Glen Burnie Bancorp(GLBZ) - 2021 Q4 - Annual Report

Part I Business Glen Burnie Bancorp operates as a community-focused commercial bank in Maryland, generating revenue primarily from net interest income - Glen Burnie Bancorp is a bank holding company whose main subsidiary is The Bank of Glen Burnie, the oldest independent commercial bank in Anne Arundel County, Maryland[18] - The Bank's primary business involves accepting deposits and originating various loans, including residential and commercial real estate, commercial loans, and indirect automobile loans[18][19] - The company's strategy is to differentiate itself through personalized service, local decision-making, and flexibility, targeting small-to-medium-sized businesses and consumers[25][26] - The company faces competition from a range of financial institutions, including larger banks, savings institutions, and credit unions, competing on interest rates, service quality, and convenience[23][24] - The Company and the Bank are extensively regulated by multiple federal and state agencies, including the Federal Reserve Board, the FDIC, and the Maryland Commissioner of Financial Regulation[55][56][57] Products and Services The Bank offers a full range of lending products, including real estate and auto loans, and deposit services for individuals and businesses - The Bank's lending portfolio includes residential and commercial real estate, construction, commercial, and consumer installment loans, with a focus on indirect automobile lending[27][29] - Loan approval authority is structured in tiers: individual officers up to $750,000, the Officer's Loan Committee up to $1,000,000, the Executive Committee up to $3,000,000, and the Board of Directors for greater amounts[31] - The indirect automobile lending program, started in 1998, operates through a network of approximately 60 dealers, primarily financing vehicles for terms up to 84 months[42][44] - Deposit products are a major source of funding and include demand, money market, savings accounts, and time deposits, complemented by treasury services and online/mobile banking[52][53] Supervision and Regulation The company and its bank subsidiary operate under extensive federal and state regulations governing capital, lending, and consumer protection - The Company is a bank holding company regulated by the Federal Reserve Board, while the Bank is a state non-member bank regulated by the FDIC and the Maryland Commissioner of Financial Regulation[56][57] - The Bank must adhere to Basel III capital rules, which mandate specific minimum capital ratios plus a capital conservation buffer; the Bank was in compliance as of December 31, 2021[75][79] - The Dodd-Frank Act significantly changed financial regulation, established the Consumer Financial Protection Bureau (CFPB), and imposed higher operating costs for compliance[63][64][65] - Dividend payments by the Bank are restricted by law, requiring prior approval if they exceed the sum of net income for the current year and retained net income for the previous two years[88] - The Bank maintains a "satisfactory" rating for compliance with the Community Reinvestment Act (CRA), which is considered in regulatory reviews[86] Properties The Bank owns its main office and most of its branch locations, with two branches and two operations centers supporting its network Office and Branch Details | Office Location | Status | Approx. Square Footage | Deposits (in thousands) | | :--- | :--- | :--- | :--- | | Main Office: | | | | | 101 Crain Highway, S.E., Glen Burnie | Owned | 10,000 | $98,515 | | Branches: | | | | | Odenton | Owned | 6,000 | $38,221 | | Riviera Beach | Owned | 2,500 | $41,347 | | Crownsville | Owned | 3,000 | $81,749 | | Severn (Reece Road) | Owned | 2,500 | $36,671 | | Severn (New Cut Road) | Owned | 2,600 | $50,116 | | Linthicum | Leased | 2,500 | $24,595 | | Severna Park | Leased | 2,184 | $12,033 | | Operations Centers: | | | | | 106 Padfield Blvd., Glen Burnie | Owned | 16,200 | N/A | | 103 Crain Highway, S.E., Glen Burnie | Owned | 3,727 | N/A | Legal Proceedings The company faces no material legal actions beyond routine proceedings arising in the ordinary course of business - Management believes there are no pending or threatened legal proceedings expected to have a material adverse effect on the Company's financial condition or operations[100] Executive Officers of the Registrant The company is led by an experienced executive team with deep expertise in the banking industry Executive Leadership (as of Dec 31, 2021) | Name | Age | Position | | :--- | :--- | :--- | | John D. Long | 66 | President and Chief Executive Officer | | Andrew J. Hines | 60 | Executive Vice President and Chief Lending Officer | | Jeffrey D. Harris | 66 | Senior Vice President and Treasurer and Chief Financial Officer | | Michelle R. Stambaugh | 62 | Senior Vice President and HR Director | | Donna L. Smith | 59 | Senior Vice President and Director of Branch and Deposit Operations | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq, with a consistent history of paying quarterly dividends to its shareholders - The Company's common stock trades on the Nasdaq Capital Market under the symbol "GLBZ"; as of February 17, 2022, there were 330 record holders[108] - The ability to pay dividends depends on the Bank's earnings and is subject to regulatory oversight, but the Company does not anticipate these restrictions will materially limit future dividend payments[111] Stock Price and Dividend Data | Quarter Ended | 2021 High | 2021 Low | 2021 Dividends | 2020 High | 2020 Low | 2020 Dividends | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | March 31 | $11.55 | $11.18 | $0.10 | $7.98 | $7.98 | $0.10 | | June 30 | $13.01 | $12.67 | $0.10 | $8.49 | $8.49 | $0.10 | | September 30 | $12.12 | $12.12 | $0.10 | $10.30 | $10.27 | $0.10 | | December 31 | $14.14 | $14.00 | $0.10 | $11.00 | $10.76 | $0.10 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased in 2021 due to lower expenses and credit loss provisions, while assets grew despite a decrease in the loan portfolio Comparison of Results of Operations (2021 vs. 2020) Net income rose significantly in 2021, driven by reduced interest and noninterest expenses and a larger credit loss provision release - The increase in net income was primarily driven by lower interest expense (down 29.11%), lower noninterest expense (down 6.36%), and a larger release of credit loss provisions[121][125][141] - Noninterest income decreased by 38.04% mainly due to a $0.6 million loss on the sale of investment securities in 2021[140] - The net interest margin decreased to 3.00% in 2021 from 3.18% in 2020[125] Key Performance Metrics | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income | $2.5 million | $1.7 million | +$0.8 million | | Basic and Diluted EPS | $0.88 | $0.59 | +$0.29 | | Net Interest Income | $12.4 million | $12.2 million | +$0.2 million | | Total Interest Income | $13.5 million | $13.7 million | -$0.2 million | | Total Interest Expense | $1.1 million | $1.5 million | -$0.4 million | | Release of Credit Loss Provision | $1.0 million | $0.7 million | +$0.3 million | | Noninterest Income | $0.6 million | $1.0 million | -$0.4 million | | Noninterest Expense | $11.0 million | $11.7 million | -$0.7 million | Financial Condition Total assets grew due to increased cash and investments funded by deposit growth, while the loan portfolio contracted - The decrease in the loan portfolio was primarily due to pay downs outpacing $55.8 million in new originations, with decreases across real estate, commercial, and consumer loan categories[156] - The investment portfolio was restructured in 2021 to lower its overall duration, resulting in the sale of approximately $33.4 million in securities and a pre-tax loss of about $591,300[151] - Nonperforming assets decreased significantly by 92.2% from $5.1 million in 2020 to $0.35 million in 2021, primarily due to the resolution of nonaccrual loans and the sale of OREO[165][167] - The allowance for credit losses increased from $1.5 million (0.58% of loans) to $2.5 million (1.17% of loans), largely driven by the adoption of the CECL methodology[171][172] Balance Sheet Summary | Balance Sheet Item | Dec 31, 2021 | Dec 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $442.1 million | $419.5 million | +5.38% | | Cash and Cash Equivalents | $62.2 million | $37.1 million | +67.6% | | Investment Securities | $155.9 million | $114.0 million | +36.7% | | Total Loans, net | $207.9 million | $252.3 million | -17.6% | | Total Deposits | $383.2 million | $349.6 million | +9.62% | | Total Borrowings | $20.0 million | $29.9 million | -33.1% | | Stockholders' Equity | $35.7 million | $37.1 million | -3.71% | Capital Resources and Liquidity The Bank maintains a strong, well-capitalized position and robust liquidity supported by deposits and available borrowing capacity - Stockholders' equity decreased by $1.4 million to $35.7 million in 2021, mainly due to $1.8 million in net unrealized losses on the available-for-sale bond portfolio[184] - Primary sources of liquidity include the deposit base, amortization of loans and securities, and funds from operations; liquid assets included $62.2 million in cash and $156.0 million in available-for-sale securities[197][199] - The Bank has external liquidity sources, including $88.2 million available from the FHLB and $17.0 million in unsecured federal funds lines at year-end 2021[200][201] Bank Capital Ratios | Capital Ratios (Bank) | Dec 31, 2021 (Actual) | Well Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 Ratio | 15.32% | 6.50% | | Tier 1 Risk-Based Capital Ratio | 15.32% | 8.00% | | Total Risk-Based Capital Ratio | 16.03% | 10.00% | | Tier 1 Leverage Ratio | 8.40% | 5.00% | Market Risk and Critical Accounting Policies The company's primary market risk is interest rate fluctuation, managed via simulation analysis, with key accounting policies in place - The primary market risk is interest rate risk, managed by the ALCO; the Bank's interest rate risk profile was neutral to slightly asset-sensitive at year-end 2021[211][217] - The company identified three critical accounting policies requiring significant management judgment: Allowance for Credit Losses, Fair Value Measurements, and Accounting for Income Taxes[224] Net Interest Income Sensitivity | Estimated Change in Net Interest Income (12-month horizon) | +200 bp | +100 bp | -100 bp | -200 bp | | :--- | :--- | :--- | :--- | :--- | | December 31, 2021 | 20% | 9% | -7% | -11% | | December 31, 2020 | 15% | 6% | -5% | -7% | Economic Value of Equity (EVE) Sensitivity | Estimated Change in Economic Value of Equity (EVE) | +200 bp | +100 bp | -100 bp | -200 bp | | :--- | :--- | :--- | :--- | :--- | | December 31, 2021 | 9% | 6% | -18% | -40% | | December 31, 2020 | 12% | 8% | -26% | -37% | Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[235] - Based on an evaluation using the COSO framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2021[237] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2021[238] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and governance is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[242] Executive Compensation Details on executive and director compensation are incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[243] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by principal holders and management is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[244] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[245] Principal Accountant Fees and Services Details regarding principal accountant fees and services are incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[246] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the report, including key corporate documents - The report includes the consolidated financial statements for the years ended December 31, 2021 and 2020, along with the report of the independent registered public accounting firm[249] - Exhibits filed with the report include Articles of Incorporation, By-Laws, various employee and director compensation plans, consent from the public accounting firm (UHY LLP), and CEO/CFO certifications[251] Consolidated Financial Statements Consolidated Balance Sheets Total assets grew to $442.1 million in 2021, driven by higher cash and investments, while stockholders' equity slightly declined Balance Sheet Highlights (in thousands) | (dollars in thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | ASSETS | | | | Cash and Cash Equivalents | $62,181 | $37,093 | | Investment securities available for sale | $155,927 | $114,049 | | Loans, net | $207,922 | $252,296 | | Total Assets | $442,066 | $419,486 | | LIABILITIES & EQUITY | | | | Total Deposits | $383,247 | $349,620 | | Total Borrowings (Short & Long-term) | $20,000 | $29,912 | | Total Liabilities | $406,350 | $382,393 | | Total Stockholders' Equity | $35,716 | $37,093 | | Total Liabilities and Stockholders' Equity | $442,066 | $419,486 | Consolidated Statements of Income Net income increased to $2.5 million in 2021 from $1.7 million in 2020, boosted by higher net interest income and lower expenses Income Statement Highlights (in thousands) | (dollars in thousands, except per share) | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net Interest Income | $12,443 | $12,154 | | Release of credit loss provision | $(975) | $(689) | | Net interest income after provision | $13,418 | $12,843 | | Total Noninterest Income | $627 | $1,012 | | Total Noninterest Expenses | $10,952 | $11,696 | | Income before income taxes | $3,093 | $2,159 | | NET INCOME | $2,516 | $1,668 | | Basic and diluted net income per share | $0.88 | $0.59 | Note 1. Summary of Significant Accounting Policies This note details key accounting policies, including the significant adoption of the CECL standard for credit loss estimation in 2021 - The Company adopted ASU 2016-13 (CECL), effective January 1, 2021, changing the allowance for credit losses to a lifetime expected credit loss model[319][351] - The adoption of CECL resulted in a cumulative-effect adjustment that decreased retained earnings by $1,472,000 as of January 1, 2021[351][352] - The Company uses interest rate swap agreements, designated as cash flow hedges, to manage interest rate risk, with gains or losses reported in other comprehensive income[339] Note 4. Loans and Allowance for Credit Losses - Loans The loan portfolio decreased to $210.4 million in 2021, while the allowance for credit losses increased due to the CECL adoption - The allowance for credit losses increased from $1,476,000 to $2,470,000; the adoption of ASC 326 (CECL) added $1,574,000 to the allowance, offset by a provision release of $975,000[382] - Total nonaccrual loans decreased dramatically from $4,512,000 at the end of 2020 to $338,000 at the end of 2021[386] - As of December 31, 2021, the company had only one Troubled Debt Restructuring (TDR) with a recorded investment of $36,139, which was on nonaccrual status[398] Loan Portfolio Composition (in thousands) | Loan Category (Gross) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Loans Secured by Real Estate | $136,705 | $148,555 | | Commercial and Industrial Loans | $17,447 | $27,912 | | Consumer Loans | $56,240 | $77,305 | | Total Gross Loans | $210,392 | $253,772 | | Less: Allowance for credit losses | $(2,470) | $(1,476) | | Loans, net | $207,922 | $252,296 | Note 13. Stockholders' Equity The note details stockholders' equity components, dividend restrictions, and the Bank's well-capitalized regulatory status - Dividend payments are restricted; prior regulatory approval is needed for dividends exceeding the Bank's net profits for the current year plus retained net profits for the preceding two years[437] - The Company offers a dividend reinvestment plan allowing stockholders to purchase shares at 95% of fair market value; 11,841 shares were purchased under this plan in 2021[444] Regulatory Capital Ratios (Bank) | Regulatory Capital Ratios (Bank) | Actual (Dec 31, 2021) | Required for Well Capitalized Status | | :--- | :--- | :--- | | Common Equity Tier 1 Capital Ratio | 15.32% | 6.50% | | Total Risk-Based Capital Ratio | 16.03% | 10.00% | | Tier 1 Risk-Based Capital Ratio | 15.32% | 8.00% | | Tier 1 Leverage Ratio | 8.40% | 5.00% |