Glen Burnie Bancorp(GLBZ) - 2022 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for Glen Burnie Bancorp as of June 30, 2022, reflect decreased assets, lower net income, and reduced equity due to unrealized securities losses Consolidated Balance Sheets Total assets decreased to $429.4 million and stockholders' equity sharply declined to $21.3 million, driven by increased accumulated other comprehensive loss from unrealized securities losses Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (unaudited) | December 31, 2021 (audited) | | :--- | :--- | :--- | | Total Assets | $429,393 | $442,066 | | Cash and Cash Equivalents | $51,366 | $62,181 | | Investment securities available for sale, at fair value | $157,823 | $155,927 | | Loans, net | $198,460 | $207,922 | | Total Liabilities | $408,128 | $406,350 | | Total Deposits | $385,765 | $383,247 | | Total Stockholders' Equity | $21,265 | $35,716 | | Accumulated other comprehensive loss | $(15,350) | $(874) | Consolidated Statements of Income Net income for H1 2022 decreased to $0.54 million from $1.07 million, primarily due to lower net interest income and a smaller release for credit losses, compressing the net interest margin Consolidated Income Statement Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $2,803 | $3,016 | $5,484 | $5,894 | | Release for credit losses | $(116) | $(67) | $(217) | $(471) | | Noninterest Income | $260 | $280 | $514 | $527 | | Noninterest Expense | $2,835 | $2,792 | $5,619 | $5,621 | | Net Income | $309 | $480 | $540 | $1,074 | | Basic and diluted EPS | $0.11 | $0.17 | $0.19 | $0.38 | Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss of $13.9 million for the six-month period, primarily driven by a $14.9 million net unrealized loss on available-for-sale securities Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Income | $309 | $540 | | Other comprehensive (loss) income | $(6,068) | $(14,476) | | Net unrealized (loss) on securities | (6,202) | (14,854) | | Net unrealized gain on swaps | 134 | 378 | | Comprehensive (loss) income | $(5,759) | $(13,936) | Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity decreased by $14.5 million to $21.3 million at June 30, 2022, primarily due to other comprehensive loss from unrealized securities losses Changes in Stockholders' Equity - Six Months Ended June 30, 2022 (in thousands) | Item | Amount | | :--- | :--- | | Balance, December 31, 2021 | $35,716 | | Net income | $540 | | Cash dividends, $0.20 per share | $(571) | | Other comprehensive loss | $(14,476) | | Balance, June 30, 2022 | $21,265 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $10.8 million for the six months ended June 30, 2022, driven by net cash used in investing activities, partially offset by operating and financing cash flows Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $534 | $1,534 | | Net cash provided by (used in) investing activities | $(13,352) | $(25,944) | | Net cash provided by financing activities | $2,003 | $14,085 | | Net decrease in cash and cash equivalents | $(10,815) | $(10,325) | Notes to Consolidated Financial Statements This section details accounting policies, including CECL adoption, investment securities, loan portfolio, fair value measurements, and recent accounting pronouncements Note 2 - Basis of Presentation Financial statements conform to U.S. GAAP, with a key policy being the adoption of ASU 2016-13 (CECL) for estimating expected credit losses on financial assets - The Company adopted the Current Expected Credit Loss (CECL) methodology on January 1, 2021, which requires an estimate of credit losses expected over the life of an exposure, replacing the previous incurred loss model[22] - The allowance for credit losses (ACL) is based on a quarterly assessment using historical loss experience (20-year look-back), adjusted for current conditions and reasonable future economic forecasts[23][26][27] - The reserve for unfunded commitments, which totaled $30.2 million on June 30, 2022, is also calculated using the CECL methodology[34] Note 4 - Investment Securities The investment portfolio, entirely AFS securities valued at $157.8 million, experienced significant unrealized losses of $21.4 million due to rising interest rates, which management deems temporary Investment Securities Portfolio (in thousands) | Security Type | Amortized Cost (Jun 2022) | Fair Value (Jun 2022) | Fair Value (Dec 2021) | | :--- | :--- | :--- | :--- | | Collateralized mortgage obligations | $19,105 | $17,756 | $21,688 | | Agency mortgage-backed securities | $62,834 | $58,410 | $56,189 | | Municipal securities | $43,153 | $33,990 | $45,225 | | U.S. Government agency securities | $45,498 | $39,356 | $31,351 | | Total AFS Securities | $179,081 | $157,823 | $155,927 | - Gross unrealized losses on AFS securities increased tenfold from $2.1 million at Dec 31, 2021 to $21.4 million at June 30, 2022, affecting 239 securities[45][47] - Management believes the unrealized losses are temporary and not due to credit quality issues, stating it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis[47] Note 5 - Loans Receivable and Allowance for Credit Losses Net loans decreased to $198.5 million, while the allowance for credit losses stood at $2.2 million and non-accrual loans improved to $220,000 Loan Portfolio Composition (in thousands) | Loan Class | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Single-family residential | $80,170 | $78,119 | | Commercial Real Estate | $45,081 | $48,729 | | Automobile | $47,993 | $54,150 | | Commercial and industrial | $15,591 | $17,447 | | Other | $11,863 | $12,005 | | Total Loans | $200,698 | $210,392 | Allowance for Credit Losses (ACL) Activity - H1 2022 (in thousands) | Activity | Amount | | :--- | :--- | | Beginning Balance (Jan 1, 2022) | $2,470 | | Charge-offs | $(107) | | Recoveries | $92 | | Release for credit losses | $(217) | | Ending Balance (Jun 30, 2022) | $2,238 | Asset Quality - Non-accrual Loans (in thousands) | Loan Class | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Single-family residential | $110 | $123 | | Automobile | $110 | $144 | | SBA guaranty | $0 | $71 | | Total Non-accrual | $220 | $338 | Note 6 - Fair Value The company utilizes a three-level fair value hierarchy, with most recurring fair value assets, primarily AFS securities totaling $157.8 million, classified as Level 2 - ASC 820 establishes a three-level fair value hierarchy: Level 1 (quoted prices for identical assets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[86][88] Fair Value Measurements at June 30, 2022 (in thousands) | Asset/Liability Type | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | | Recurring: | | | | | | Securities available for sale | $— | $157,823 | $— | $157,823 | | Interest rate swap | $— | $80 | $— | $80 | | Non-recurring: | | | | | | Impaired loans | $— | $— | $206 | $206 | Note 7 - Recent Accounting Pronouncements The company adopted ASU 2016-13 (CECL) on January 1, 2021, resulting in a $1.47 million decrease to retained earnings due to an increased allowance for credit losses - The Company early adopted ASU 2016-13 (CECL) on January 1, 2021[97] Impact of CECL Adoption on Jan 1, 2021 (in thousands) | Item | Dec 31, 2020 Balance | Adoption Impact | Jan 1, 2021 Balance | | :--- | :--- | :--- | :--- | | Allowance for credit losses (Loans) | $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 (after-tax) | | $1,472 | | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2022 financial performance, noting decreased net income and shareholder equity from unrealized securities losses, yet maintaining strong liquidity and capital - Shareholder's equity decreased by $14.5 million (40.46%) to $21.3 million at June 30, 2022, primarily due to $15.4 million in unrealized losses (net of tax) on available-for-sale securities[108] - Net income for the first six months of 2022 was $0.54 million, down from $1.1 million in the same period of 2021, mainly due to a $410,000 decrease in net interest income[113] - The Bank remains well-capitalized, with a total regulatory capital to risk-weighted assets ratio of 15.90% at June 30, 2022[108] Results of Operations Net income for H1 2022 decreased to $0.54 million from $1.1 million, primarily due to lower net interest income and a smaller release for credit losses, compressing the net interest margin Key Performance Ratios | Ratio | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Return on average assets (ROA) | 0.25% | 0.51% | | Return on average equity (ROE) | 3.69% | 6.10% | | Net interest margin | 2.57% | 2.92% | - Net interest income for H1 2022 decreased by $410,000 (7.0%) to $5.5 million, due to lower interest income on loans from a smaller loan portfolio, partially offset by lower deposit costs[114] - The company recognized a release of allowance for credit losses of $217,000 in H1 2022, compared to a larger release of $471,000 in H1 2021[124] Financial Condition Total assets decreased to $429.4 million due to lower cash and loans, while deposits modestly grew to $385.8 million and nonperforming assets improved to $232,000 Nonperforming Assets (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Nonaccrual loans | $220 | $338 | | Accruing loans past due 90+ days | $12 | $15 | | Total nonperforming loans | $232 | $353 | | Real estate acquired through foreclosure | $0 | $0 | | Total nonperforming assets | $232 | $353 | | Nonperforming assets to total assets | 0.05% | 0.08% | Deposit Composition (in thousands) | Deposit Type | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Noninterest-bearing deposits | $151,679 | $155,624 | | Interest-bearing checking, savings, money market | $175,252 | $167,226 | | Time deposits | $58,834 | $60,397 | | Total Deposits | $385,765 | $383,247 | Liquidity and Capital Resources The Bank maintains strong liquidity with $51.4 million in cash and access to $109.3 million FHLB credit, remaining well-capitalized despite equity decrease from unrealized securities losses - The Bank's cash and cash equivalents totaled $51.4 million at June 30, 2022[157] - The Bank has access to a $109.3 million FHLB line of credit, with $20 million drawn as of June 30, 2022. It also has $17 million in unsecured federal funds lines of credit, with $0 outstanding[158] Regulatory Capital Ratios (Bank Level) - June 30, 2022 | Ratio | Actual | To Be Well Capitalized | | :--- | :--- | :--- | | Common equity tier 1 | 15.13% | ≥ 6.50% | | Tier 1 capital | 15.13% | ≥ 8.00% | | Total capital | 15.90% | ≥ 10.00% | | Tier 1 leverage | 8.58% | ≥ 5.00% | Market Risk and Interest Rate Sensitivity The company's primary market risk is interest rate fluctuation, with simulation indicating an asset-sensitive position where a -200 bp rate shock would decrease EVE by 19%, exceeding policy limits - The company's simulation analysis indicates an asset-sensitive position, meaning assets are expected to reprice faster than liabilities in a changing rate environment[148] Estimated Change in Net Interest Income (NII) over 12 Months | Rate Shock | June 30, 2022 | Policy Limit | | :--- | :--- | :--- | | +200 bp | +13% | (15)% | | +100 bp | +6% | (10)% | | -100 bp | -7% | (10)% | | -200 bp | -14% | (15)% | Estimated Change in Economic Value of Equity (EVE) | Rate Shock | June 30, 2022 | Policy Limit | | :--- | :--- | :--- | | +200 bp | +8% | (15)% | | +100 bp | +5% | (10)% | | -100 bp | -7% | (10)% | | -200 bp | (19)% | (15)% | Critical Accounting Policies and Estimates Management identifies the Allowance for Credit Losses (ACL), securities valuation, and income tax estimation as critical accounting policies requiring significant judgment - The determination of the Allowance for Credit Losses (ACL) is a critical accounting estimate, requiring significant judgment regarding borrower risk, future cash flows, historical loss rates, and economic forecasts under the CECL model[169][174] - Valuation of the securities portfolio is another key estimate, involving the assessment of whether declines in fair value are credit-related or due to other factors like interest rate changes[176][177] - Estimating accrued and deferred income taxes requires management to assess the merits of tax positions and the likelihood of realizing deferred tax assets[180][181] Quantitative and Qualitative Disclosures about Market Risk As a 'smaller reporting company', the company is exempt from providing this disclosure - As a 'smaller reporting company', the Company is not required to provide disclosure for this item[184] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[185] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[185] Part II. OTHER INFORMATION Legal Proceedings Management does not expect ongoing litigation to materially affect the company's financial condition, results, or liquidity - Management does not anticipate that the ultimate liability from any ongoing litigation will have a material effect on the Company's financial condition, operating results, or liquidity[186] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None reported[187] Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported[188] Mine Safety Disclosures This item is not applicable to the company - Not applicable[189] Other Information No other information was reported for this item - None reported[190] Exhibits This section lists the exhibits filed with the report, including corporate documents and CEO/CFO certifications - Lists filed exhibits, including CEO and CFO certifications (31.1, 31.2, 32) and Inline XBRL documents (101 series)[191]