within the period noted above shall be deemed to have been denied.
Any Claimant whose claim is denied, or deemed to have been denied under the preceding sentence (or such Claimant's authorized representative), may, within sixty (60) days after the Claimant's receipt of notice of the denial, or after the date of the deemed denial, request a review of the denial by notice given, in writing, to the Employer or Trustee. Upon such a request for review, the claim shall be reviewed by the Employer or Trustee (or its designated representative) which may, but shall not be required to, grant the Claimant a hearing. In connection with the review, the Claimant may have representation, may examine pertinent documents, and may submit issues and comments in writing.
The decision on review normally shall be made within sixty
(60) days of the Employer's receipt of the request for review. If an extension
of time is required due to special circumstances, the Claimant shall be
notified, in writing, by the Employer or Trustee, and the time limit for the
decision on review shall be extended to one hundred twenty (120) days. The
decision on review shall be in writing and shall state, in a manner calculated
to be understood by the Claimant, the specific reasons for the decision and
shall include references to the relevant Plan provisions on which the decision
is based. The written decision on review shall be given to the Claimant within
the sixty (60) day (or, if applicable, the one hundred twenty (120) day) time
limit discussed above. If the decision on review is not communicated to the
Claimant within the sixty (60) day (or, if applicable, the one hundred twenty
(120) day) period discussed above, the claim shall be deemed to have been denied
upon review. All decisions on review shall be final and binding with respect to
all concerned parties.
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND. The Employer, by written instrument executed by a duly authorized representative of the Employer, shall have the right to amend the Plan, at any time and with respect to any provisions hereof, and all parties hereto or claiming any interest hereunder shall be bound by such amendment; provided, however, that no such amendment shall deprive a Participant or a Beneficiary of a right accrued hereunder prior to the date of the amendment.
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding the provisions of Section 9.1, the Plan may be amended by the Employer at any time, retroactively if required, in the opinion of the Employer, in order to ensure that the Plan is characterized as "top-hat" plan as described under ERISA sections 201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to the provisions and requirements of any applicable law (including ERISA and the Code). No such amendment shall be considered prejudicial to any interest of a Participant or a Beneficiary hereunder.
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves the right to terminate the Plan and/or its obligation to make further credits to Plan Accounts. The Employer also reserves the right to suspend the operation of the Plan for a fixed or indeterminate period of time.
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate upon the dissolution of the Employer, or upon its merger into or consolidation with any other corporation or business organization if there is a failure by the surviving corporation or business organization to adopt specifically and agree to continue the Plan.
10.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the Employer shall continue all aspects of the Plan, other than Compensation Deferrals and Employer Contribution Credits, during the period of the suspension, in which event payments hereunder will continue to be made during the period of the suspension in accordance with Articles 5 and 6.
10.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative on a complete termination of the Plan. The provisions of this Section also shall become operative in the event of a partial termination of the Plan, as determined by the Employer, but only with respect to that portion of the Plan attributable to the Participants to whom the partial termination is applicable. Upon the effective date of any such event, notwithstanding any other provisions of the Plan, no persons who were not theretofore Participants shall be eligible to become Participants, the value of the interest of all Participants and Beneficiaries shall be determined and, after deduction of estimated expenses in liquidating and, if applicable, paying Plan benefits, paid to them as soon as is practicable after such termination.
10.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization which is a successor to the Employer by reason of a consolidation, merger or purchase of substantially all of the assets of the Employer shall have the right to become a party to the Plan by adopting the same by resolution of the entity's board of directors or other appropriate governing body. If, within ninety (90) days from the effective date of such consolidation, merger or sale of assets, such new entity does not become a party hereto, as above provided, the Plan automatically shall be terminated, and the provisions of Section 10.4 shall become operative.
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with the Trustee pursuant to such terms and conditions as are set forth in the Trust agreement to be entered into between the Employer and the Trustee. The Trust is intended to be treated as a "grantor" trust under the Code and the establishment of the Trust is not intended to cause the Participant to realize current income on amounts contributed thereto, and the Trust shall be so interpreted.
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the Plan nor any modification thereof, nor the creation of any account under the Plan, nor the payment of any benefits under the Plan shall be construed as giving to any Participant or other person any legal or equitable right against the Employer, or any officer or employer thereof except as provided by law or by any Plan provision. The Employer does not in any way guarantee any Participant's Account from loss or depreciation, whether caused by poor investment performance of a deemed investment or the inability to realize upon an investment due to an insolvency affecting an investment vehicle or any other reason. In no event shall the Employer, or any
successor, employee, officer, director or stockholder of the Employer, be liable to any person on account of any claim arising by reason of the provisions of the Plan or of any instrument or instruments implementing its provisions, or for the failure of any Participant, Beneficiary or other person to be entitled to any particular tax consequences with respect to the Plan, or any credit or distribution hereunder.
12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or void, such illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. For all purposes of the Plan, where the context admits, the singular shall include the plural, and the plural shall include the singular. Headings of Articles and Sections herein are inserted only for convenience of reference and are not to be considered in the construction of the Plan. The laws of the State of Maryland shall govern, control and determine all questions of law arising with respect to the Plan and the interpretation and validity of its respective provisions, except where those laws are preempted by the laws of the United States. Participation under the Plan will not give any Participant the right to be retained in the service of the Employer nor any right or claim to any benefit under the Plan unless such right or claim has specifically accrued hereunder.
The Plan is intended to be and at all times shall be interpreted and administered so as to qualify as an unfunded deferred compensation plan, and no provision of the Plan shall be interpreted so as to give any individual any right in any assets of the Employer which right is greater than the rights of a general unsecured creditor of the Employer.
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a Beneficiary under the Plan will, except as otherwise specifically provided by law, be subject in any manner to anticipation, alienation, attachment, garnishment, sale, transfer, assignment (either at law or in equity), levy, execution, pledge, encumbrance, charge or any other legal or equitable process, and any attempt to do so will be void; nor will any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled thereto. Further, (i) the withholding of taxes from Plan benefit payments, (ii) the recovery under the Plan of overpayments of benefits previously made to a Participant or Beneficiary, (iii) if applicable, the transfer of benefit rights from the Plan to another plan, or (iv) the direct deposit of benefit payments to an account in a banking institution (if not actually part of an arrangement constituting an assignment or alienation) shall not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits hereunder are garnished or attached by order of any court, the Employer or Trustee may bring an action or a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under the Plan. During the pendency of said action, any benefits that become payable shall be held as credits to the Participant's or Beneficiary's Account or, if the Employer or Trustee prefers, paid into the court as they become payable, to be distributed by the court to the recipient as the court deems proper at the close of said action.
IN WITNESS WHEREOF, the Employer has caused the Plan to be executed and its seal to be affixed hereto, effective as of the 9th day of March, 2000.
ATTEST/WITNESS THE BANK OF GLEN BURNIE
/s/ John I. Young By: /s/ F. William Kuethe, Jr. (SEAL)
----------------- --------------------------------------
Print Name: John I. Young Print Name: F. William Kuethe, Jr.
Date: March 9, 2000
--------------------
|
EXHIBIT 23
[TRICE GEARY & MYERS LLC LETTERHEAD]
Board of Directors
Glen Burnie Bancorp
Glen Burnie, Maryland
We hereby consent to the incorporation by reference of our report, dated February 9, 2000, except for Note 21 as to which the date is February 15, 2000, included in this annual report on Form 10-K, into the Company's Registration Statements on Forms S-3 and S-8 (SEC File Nos. 333-37073, 333-46943 and 33-62280).
/s/ TRICE GEARY & MYERS LLC ---------------------------- TRICE GEARY & MYERS LLC March 27, 2000 |
| ARTICLE 9 |
| This schedule contains summary financial information extracted from consolidated financial statements and notes thereto of Glen Burnie Bancorp at and for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. |
| CIK: 0000890066 |
| NAME: GLEN BURNIE BANCORP |
| MULTIPLIER: 1 |
| CURRENCY: U.S. Dollars |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | DEC 31 1999 |
| EXCHANGE RATE | 1.000 |
| CASH | 8,317,450 |
| INT BEARING DEPOSITS | 10,245 |
| FED FUNDS SOLD | 555,627 |
| TRADING ASSETS | 0 |
| INVESTMENTS HELD FOR SALE | 15,317,253 |
| INVESTMENTS CARRYING | 28,657,242 |
| INVESTMENTS MARKET | 27,041,751 |
| LOANS | 154,028,191 |
| ALLOWANCE | 2,921,631 |
| TOTAL ASSETS | 213,439,456 |
| DEPOSITS | 194,089,995 |
| SHORT TERM | 2,464,936 |
| LIABILITIES OTHER | 1,782,076 |
| LONG TERM | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1,093,496 |
| OTHER SE | 14,008,953 |
| TOTAL LIABILITIES AND EQUITY | 213,439,456 |
| INTEREST LOAN | 11,816,570 |
| INTEREST INVEST | 3,534,223 |
| INTEREST OTHER | 197,584 |
| INTEREST TOTAL | 15,548,377 |
| INTEREST DEPOSIT | 5,503,628 |
| INTEREST EXPENSE | 5,623,174 |
| INTEREST INCOME NET | 9,925,203 |
| LOAN LOSSES | 300,000 |
| SECURITIES GAINS | (63,968) |
| EXPENSE OTHER | 9,821,690 |
| INCOME PRETAX | 2,631,394 |
| INCOME PRE EXTRAORDINARY | 1,445,350 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,445,350 |
| EPS BASIC | 1.15 |
| EPS DILUTED | 1.15 |
| YIELD ACTUAL | 4.96 |
| LOANS NON | 1,011,826 |
| LOANS PAST | 43,000 |
| LOANS TROUBLED | 243,137 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 2,841,060 |
| CHARGE OFFS | 673,706 |
| RECOVERIES | 454,277 |
| ALLOWANCE CLOSE | 2,921,631 |
| ALLOWANCE DOMESTIC | 2,696,631 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 225,000 |