
PART I. FINANCIAL INFORMATION This section details Glen Burnie Bancorp's unaudited consolidated financial statements and management's analysis for the periods ended June 30, 2021 ITEM 1. FINANCIAL STATEMENTS This section presents Glen Burnie Bancorp's unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity changes, cash flows, and detailed accounting notes Consolidated Balance Sheets Consolidated financial position as of June 30, 2021, and December 31, 2020, showing assets, liabilities, and stockholders' equity | Metric | June 30, 2021 ($) | December 31, 2020 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | ASSETS | | | | Total Assets | $432.77M | $419.49M | | Cash and Cash Equivalents | $26.77M | $37.09M | | Investment securities available for sale, at fair value | $157.59M | $114.05M | | Loans, net | $231.98M | $252.30M | | Allowance for credit losses | $(2.89M) | $(1.48M) | | LIABILITIES | | | | Total Deposits | $368.88M | $349.62M | | Total Liabilities | $397.38M | $382.39M | | STOCKHOLDERS' EQUITY | | | | Total Stockholders' Equity | $35.40M | $37.09M | - Total assets increased by $13.3 million (3.17%) from December 31, 2020, to June 30, 2021, primarily driven by an increase in investment securities available for sale, offset by decreases in interest-bearing deposits and loans133 - The allowance for credit losses increased significantly from $1,476 thousand at December 31, 2020, to $2,887 thousand at June 30, 2021, due to the adoption of the CECL methodology8 Consolidated Statements of Income (Loss) Income and loss performance for the three and six months ended June 30, 2021, and 2020, highlighting key revenue and expense drivers | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $3.29M | $3.34M | $6.45M | $6.84M | | Total Interest Expense | $274 | $398 | $557 | $849 | | Net Interest Income | $3.02M | $2.94M | $5.89M | $5.99M | | (Release) provision for credit losses | $(67) | $487 | $(471) | $407 | | Total Noninterest Income | $280 | $228 | $527 | $484 | | Total Noninterest Expenses | $2.79M | $2.81M | $5.62M | $5.85M | | NET INCOME (LOSS) | $480 | $(96) | $1.07M | $174 | | Basic and diluted net income (loss) per share | $0.17 | $(0.03) | $0.38 | $0.06 | - Net income significantly improved for both the three- and six-month periods ended June 30, 2021, primarily due to a release of credit losses compared to a provision in the prior year, and an increase in noninterest income11119 - Net interest income increased by $78 thousand (2.66%) for the three-month period but decreased by $92 thousand (1.53%) for the six-month period, mainly due to lower interest and fees on loans, offset by increased interest on investment securities and decreased interest expense on deposits121122123 Consolidated Statements of Comprehensive Income (Loss) Comprehensive income and loss for the three and six months ended June 30, 2021, and 2020, including net income and other comprehensive income components | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $480 | $(96) | $1.07M | $174 | | Net unrealized gain (loss) on securities available for sale (net of tax) | $1.63M | $412 | $(962) | $1.08M | | Net unrealized gain (loss) on interest rate swaps (net of tax) | $64 | $(57) | $165 | $(561) | | Other comprehensive income (loss) | $1.69M | $355 | $(797) | $515 | | Comprehensive income | $2.17M | $259 | $277 | $689 | - Comprehensive income for the three-month period ended June 30, 2021, significantly increased to $2.17 million from $259 thousand in 2020, driven by higher net income and net unrealized gains on available-for-sale securities and interest rate swaps13132 - For the six-month period, comprehensive income decreased to $277 thousand from $689 thousand in 2020, primarily due to higher net unrealized losses on available-for-sale securities, despite higher net income and net unrealized gains on interest rate swaps13132 Consolidated Statements of Changes in Stockholders' Equity Changes in stockholders' equity for the six months ended June 30, 2021, and 2020, reflecting net income, dividends, and accounting adjustments | Metric | December 31, 2020 ($) | June 30, 2021 ($) | | :------------------------------------ | :------------------ | :------------ | | Balance, beginning of year | $37.09M | $37.09M | | Net income | $1.07M | $1.07M | | Cash dividends, $0.20 per share | $(569) | $(569) | | Dividends reinvested | $66 | $66 | | Transition adjustment (ASC 326) | $(1.47M) | $(1.47M) | | Other comprehensive loss | $(797) | $(797) | | Balance, end of period | $35.40M | $35.40M | - Stockholders' equity decreased by $1.70 million (4.58%) during the six-month period ended June 30, 2021, primarily due to a $1.5 million reduction in retained earnings from the adoption of the CECL accounting standard and $0.8 million in unrealized losses (net of taxes) on available-for-sale investment securities and derivative contracts16167 Consolidated Statements of Cash Flows Cash flow activities for the six months ended June 30, 2021, and 2020, categorized into operating, investing, and financing sections | Metric | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1.53M | $1.45M | | Net cash used in investing activities | $(25.94M) | $(12.13M) | | Net cash provided by financing activities | $14.09M | $32.36M | | Net (decrease) increase in cash and cash equivalents | $(10.33M) | $21.69M | | Cash and cash equivalents at end of year | $26.77M | $34.98M | - Net cash used in investing activities significantly increased to $(25,944) thousand in 2021 from $(12,125) thousand in 2020, primarily due to higher purchases of investment securities available for sale18 - Net cash provided by financing activities decreased to $14,085 thousand in 2021 from $32,362 thousand in 2020, mainly due to a decrease in short-term borrowings, despite an increase in deposits18 Notes to Consolidated Financial Statements Detailed explanations of significant accounting policies, estimates, and financial statement line items NOTE 1 – ORGANIZATIONAL Overview of Glen Burnie Bancorp and its subsidiary, The Bank of Glen Burnie, including their business and geographic scope - Glen Burnie Bancorp is a Maryland-organized bank holding company that owns The Bank of Glen Burnie, a commercial bank providing financial services in Anne Arundel County and surrounding Central Maryland19 NOTE 2 – BASIS OF PRESENTATION Explanation of the accounting principles used in preparing the financial statements, including interim reporting and the adoption of CECL - The financial statements are prepared in conformity with U.S. GAAP for interim reporting, reflecting normal recurring adjustments, and operating results for interim periods are not necessarily indicative of full-year results20 - Effective January 1, 2021, the Company adopted ASU 2016-13 (ASC 326), implementing the Current Expected Credit Loss (CECL) methodology for allowance for credit losses, replacing the incurred loss methodology2221 - The CECL methodology requires estimating expected credit losses over the life of an exposure, considering past events, current conditions, and reasonable and supportable forecasts, with the ACL including allowances for loan losses and reserves for unfunded commitments222334 NOTE 3 – EARNINGS PER SHARE Calculation of basic and diluted earnings per share for the reported periods | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $479,657 | $(96,000) | $1,073,650 | $173,793 | | Weighted average common shares outstanding | 2,847,191 | 2,832,974 | 2,845,493 | 2,831,174 | | Basic and diluted net income per share | $0.17 | $(0.03) | $0.38 | $0.06 | - Basic and diluted EPS significantly improved to $0.17 for the three months and $0.38 for the six months ended June 30, 2021, compared to losses or lower gains in the prior year, reflecting increased net income42 NOTE 4 – INVESTMENT SECURITIES Details on the Company's investment securities portfolio, including classification, fair value, and unrealized gains/losses - The Company held no trading or held-to-maturity securities at June 30, 2021, or December 31, 2020; all investment securities are classified as available-for-sale and reported at fair value with unrealized gains/losses in other comprehensive income43 | Investment Category | Amortized Cost (June 30, 2021) ($) | Fair Value (June 30, 2021) ($) | Amortized Cost (Dec 31, 2020) ($) | Fair Value (Dec 31, 2020) ($) | | :-------------------------------- | :----------------------------- | :------------------------- | :---------------------------- | :-------------------------- | | Collateralized mortgage obligations | $25.24M | $25.45M | $24.26M | $24.64M | | Agency mortgage-backed securities | $32.57M | $33.04M | $26.07M | $26.95M | | Municipal securities | $41.93M | $42.69M | $28.68M | $29.41M | | Corporate securities | $1.50M | $1.50M | $0 | $0 | | U.S. Government agency securities | $55.98M | $54.92M | $33.35M | $33.05M | | Total securities available for sale | $157.22M | $157.59M | $112.35M | $114.05M | - At June 30, 2021, the Company recorded total unrealized losses of $1.56 million on 87 debt securities, primarily due to decreases in market value and spread volatility, but management does not believe these are credit loss impairments as there is no intent or requirement to sell before recovery48 NOTE 5 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES Analysis of the loan portfolio, including segment breakdown, allowance for credit losses, and non-accrual loans - Net loans decreased by $20.3 million (8.05%) from $252.3 million at December 31, 2020, to $232.0 million at June 30, 2021, with significant decreases in automobile loans and Commercial SBA PPP loans57 | Loan Portfolio Segment | June 30, 2021 (Amount) ($) | June 30, 2021 (%) | December 31, 2020 (Amount) ($) | December 31, 2020 (%) | | :-------------------------------- | :----------------------- | :---------------- | :------------------------- | :-------------------- | | Loans Secured by Real Estate | $147.49M | 63% | $148.56M | 58% | | Commercial and Industrial | $21.43M | 9% | $27.91M | 11% | | Consumer Loans | $65.95M | 28% | $77.31M | 31% | | Loans, net of deferred fees and costs | $234.87M | 100% | $253.77M | 100% | | Less: Allowance for credit losses | $(2.89M) | | $(1.48M) | | | Loans, net | $231.98M | | $252.30M | | - The allowance for credit losses increased to $2,887 thousand at June 30, 2021, from $1,476 thousand at December 31, 2020, largely due to the adoption of the CECL methodology, which resulted in a $1,574 thousand impact upon adoption566197 - Non-accrual loans decreased from $4,512 thousand at December 31, 2020, to $4,109 thousand at June 30, 2021, and the allowance for loan losses to nonaccrual & 90+ days past due and still accruing loans improved from 32.6% to 69.9%697574 NOTE 6 – FAIR VALUE Information on fair value measurements, including the hierarchy used for valuation and specific asset/liability categories - The Company uses a fair value hierarchy (Level 1, 2, 3) for valuation, with most investment securities available-for-sale and interest rate swaps classified as Level 2, and impaired loans as Level 38587 | Asset/Liability | Fair Value (June 30, 2021) ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | | :-------------------------------- | :------------------------- | :------ | :------ | :------ | | Securities available for sale | $157.59M | $0 | $157.59M | $0 | | Interest rate swap | $(722) | $0 | $(722) | $0 | | Impaired loans | $4.10M | $0 | $0 | $4.10M | | Total | $160.98M | $0 | $156.87M | $4.11M | - Impaired loans totaled $4.1 million at June 30, 2021, with specific reserves of $10 thousand, valued using Level 3 inputs, primarily based on discounted independent appraisals87 NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS Discussion of recently adopted and pending accounting standards, including the impact of CECL adoption - The Company early adopted ASU 2016-13 (CECL) on January 1, 2021, resulting in a $1.47 million decrease to retained earnings for the cumulative effect9697 | Allowance for Credit Losses | December 31, 2020 ($) | CECL Adoption Impact ($) | January 1, 2021 ($) | | :-------------------------------- | :------------------ | :------------------- | :-------------- | | Total allowance for loan losses | $1,476 | $1,574 | $3,050 | | Reserve for unfunded commitments | $33 | $457 | $490 | | Total allowance for credit losses | $1,509 | $2,031 | $3,540 | | Decrease to retained earnings (net of tax) | | $1,472 | | - The Company is currently evaluating the impact of ASU No. 2020-04 and ASU No. 2021-01, both related to Reference Rate Reform, on its consolidated financial statements100103105 NOTE 8 – REVENUE RECOGNITION Explanation of the Company's policies for recognizing revenue from various sources - The Company adopted ASU No. 2014-09 (Topic 606) on January 1, 2018, with no material impact on revenue measurement or recognition, as most revenue is from financial instruments outside Topic 606's scope106107 - Noninterest revenue streams, such as service charges on deposit accounts and other fees (debit card income, ATM fees, merchant services), are recognized when services are provided or completed108109110 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the Company's financial performance, condition, market risk, liquidity, capital, and critical accounting policies, including COVID-19 and CECL impacts FORWARD-LOOKING STATEMENTS Cautionary statement regarding forward-looking information and factors that could cause actual results to differ materially - The report contains forward-looking statements, and readers are cautioned not to place undue reliance on them, as actual results may differ materially due to various factors, including those in the Form 10-K and the impact of COVID-19111113 OVERVIEW Summary of the Company's financial performance and strategic position, including key financial ratios and capital strength - Total interest income declined by $384 thousand for the six months ended June 30, 2021, due to lower interest on loans and overnight funds, partially offset by increased interest on securities from a $73.1 million investment portfolio increase115 | Metric | Q2 2021 (%) | Q2 2020 (%) | YTD 2021 (%) | YTD 2020 (%) | | :---------------------- | :------ | :------ | :------- | :------- | | Return on average assets | 0.45% | (0.10)% | 0.51% | 0.09% | | Return on average equity | 5.51% | (1.05)% | 6.10% | 0.95% | - The Bank maintained strong liquidity and capital positions, with a total regulatory capital to risk-weighted assets ratio of 14.29% at June 30, 2021, exceeding 'well-capitalized' requirements115117 RESULTS OF OPERATIONS Detailed analysis of the Company's financial results, including net interest income, credit losses, and noninterest income/expenses Net Interest Income Analysis of interest income and expense, and their impact on net interest margin | Metric | Q2 2021 ($) | Q2 2020 ($) | YTD 2021 ($) | YTD 2020 ($) | | :-------------------- | :------ | :------ | :------- | :------- | | Net Interest Income | $3.02M | $2.94M | $5.89M | $5.99M | | Net Interest Margin | 2.92% | 3.12% | 2.92% | 3.23% | | Yield on earning assets | 3.18% | 3.54% | 3.20% | 3.69% | | Cost of funds | 0.28% | 0.45% | 0.29% | 0.49% | - Net interest income increased by $78 thousand (2.66%) for Q2 2021 but decreased by $92 thousand (1.53%) for the six-month period, primarily due to lower interest on loans and a decrease in the cost of interest-bearing deposits, offset by increased investment portfolio income121122123 - Net interest margin decreased for both periods (Q2: 2.92% vs 3.12%; YTD: 2.92% vs 3.23%), driven by lower yields on interest-earning assets and lower cost of funds in a reduced interest rate environment124 Provision for Credit Losses Review of the Company's provision for credit losses, reflecting changes in loan quality and economic conditions | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Release) provision for credit losses | $(67) | $487 | $(471) | $407 | | Allowance for credit losses to total loans | 1.23% | 0.84% | | | - The Company recognized a release of credit losses of $67 thousand for Q2 2021 and $471 thousand for the six-month period, a significant improvement from provisions in the prior year, mainly due to lower average loan balances and net loan recoveries128 Noninterest Income Analysis of income generated from sources other than interest, such as service charges and fees | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Noninterest Income | $280 | $228 | $527 | $484 | - Noninterest income increased by $52 thousand (22.81%) for Q2 2021 and $43 thousand (8.88%) for the six-month period, primarily driven by higher other fees and commissions and a gain on the sale of other real estate owned (OREO)129 Noninterest Expenses Review of operating expenses not directly related to interest-earning assets | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Noninterest Expenses | $2.79M | $2.81M | $5.62M | $5.85M | - Noninterest expenses slightly decreased by $15 thousand (0.53%) for Q2 2021 and by $230 thousand (3.93%) for the six-month period, mainly due to reductions in salary and benefits, occupancy, and legal/accounting fees, partially offset by increases in data processing and telephone costs130 Income Taxes Analysis of income tax expense or benefit and the effective tax rate | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense (benefit) | $91 | $(32) | $197 | $43 | | Annualized effective tax rate | 15.83% | 20.05% | | | - Income tax expense increased significantly for Q2 2021 due to higher income before taxes, while the annualized effective tax rate decreased to 15.83% due to an increase in tax-exempt municipal securities131 Comprehensive Income (Loss) Review of comprehensive income, including net income and other comprehensive income components - Comprehensive income for Q2 2021 increased to $2.17 million from $259 thousand in 2020, driven by higher net income and unrealized gains on available-for-sale securities and interest rate swaps132 - For the six-month period, comprehensive income decreased to $277 thousand from $689 thousand in 2020, primarily due to higher net unrealized losses on available-for-sale securities, despite higher net income132 FINANCIAL CONDITION Assessment of the Company's financial position, including asset and liability trends, and capital adequacy General Overview of changes in total assets, loans, and cash and cash equivalents - Total assets increased by $13.3 million (3.17%) to $432.8 million at June 30, 2021, primarily due to a $43.6 million (38.18%) increase in investment securities available for sale, offset by a $20.3 million (8.05%) decrease in net loans133 - The decrease in loans was mainly attributable to reductions in single-family residential, multi-family residential, commercial and industrial, commercial SBA PPP, consumer, and automobile loans133 - Cash and cash equivalents decreased by $10.3 million (27.83%) to $26.8 million, resulting from the purchase of investment securities135 Nonperforming Loans and Assets Analysis of asset quality, including nonaccrual loans, past due loans, and other nonperforming assets | Metric | June 30, 2021 ($) | December 31, 2020 ($) | | :------------------------------------ | :------------ | :---------------- | | Nonaccrual loans | $4,109 | $4,512 | | Accruing loans past due 90+ days | $15 | $18 | | Total nonperforming loans | $4,124 | $4,530 | | Real estate acquired through foreclosure | $0 | $575 | | Total nonperforming assets | $4,124 | $5,105 | | Nonperforming assets to total assets | 0.95% | 1.22% | - Total nonperforming assets decreased to $4.124 million at June 30, 2021, from $5.105 million at December 31, 2020, with the ratio of nonperforming assets to total assets improving from 1.22% to 0.95%139 - Impaired loans totaled $4.1 million at June 30, 2021, including $4.1 million in nonaccrual loans and $37 thousand in troubled debt restructurings138 Deposits Review of deposit trends, including changes in noninterest-bearing, interest-bearing, and time deposits | Deposit Type | June 30, 2021 (Amount) ($) | June 30, 2021 (% of Total) | December 31, 2020 (Amount) ($) | December 31, 2020 (% of Total) | | :------------------------------------------ | :----------------------- | :------------------------- | :------------------------- | :----------------------------- | | Noninterest-bearing deposits | $143.25M | 38.8% | $132.63M | 37.9% | | Interest-bearing checking, savings and money market | $159.33M | 43.2% | $148.71M | 42.6% | | Total time deposits | $66.30M | 18.0% | $68.28M | 19.5% | | Total Deposits | $368.88M | 100.0% | $349.62M | 100.0% | - Total deposits increased by $19.3 million (5.51%) to $368.9 million at June 30, 2021, driven by increases in noninterest-bearing deposits, interest-bearing checking, savings, and money market accounts139141 - Time deposits, both under and over $100,000, experienced slight decreases140141 Lease Commitments Information on the Company's lease obligations and the adoption of new lease accounting guidance - The Bank adopted lease guidance (FASB Leases) on January 1, 2019, recognizing operating lease ROU assets and liabilities, with no material effect on financial statements upon initial adoption142143 | Year ending December 31, | Amount (dollars in thousands) ($) | | :----------------------- | :---------------------------- | | 2021 | $97 | | 2022 | $177 | | 2023 | $156 | | 2024 | $161 | | 2025 | $3 | | Thereafter | $2 | | Total | $596 | Pension and Profit Sharing Plans Details on the Company's defined contribution retirement plan and employer contributions - The Bank has a defined contribution 401(k) retirement plan with discretionary employer matching contributions, and for the six months ended June 30, 2021, $223 thousand was accrued for projected 401(k) match and other profit-sharing benefits144145 MARKET RISK AND INTEREST RATE SENSITIVITY Assessment of the Company's exposure to interest rate fluctuations and strategies for managing this risk - The Company's primary market risk is interest rate fluctuation, managed by the Asset Liability Committee (ALCO) to maximize stockholder value and protect against material financial consequences from rate changes146 | Estimated Changes in Net Interest Income | -200 bp (%) | -100 bp (%) | +100 bp (%) | +200 bp (%) | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Policy Limit | (15)% | (10)% | (10)% | (15)% | | June 30, 2021 | (9)% | (6)% | 10 % | 17 % | | June 30, 2020 | (6)% | (4)% | 7 % | 13 % | - At June 30, 2021, the Bank was in a neutral to slightly asset-sensitive position, which is theoretically favorable in a rising rate environment, and measures of net interest income at risk remained within policy limits154158 | Estimated Changes in Economic Value of Equity (EVE) | -200 bp (%) | -100 bp (%) | +100 bp (%) | +200 bp (%) | | :-------------------------------------------------- | :------ | :------ | :------ | :------ | | Policy Limit | (15)% | (10)% | (10)% | (15)% | | June 30, 2021 | (37)% | (19)% | 9 % | 6 % | | June 30, 2020 | (23)% | (23)% | 27 % | 45 % | LIQUIDITY AND CAPITAL RESOURCES Discussion of the Company's ability to meet its financial obligations and maintain adequate capital levels - The Company's principal liquidity sources are cash on hand and dividends from the Bank, while the Bank's sources include net income, deposits, loan payments, and investment securities proceeds163164 - At June 30, 2021, the Bank had access to a $109.2 million line of credit from the FHLB of Atlanta and had $20.0 million in short-term and $5.2 million in long-term borrowings outstanding166 | Capital Ratio | Actual (June 30, 2021) (%) | Adequately Capitalized Minimum (%) | Well Capitalized Minimum (%) | | :-------------------- | :--------------------- | :----------------------------- | :----------------------- | | Common equity tier 1 | 13.45% | 4.50% | 6.50% | | Total capital | 14.29% | 8.00% | 10.00% | | Tier 1 capital | 13.45% | 6.00% | 8.00% | | Tier 1 leverage | 8.58% | 4.00% | 5.00% | - The Bank was in full compliance with all 'well-capitalized' regulatory capital requirements at June 30, 2021, with strong ratios across all categories170 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Overview of accounting policies and estimates that require significant judgment and could materially impact financial results Allowance for Credit Losses Explanation of the methodology and key assumptions used in estimating the allowance for credit losses - The ACL is a critical accounting estimate, significantly influenced by credit risk, historical loss rates, and management's quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts175 - The adoption of the CECL methodology on January 1, 2021, replaced the 'incurred loss' approach with an 'expected loss' approach, requiring immediate recognition of expected credit losses over the life of an exposure173174 - Future ACL calculations will be significantly influenced by loan portfolio composition, characteristics, quality, and prevailing economic conditions, potentially leading to greater volatility in reported earnings176 Valuation of the Securities Portfolio Description of the methods and assumptions used to determine the fair value and impairment of investment securities - Under ASC 326, the Company uses an allowance approach for AFS debt securities, measuring credit loss as the difference between amortized cost and expected collected amount over the security's lifetime, no longer relying on the length of time in an unrealized loss position178 - Impairment assessment for AFS securities is done at the individual security level, comparing the present value of expected future cash flows to the amortized cost basis to determine credit loss179 Accrued Taxes Explanation of the Company's policy for estimating and recognizing income tax expense - Management estimates income tax expense based on expected obligations to tax authorities, assessing the merits and risks of tax treatments considering statutory, judicial, and regulatory guidance182 Deferred Income Taxes Description of how deferred income taxes are recognized and the criteria for establishing valuation allowances - Deferred income taxes are recognized for temporary differences between financial and tax reporting, with deferred tax assets recognized only if realization is more likely than not, and a valuation allowance established if doubt arises183184 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Glen Burnie Bancorp is exempt from providing market risk disclosures under this item - The Company is a 'smaller reporting company' and is exempt from providing disclosures under Item 3185 ITEM 4. CONTROLS AND PROCEDURES Management's evaluation of the effectiveness of disclosure controls and procedures and internal control over financial reporting - The Company's disclosure controls and procedures are designed to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely186 - The CEO and CFO concluded that the system of disclosure controls and procedures was effective as of June 30, 2021188 - There have been no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter188 PART II. OTHER INFORMATION This section includes legal proceedings, equity sales, senior security defaults, mine safety, COVID-19 impact details, and a comprehensive list of exhibits ITEM 1. LEGAL PROCEEDINGS Information on any material legal proceedings involving the Company - The Company is party to litigation arising from normal banking and financial activities189 - Management does not anticipate that any ultimate liability from these legal matters will materially affect the Company's financial condition, operating results, or liquidity189 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Disclosure of any unregistered sales of equity securities and the application of their proceeds - No unregistered sales of equity securities or use of proceeds occurred190 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Reporting of any defaults on senior securities - No defaults upon senior securities occurred191 ITEM 4. MINE SAFETY DISCLOSURES Disclosure requirements related to mine safety - Mine Safety Disclosures are not applicable to the Company192 ITEM 5. OTHER INFORMATION Additional material information not covered elsewhere, including the ongoing impact of the COVID-19 pandemic - The COVID-19 pandemic continues to negatively impact the global economy and the Company's markets, with an extended period of disruption potentially affecting business, results of operations, and financial condition193 - As of June 30, 2021, all 225 deferred payment loans (totaling $39.8 million) from borrowers facing COVID-19 difficulties are now paying as agreed193 - The Bank approved 133 PPP loan requests totaling $17.4 million in 2020 and an additional 51 requests totaling $6.7 million in 2021, utilizing the PPP Liquidity Facility (PPPLF) and benefiting from zero percent risk weighting for these loans197 ITEM 6. EXHIBITS A comprehensive list of all exhibits filed with the quarterly report - The exhibits include corporate governance documents (Articles of Incorporation, By-Laws), employee benefit plans (Director Stock Purchase Plan, Employee Stock Purchase Plan, Change-in-Control Severance Plan), and regulatory certifications (Rule 15d-14(a) Certifications, Section 1350 Certifications, XBRL documents)200 SIGNATURES This section contains the required signatures of the registrant's authorized officers, confirming the quarterly report submission - The report is duly signed by John D. Long, President and Chief Executive Officer, and Jeffrey D. Harris, Chief Financial Officer, on behalf of Glen Burnie Bancorp203