Glen Burnie Bancorp(GLBZ) - 2022 Q4 - Annual Report

PART I Item 1. Business Glen Burnie Bancorp, a Maryland-based bank holding company, operates through its subsidiary, The Bank of Glen Burnie, providing commercial and retail banking services primarily in Anne Arundel County, Maryland. The Bank focuses on personalized service for small-to-medium-sized businesses and individual consumers, offering a range of deposit and lending products. The Company and its subsidiary are subject to extensive federal and state regulations, including those from the Federal Reserve Board, FDIC, and Maryland Commissioner of Financial Regulation, which govern capital adequacy, lending practices, and consumer protection. - Glen Burnie Bancorp is a Maryland-based bank holding company, established in 1990, operating through its subsidiary, The Bank of Glen Burnie, which was organized in 1949. The Bank serves northern Anne Arundel County and surrounding areas with a main office and several branch locations[18] - The Bank's core business involves commercial and retail banking, including accepting demand and time deposits, and originating various loans such as residential and commercial mortgages, home equity lines, commercial loans, and indirect automobile loans[18][19] - The Bank differentiates itself by offering personalized service, flexibility, prompt decision-making, and direct access to senior management, aiming to fill a gap left by larger, more impersonal regional and national banks[25][26] General Business Description Glen Burnie Bancorp operates as a Maryland bank holding company through its subsidiary, The Bank of Glen Burnie, offering commercial and retail banking services. - Glen Burnie Bancorp, a Maryland bank holding company, owns The Bank of Glen Burnie, a commercial bank serving northern Anne Arundel County and surrounding areas since 1949. It offers commercial and retail banking, including deposits and various loans[18] Availability of Information Company information and SEC filings are accessible free of charge on The Bank of Glen Burnie's website. - Company information, including SEC filings (10-K, 10-Q, 8-K), is available free of charge on The Bank of Glen Burnie's website via a link to the SEC's EDGAR system under the 'Investor Relations' menu[21] Market Area The Bank's primary market for lending and deposits is Anne Arundel County, Maryland, with lending extending across the state. - The Bank's primary market for lending and deposits is Anne Arundel County, Maryland, a growing area with diverse economic drivers including an international airport, defense industry, and large private sector employers. Lending activities extend across the entire State of Maryland and, to a limited extent, surrounding states[22] Competition The Bank faces intense competition from various financial institutions, leveraging personalized service for small-to-medium-sized businesses. - The Bank faces intense competition for deposits and loans from other financial institutions, including savings institutions, commercial banks, credit unions, mutual funds, and securities firms. Credit unions have a significant cost advantage due to federal income tax exemptions[23][24] - Competition impacts the Bank's interest rates, loan and deposit terms, and product offerings. The Bank competes by offering competitive rates, responsive service, and personal service to small-to-medium-sized businesses[24] Strategy The Company's strategy focuses on serving small-to-medium-sized businesses and individual consumers with personalized service amidst industry consolidation. - The Company's strategy leverages banking industry consolidation, which has created opportunities for community banks to serve small-to-medium-sized businesses and individual consumers who seek personalized service and local decision-making, contrasting with the mass-market approach of larger institutions[25][26] Products and Services The Bank offers a comprehensive suite of consumer and commercial loans and deposit products, targeting small and medium-sized businesses. - The Bank's primary market focus is on small and medium-sized businesses, their owners, professionals, executives, real estate investors, and individual consumers in its primary market area, offering a full range of consumer and commercial loans and deposit products[27] General The Bank provides a full range of consumer and commercial loans, including real estate, construction, and indirect automobile lending. - The Bank offers a full range of consumer and commercial loans, including residential and commercial real estate, construction, land acquisition and development, commercial, and consumer installment loans (e.g., indirect automobile lending)[27][29] Lending Activities Lending activities are governed by Board-approved policies to manage credit risk, covering various loan types with specific approval authorities and conservative underwriting. - The Bank's lending activities are governed by Board-approved written policies to manage credit risk, including credit evaluation, lending limits, collateral requirements, and ongoing monitoring of credit deterioration. Loan approval authority ranges from individual lending officers ($750,000) to the Board of Directors (over $3,000,000)[30][31] - Real estate lending includes long-term residential and commercial mortgages, and shorter-term construction and land development loans, primarily secured by properties in Anne Arundel County, Maryland. The Bank maintains conservative loan-to-value ratios (e.g., 80% for owner-occupied residential mortgages) and avoids sub-prime lending[37] - Commercial loans include working capital, equipment, vehicle loans, lines of credit, and letters of credit, underwritten based on borrower creditworthiness. Indirect automobile lending, commenced in 1998, finances new and used vehicles through a network of local dealers, with strict underwriting and documentation guidelines[39][42][44][45] Deposit Activities Deposits serve as the Bank's primary funding source, offering diverse consumer and business products with competitive rates. - Deposits are the Bank's primary funding source, offering consumer and business products including demand, money market, savings, time deposits, and IRAs. The Bank aims to attract deposit relationships from its loan clients by offering competitive rates and commercial cash management products[52] Other Banking Products Beyond traditional deposits, the Bank offers treasury services, debit cards, ATMs, safe deposit boxes, and digital banking solutions. - Beyond traditional deposits, the Bank offers treasury services (wire transfer, ACH), debit cards, ATMs, safe deposit boxes, and digital banking services including telephone, mobile, and internet banking with bill pay and mobile deposit capture[53] Employees As of December 31, 2022, The Bank of Glen Burnie had 89 full-time equivalent employees with excellent employee relations. - As of December 31, 2022, The Bank of Glen Burnie had 89 full-time equivalent employees. None are union-represented, and management reports excellent employee relations[54] Supervision and Regulation Glen Burnie Bancorp and its subsidiary are subject to extensive federal and state regulations governing operations, capital, and consumer protection. - Glen Burnie Bancorp and its subsidiary Bank are extensively regulated by federal and state laws, including the Bank Holding Company Act (BHCA), Federal Reserve Board, FDIC, SEC, and Maryland Commissioner of Financial Regulation. These regulations cover operations, capital adequacy, lending, and consumer protection[55][56][57] - The Dodd-Frank Act significantly changed financial institution regulation, imposing heightened capital requirements and establishing the Consumer Financial Protection Bureau (CFPB). The Company has incurred higher operating costs due to compliance[63][64][65] - As of December 31, 2022, the Bank was categorized as 'well capitalized,' exceeding all minimum regulatory capital requirements, including common equity Tier 1, Tier 1, total risk-based capital, and leverage ratios[79][81] Item 2. Properties The Bank of Glen Burnie operates its main office and several branch locations, with most properties owned. The main office in Glen Burnie, MD, and six branches are owned, while two branches (Linthicum and Severna Park) are leased. The Bank also owns two operations centers. Property Ownership and Deposits (2022) | Location | Ownership | Book Value ($ thousands) | Approximate Square Footage | Deposits ($ thousands) | | :-------------------------- | :-------- | :----------------------- | :------------------------- | :--------------------- | | Main Office: Glen Burnie, MD | Owned | 857 | 10,000 | 82,828 | | Odenton, MD | Owned | 56 | 6,000 | 34,784 | | Riviera Beach, MD | Owned | 112 | 2,500 | 41,534 | | Crownsville, MD | Owned | 108 | 3,000 | 84,471 | | Severn, MD (811 Reece Road) | Owned | 46 | 2,500 | 37,950 | | Severn, MD (740 Stevenson Road) | Owned | 748 | 2,600 | 48,735 | | Linthicum, MD | Leased | 23 | 2,500 | 21,787 | | Severna Park, MD | Leased | 20 | 2,184 | 10,858 | | Operations Centers: Glen Burnie, MD (106 Padfield Blvd.) | Owned | — | 16,200 | N/A | | Operations Centers: Glen Burnie, MD (103 Crain Highway, S.E.) | Owned | — | 3,727 | N/A | Item 3. Legal Proceedings The Company and the Bank are routinely involved in legal proceedings arising from ordinary business activities, such as collection suits. Management, in consultation with legal counsel, believes no current pending or threatened legal actions are expected to have a material adverse effect on their financial condition or results of operations. - The Company and Bank are involved in routine legal proceedings, primarily collection suits, in the ordinary course of business. Management does not anticipate any material adverse effects on financial condition or operations from these proceedings[101] Item 4. Mine Safety Disclosures This item is not applicable to Glen Burnie Bancorp. - Mine Safety Disclosures are not applicable to the registrant[102] Executive Officers of the Registrant The executive leadership team of Glen Burnie Bancorp as of December 31, 2022, includes John D. Long as President and CEO, Andrew J. Hines as Executive Vice President and Chief Lending Officer, Jeffrey D. Harris as Senior Vice President, Treasurer, and CFO, Michelle R. Stambaugh as Senior Vice President and HR Director, and Donna L. Smith as Senior Vice President and Director of Branch and Deposit Operations. Executive Officers (2022) | Name | Age | Positions | | :-------------------- | :-- | :---------------------------------------------------- | | John D. Long | 67 | President and Chief Executive Officer | | Andrew J. Hines | 61 | Executive Vice President and Chief Lending Officer | | Jeffrey D. Harris | 67 | Senior Vice President and Treasurer and Chief Financial Officer | | Michelle R. Stambaugh | 63 | Senior Vice President and HR Director | | Donna L. Smith | 60 | Senior Vice President and Director of Branch and Deposit Operations | PART II - Financial Information Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Glen Burnie Bancorp's common stock is traded on the Nasdaq Capital Market under the symbol "GLBZ." As of February 17, 2023, there were 2,865,046 shares outstanding held by 325 record holders. The Company declared a regular quarterly dividend of $0.10 per share throughout 2021 and 2022, but future dividend payments are subject to Board discretion and regulatory restrictions. - As of December 31, 2022, the Company had 2,865,046 shares of common stock outstanding, traded on the Nasdaq Capital Market (GLBZ), with 325 record holders as of February 17, 2023[109] Common Stock Price and Dividends Declared (2021-2022) | Quarter Ended | 2022 High | 2022 Low | 2022 Dividends | 2021 High | 2021 Low | 2021 Dividends | | :-------------- | :-------- | :------- | :------------- | :-------- | :------- | :------------- | | March 31, | $12.84 | $12.84 | $0.10 | $11.55 | $11.18 | $0.10 | | June 30, | $10.99 | $10.61 | $0.10 | $13.01 | $12.67 | $0.10 | | September 30, | $10.10 | $9.45 | $0.10 | $12.12 | $12.12 | $0.10 | | December 31, | $8.31 | $8.31 | $0.10 | $14.14 | $14.00 | $0.10 | - The Company's ability to pay dividends relies on the Bank's dividend payments and is subject to federal and state regulations, which impose restrictions based on net earnings and capital levels[112] Item 6. Selected Financial Data This item is not applicable to the registrant. - Selected Financial Data is not applicable[113] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis provides an overview of Glen Burnie Bancorp's financial performance and condition for 2022 and 2021. The Company experienced a decrease in net income in 2022, primarily due to lower interest income and a reduced release of credit loss provision, partially offset by decreased interest expense and increased noninterest income. Total assets and loans decreased, while stockholders' equity saw a significant decline due to unrealized losses on investment securities. The Company maintains strong capital ratios and adequate liquidity, actively managing interest rate risk and credit exposures. - Net income decreased by $771,000 in 2022 compared to 2021, primarily due to an $805,000 decrease in interest income, an $863,000 decrease in the release of credit loss provision, and a $388,000 increase in noninterest expenses, partially offset by a $221,000 decrease in interest expense and a $727,000 increase in noninterest income[122] - Total assets decreased by $60.6 million (13.72%) to $381.4 million at December 31, 2022, from $442.1 million at December 31, 2021, driven by declines in interest-bearing deposits in other financial institutions and the loan portfolio[143] - Stockholders' equity decreased by $19.7 million (55.05%) to $16.1 million at December 31, 2022, mainly due to a $20.4 million increase in net unrealized losses on the available-for-sale bond portfolio[179] Forward-Looking Statements This report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially. - This report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from projections. These factors include changes in economic conditions, interest rates, regulations, credit losses, and competition[114][116] Overview This section provides a high-level summary of the Company's financial performance and key indicators for the reporting periods. Key Financial Performance Indicators (2021-2022) | Metric | 2022 | 2021 | Change (YoY) | | :---------------------------------- | :----- | :----- | :----------- | | Net Interest Income ($ millions) | $11.9 | $12.4 | -4.03% | | Total Interest Income ($ millions) | $12.7 | $13.5 | -5.96% | | Interest Expense ($ millions) | $0.9 | $1.1 | -20.58% | | Net Income ($ millions) | $1.7 | $2.5 | -32.00% | | Basic & Diluted EPS | $0.61 | $0.88 | -30.68% | | Return on Average Assets | 0.41% | 0.58% | -0.17 pp | | Return on Average Equity | 7.26% | 6.99% | +0.27 pp | | Dividend Payout Ratio | 65% | 45% | +20 pp | | Equity to Asset Ratio | 4.21% | 8.08% | -3.87 pp | Comparison of Results of Operations for the Years Ended December 31, 2022 and 2021 This section compares the Company's operational results for 2022 and 2021, highlighting changes in income, expenses, and credit loss provisions. - The $771,000 decrease in 2022 consolidated net income was primarily driven by an $805,000 decrease in interest income and an $863,000 decrease in the release of credit loss provision, partially offset by a $221,000 decrease in interest expense and a $727,000 increase in noninterest income[122] Net Interest Income and Margin (2021-2022) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (YoY) | | :---------------- | :---------------- | :---------------- | :----------- | | Net Interest Income | $11.9 | $12.4 | -4.03% | | Total Interest Income | $12.7 | $13.5 | -5.96% | | Total Interest Expense | $0.9 | $1.1 | -20.58% | | Net Interest Margin | 2.81% | 3.00% | -0.19 pp | - The decrease in total interest income was mainly due to a $2.3 million decrease in interest and fees on loans, partially offset by a $1.5 million increase in interest and dividends on securities and interest on deposits with banks. The decrease in total interest expense was primarily due to a $138,000 decrease in interest on deposits and an $83,000 decrease in interest on borrowings[125][126] Allowance for Credit Losses The Company's allowance for credit losses is determined using the CECL methodology, estimating expected lifetime losses based on historical data and forecasts. - The Company adopted the CECL methodology for allowance for credit losses (ACL) on January 1, 2021, which estimates expected credit losses over the life of an exposure. The ACL is based on historical loss experience, adjusted for current conditions and reasonable forecasts of future economic conditions[131][132][135] Allowance for Credit Losses - Loans (2021-2022) | Metric | December 31, 2022 | December 31, 2021 | Change (YoY) | | :------------------------------------ | :------------------ | :------------------ | :----------- | | Release of Credit Loss Provision ($ millions) | $0.1 | $1.0 | -86.30% | | Allowance for Credit Losses - Loans ($ millions) | $2.2 | $2.5 | -12.00% | | ACL as % of Total Loans | 1.16% | 1.17% | -0.01 pp | | ACL as % of Nonaccrual & Past Due Loans | 434.0% | 700.3% | -266.3 pp | | Net Charge-offs ($ millions) | $0.2 | ($0.4) (Net Recoveries) | +$0.6 | Noninterest Income Noninterest income saw a significant increase in 2022, primarily driven by gains on investment securities and derivative contracts. Noninterest Income (2021-2022) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (YoY) | | :-------------------------------- | :---------------- | :---------------- | :----------- | | Total Noninterest Income | $1.4 | $0.6 | +115.95% | | Gain (loss) on investment securities sold | $0.002 | ($0.588) | +$0.59 | | Gain on unwind of derivative contracts | $0.206 | $0.0 | +$0.206 | - The significant increase in noninterest income was primarily driven by a $0.6 million loss on investment securities sold in 2021 (vs. negligible gain in 2022) and a $0.2 million gain on the unwind of derivative swap contracts recognized in 2022[140] Noninterest Expenses Total noninterest expenses increased in 2022, mainly due to higher professional fees and other operational costs. Noninterest Expenses (2021-2022) | Expense Category | 2022 ($ millions) | 2021 ($ millions) | Change (YoY) | | :-------------------------------- | :---------------- | :---------------- | :----------- | | Total Noninterest Expenses | $11.3 | $11.0 | +3.54% | | Salary and employee benefits | $6.4 | $6.5 | -1.52% | | Legal, accounting, and other professional fees | $1.0 | $0.7 | +48.93% | | Other expenses | $1.3 | $1.1 | +17.51% | - The overall increase in noninterest expenses was mainly due to higher legal, accounting, and other professional fees, and an increase in other expenses, partially offset by a slight decrease in salary and employee benefits[141] Income Taxes Income tax expense decreased in 2022, primarily reflecting the lower income before taxes for the period. Income Tax Expense (2021-2022) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (YoY) | | :---------------- | :---------------- | :---------------- | :----------- | | Income Tax Expense | $0.24 | $0.58 | -58.46% | | Income Before Taxes | $1.985 | $3.093 | -35.82% | - The decrease in income tax expense was primarily due to lower income before taxes in 2022[142] Financial Condition This section analyzes the Company's balance sheet, including assets, liabilities, and equity, highlighting key changes and trends. Total Assets and Liabilities (2021-2022) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | Change (YoY) | | :---------------- | :------------------------------- | :------------------------------- | :----------- | | Total Assets | $381.4 | $442.1 | -13.72% | | Total Deposits | $362.9 | $383.2 | -5.30% | | Total Borrowings | $0 | $20.0 | -100.00% | Total Assets and Liabilities Total assets and liabilities decreased in 2022, primarily due to reductions in interest-bearing deposits and the loan portfolio. - Total assets decreased by $60.6 million, or 13.72%, to $381.4 million at December 31, 2022, primarily due to decreases in interest-bearing deposits in other financial institutions and loan portfolio balances[143] Cash Cash and cash equivalents experienced a significant decrease in 2022, driven by reduced deposits and borrowings. Cash and Cash Equivalents (2021-2022) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | Change (YoY) | | :------------------------- | :------------------------------- | :------------------------------- | :----------- | | Cash and Cash Equivalents | $30.1 | $62.2 | -51.61% | - The $32.1 million decrease in cash and cash equivalents was primarily driven by a $20.3 million decrease in deposit balances and a $20.0 million decrease in borrowings, partially offset by a $15.9 million increase in investment securities and a $24.0 million decrease in net loans[145] Investment Securities The investment securities portfolio decreased in 2022, primarily due to unrealized losses on available-for-sale securities and redemptions. Investment Securities Portfolio (2021-2022) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | Change (YoY) | | :------------------------- | :------------------------------- | :------------------------------- | :----------- | | Investment Securities Portfolio | $144.1 | $155.9 | -7.56% | | Unrealized Loss on AFS Securities | $28.6 (increase) | N/A | N/A | | Paydowns and Redemptions | $14.2 | N/A | N/A | | Purchases of AFS Securities | $31.5 | N/A | N/A | - The decrease in the investment securities portfolio was primarily due to a $28.6 million increase in unrealized losses on available-for-sale securities and $14.2 million in paydowns and redemptions, partially offset by $31.5 million in new purchases[148] - In 2021, the Company restructured its bond portfolio to lower overall duration, selling government agency securities for pre-tax losses of approximately $591,300[149] Loans Net loan receivables decreased in 2022, as paydowns exceeded new originations across various loan categories. Net Loan Receivables (2021-2022) | Metric | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :----------- | | Net Loan Receivables | $184.3 | $207.9 | -11.45% | | Paydowns | $59.0 | N/A | N/A | | New Originations | $35.0 | N/A | N/A | - The decrease in net loan receivables was primarily due to $59.0 million in paydowns outpacing $35.0 million in new originations, resulting in decreases across real estate, commercial and industrial, and consumer loan segments[154] Nonperforming Loans and Assets (2021-2022) | Metric | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Total Nonperforming Loans | $498 | $353 | +41.08% | | Total Nonperforming Assets | $498 | $353 | +41.08% | | Nonperforming Loans to Gross Loans | 0.3% | 0.2% | +0.1 pp | | Allowance for Credit Losses to Nonperforming Loans | 434.0% | 700.3% | -266.3 pp | Deposits Total deposits decreased in 2022, with shifts in composition across noninterest-bearing, money market, and time deposit accounts. Deposit Composition (2021-2022) | Deposit Type | December 31, 2022 ($ millions) | % of Total 2022 | December 31, 2021 ($ millions) | % of Total 2021 | Change (YoY) | | :------------------------------------------ | :------------------------------- | :-------------- | :------------------------------- | :-------------- | :----------- | | Noninterest-bearing deposits | $143.3 | 39.5% | $155.6 | 40.6% | -7.9% | | Interest-bearing checking and savings | $153.2 | 42.1% | $144.1 | 37.7% | +6.3% | | Money market | $15.8 | 4.4% | $23.1 | 6.0% | -31.6% | | Time deposits | $50.7 | 14.0% | $60.4 | 15.7% | -16.0% | | Total Deposits | $362.9 | 100.0% | $383.2 | 100.0% | -5.3% | - Total deposits decreased by $20.3 million, or 5.3%, at December 31, 2022, compared to 2021. This was driven by decreases in noninterest-bearing deposits, money market balances, and time deposits, partially offset by increases in interest-bearing checking and savings accounts[174] Borrowings The Bank utilizes FHLB borrowings and federal funds lines of credit to supplement funding, with FHLB borrowings reduced to zero in 2022. - The Bank utilizes Federal Home Loan Bank (FHLB) borrowings to supplement deposits, with total credit availability of $103.9 million at December 31, 2022. Total borrowings were $0 at December 31, 2022, down from $20.0 million in 2021[144][176] - The Bank also has unsecured federal funds lines of credit totaling $17.0 million from two financial institutions[176] Capital Resources Stockholders' equity significantly decreased in 2022 due to unrealized losses on the available-for-sale bond portfolio, though the Bank remains well-capitalized. Stockholders' Equity and Book Value (2021-2022) | Metric | December 31, 2022 | December 31, 2021 | Change (YoY) | | :------------------------- | :------------------ | :------------------ | :----------- | | Stockholders' Equity ($ millions) | $16.1 | $35.7 | -55.05% | | Book Value per Common Stock | $5.60 | $12.51 | -55.24% | | Net Unrealized Losses on AFS Portfolio ($ millions) | $20.4 (increase) | N/A | N/A | - The significant decrease in stockholders' equity was primarily due to a $20.4 million increase in net unrealized losses on the available-for-sale bond portfolio, partially offset by an increase in retained earnings and stock issuances[179] - The Bank was classified as 'well capitalized' at December 31, 2022 and 2021, exceeding all regulatory minimum capital requirements under Basel III Capital Rules[186][187] Liquidity The Company maintains liquidity through its deposit base, loan and investment repayments, and external funding sources like FHLB lines of credit. - The Company's liquidity is primarily derived from its deposit base, loan and investment security repayments, and operations. Additional liquidity sources include cash, interest-bearing deposits, federal funds sold, and available-for-sale securities[189][191] - External funding sources include a $103.9 million line of credit with the FHLB and unsecured federal funds lines of credit totaling $17.0 million. The Asset/Liability Management Committee (ALCO) and Investment Committee manage liquidity and investment portfolio strategy[192][193][194] Off-Balance Sheet Arrangements The Bank engages in off-balance sheet arrangements, including credit commitments and letters of credit, which are managed for associated risks. - The Bank engages in off-balance sheet arrangements, including commitments to extend credit and standby letters of credit, which involve credit and interest rate risk. Many commitments are expected to expire unused, and collateral is obtained based on credit evaluations[196][197][198] - As of December 31, 2022, the Bank accrued $477,215 as a reserve for credit losses on unfunded commitments, an increase of $106,535 from 2021[200] Market Risk Management The Company manages interest rate risk through a policy that sets limits on potential changes in net interest income and economic value of equity. - The primary market risk is interest rate fluctuation, managed by the Investment Committee through a comprehensive interest rate risk management policy. This policy sets limits on risk, measured by potential changes in net interest income (NII) and economic value of equity (EVE) under hypothetical interest rate shock scenarios[201][204] - At December 31, 2022, the Company was in an asset-sensitive position, which is theoretically favorable in a rising rate environment. NII is projected to benefit from rising rates, while EVE shows a negative effect in an increasing rate environment due to slower repricing of liabilities compared to assets[209][212][214][215] Estimated Changes in Net Interest Income (12-month modeling period) | Scenario | Policy Limit | December 31, 2022 | December 31, 2021 | | :--------- | :----------- | :------------------ | :------------------ | | -200 bp | -15% | -12% | -11% | | -100 bp | -10% | -6% | -7% | | +100 bp | -10% | 1% | 9% | | +200 bp | -15% | 3% | 20% | Estimated Changes in Economic Value of Equity (EVE) | Scenario | Policy Limit | December 31, 2022 | December 31, 2021 | | :--------- | :----------- | :------------------ | :------------------ | | -200 bp | -20% | 4% | -40% | | -100 bp | -10% | 3% | -18% | | +100 bp | -10% | -6% | 6% | | +200 bp | -20% | -12% | 9% | Impact of Inflation and Changing Prices The Company's financial performance is more significantly impacted by interest rate fluctuations than general inflation due to its monetary asset and liability structure. - The Company's financial statements are prepared using historical dollars, not adjusted for inflation. Due to the monetary nature of its assets and liabilities, interest rates have a greater impact on performance than general inflation, as interest rates do not necessarily move in tandem with the prices of goods and services[217] Critical Accounting Policies Critical accounting policies involve significant management estimates and judgments, particularly for allowance for credit losses, fair value, and income taxes. - Critical accounting policies involve significant management estimates and judgments due to inherent uncertainties, with potential material impact on financial statements. Key policies include the allowance for credit losses on loans, fair value measurements, and accounting for income taxes[218][219] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the registrant, as the relevant disclosures are included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." - Quantitative and Qualitative Disclosures About Market Risk are not applicable, as the information is provided in Item 7[226] Item 8. Financial Statements and Supplementary Data The required financial statements and supplementary data are included in the Company's Consolidated Financial Statements, as detailed in Item 15 of this Annual Report. - The financial statements and supplementary data are included in the Company's Consolidated Financial Statements, as referenced in Item 15[227] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure. - There are no changes in or disagreements with accountants on accounting and financial disclosure[228] Item 9A. Controls and Procedures The Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures and internal control over financial reporting as of December 31, 2022, concluding that both systems were effective. No material changes in internal control over financial reporting occurred during the fourth quarter of 2022. - The Company's CEO and CFO concluded that the system of disclosure controls and procedures was effective as of December 31, 2022[230] - Management, with CEO and CFO participation, assessed the effectiveness of internal control over financial reporting based on the COSO framework and concluded it was effective as of December 31, 2022[231][232] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2022[233] Item 9B. Other Information This item is not applicable to the registrant. - Other Information is not applicable[234] PART III - Corporate Governance and Executive Matters Item 10. Directors, Executive Officers and Corporate Governance Information regarding the identity, business experience, and remuneration of directors and executive officers, as well as details on the Audit Committee and compliance with Section 16(a) of the Exchange Act and the Code of Ethics, is incorporated by reference from the Company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders. - Information on directors, executive officers, corporate governance, Audit Committee, Section 16(a) compliance, and Code of Ethics is incorporated by reference from the 2023 Proxy Statement[236] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the "Director Compensation" and "Executive Compensation" sections of the Company's definitive Proxy Statement. - Executive compensation details are incorporated by reference from the 'Director Compensation' and 'Executive Compensation' sections of the Proxy Statement[237] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, along with related stockholder matters, is incorporated by reference from the "Voting Securities and Principal Holders Thereof" and "Securities Ownership of Management" sections of the Company's definitive Proxy Statement. - Security ownership information for beneficial owners and management is incorporated by reference from the 'Voting Securities and Principal Holders Thereof' and 'Securities Ownership of Management' sections of the Proxy Statement[238] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the "Proposal I — Election of Directors" and "Transactions with Management" sections of the Company's definitive Proxy Statement. - Information on related transactions and director independence is incorporated by reference from the 'Proposal I — Election of Directors' and 'Transactions with Management' sections of the Proxy Statement[239] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the "Proposal II — Authorization for Appointment of Auditors" and "Disclosure of Independent Auditor Fees" sections of the Company's definitive Proxy Statement. - Details on principal accountant fees and services are incorporated by reference from the 'Proposal II — Authorization for Appointment of Auditors' and 'Disclosure of Independent Auditor Fees' sections of the Proxy Statement[240] PART IV - Exhibits and Financial Statement Schedules Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K. It includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements. All required schedules are omitted due to absence of conditions or inclusion in the financial statements. - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Income, Comprehensive Income (Loss), Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[242][255] - All financial statement schedules are omitted because the required information is either absent or already included in the consolidated financial statements and related notes[243] - A comprehensive list of exhibits, including Articles of Incorporation, By-Laws, employee stock plans, and certifications (e.g., Rule 15d-14(a) and Section 906 of Sarbanes-Oxley Act), is provided[244] SIGNATURES Signatures The Annual Report on Form 10-K was duly signed on March 29, 2023, by John D. Long as President and Chief Executive Officer, Jeffrey D. Harris as Senior Vice President and Chief Financial Officer, and other directors, affirming compliance with the Securities Exchange Act of 1934. - The report was signed on March 29, 2023, by John D. Long (President, CEO, and Director), Jeffrey D. Harris (Senior Vice President and CFO), and other directors, in compliance with the Securities Exchange Act of 1934[249][251][252] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm UHY LLP, the independent registered public accounting firm, issued an unqualified opinion on Glen Burnie Bancorp's consolidated financial statements for the years ended December 31, 2022 and 2021, affirming fair presentation in accordance with U.S. GAAP. Critical audit matters identified included the Allowance for Credit Losses on Loans and Investment Securities – Fair Value Measurement, due to the significant judgment and audit effort required. - UHY LLP provided an unqualified opinion on the consolidated financial statements for 2022 and 2021, stating they are presented fairly in all material respects in conformity with U.S. GAAP[257] - Critical audit matters included the Allowance for Credit Losses on Loans and Investment Securities – Fair Value Measurement, due to the significant subjective and complex judgments made by management and the extensive audit effort required[262][267][275] Financial Statements This section serves as an index to the detailed consolidated financial statements, including the balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with their accompanying notes. - The financial statements include Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholders' Equity, and Consolidated Statements of Cash Flows[255] Consolidated Balance Sheets The Consolidated Balance Sheets show a decrease in total assets by 13.72% to $381.4 million at December 31, 2022, primarily driven by reductions in interest-bearing deposits and loans. Total liabilities also decreased, with total deposits down 5.30% and borrowings eliminated. Stockholders' equity significantly declined by 55.05% due to accumulated other comprehensive loss. Consolidated Balance Sheet Highlights (2021-2022) | Item | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change (YoY) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | ASSETS | | | | | Cash and Cash Equivalents | $30,092 | $62,181 | -51.61% | | Investment securities available for sale, at fair value | $144,133 | $155,927 | -7.56% | | Loans, net | $184,278 | $207,922 | -11.47% | | Total Assets | $381,436 | $442,066 | -13.72% | | LIABILITIES | | | | | Total Deposits | $362,947 | $383,247 | -5.30% | | Short-term borrowings | $0 | $10,000 | -100.00% | | Long-term borrowings | $0 | $10,000 | -100.00% | | Total Liabilities | $365,382 | $406,350 | -10.08% | | STOCKHOLDERS' EQUITY | | | | | Total Stockholders' Equity | $16,054 | $35,716 | -55.05% | | Accumulated other comprehensive (loss) gain | ($21,252) | ($874) | -2331.58% | Consolidated Statements of Income The Consolidated Statements of Income show a decrease in net income by 30.68% to $1.7 million in 2022 from $2.5 million in 2021. This was primarily driven by a 5.96% decrease in total interest income and a significant reduction in the release of credit loss provision, partially offset by a 20.58% decrease in total interest expense and a substantial increase in noninterest income. Consolidated Statements of Income Highlights (2021-2022) | Item | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | Change (YoY) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | :----------- | | Total Interest Income | $12,712 | $13,517 | -5.96% | | Total Interest Expense | $853 | $1,074 | -20.58% | | Net Interest Income | $11,859 | $12,443 | -4.70% | | Release of credit loss provision | ($112) | ($975) | -88.51% | | Total Noninterest Income | $1,354 | $627 | +115.95% | | Total Noninterest Expenses | $11,340 | $10,952 | +3.54% | | Income before income taxes | $1,985 | $3,093 | -35.82% | | Income tax expense | $240 | $577 | -58.41% | | NET INCOME | $1,745 | $2,516 | -30.68% | | Basic and diluted net income per share | $0.61 | $0.88 | -30.68% | Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) show a significant shift from comprehensive income of $1.1 million in 2021 to a comprehensive loss of $18.6 million in 2022. This change was primarily driven by a substantial increase in net unrealized losses on securities available for sale, which amounted to $28.6 million in 2022, partially offset by a net unrealized gain on interest rate swaps. Consolidated Statements of Comprehensive Income (Loss) Highlights (2021-2022) | Item | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net income | $1,745 | $2,516 | | Net unrealized loss on securities available for sale (net of tax) | ($20,698) | ($1,782) | | Net unrealized gain on interest rate swap (net of tax) | $320 | $368 | | Other comprehensive loss | ($20,378) | ($1,414) | | Comprehensive (loss) income | ($18,633) | $1,102 | Consolidated Statements of Changes in Stockholders' Equity The Consolidated Statements of Changes in Stockholders' Equity reflect a substantial decrease in total stockholders' equity from $35.7 million at December 31, 2021, to $16.1 million at December 31, 2022. This decline was primarily due to a significant increase in accumulated other comprehensive loss, driven by unrealized losses on available-for-sale securities, despite positive net income and minor contributions from dividend reinvestment. Consolidated Statements of Changes in Stockholders' Equity Highlights (2021-2022) | Item | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance, beginning of year | $35,716 | $37,093 | | Net income | $1,745 | $2,516 | | Cash dividends | ($1,143) | ($1,138) | | Dividends reinvested | $114 | $131 | | Other comprehensive income (loss) | ($20,378) | ($1,414) | | Balance, end of year | $16,054 | $35,716 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate a net decrease in cash and cash equivalents of $32.1 million in 2022, a reversal from a $25.1 million increase in 2021. This was driven by significant cash outflows from financing activities, primarily due to decreases in deposits and borrowings, partially offset by cash provided by operating and investing activities. Consolidated Statements of Cash Flows Highlights (2021-2022) | Item | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $2,225 | $3,656 | | Net cash provided (used) in investing activities | $7,014 | ($1,275) | | Net cash (used in) provided by financing activities | ($41,328) | $22,707 | | Net (decrease) increase in cash and cash equivalents | ($32,089) | $25,088 | | Cash and cash equivalents at end of year | $30,092 | $62,181 | Notes to Consolidated Financial Statements The Notes to Consolidated Financial Statements provide detailed information on the Company's significant accounting policies, financial instruments, loan portfolio, credit risk management, capital structure, and regulatory compliance. Key updates include the adoption of the CECL methodology for credit losses and the impact of market interest rate changes on investment securities and stockholders' equity. - The Company adopted ASU 2016-13 (CECL methodology) on January 1, 2021, for estimating credit losses, replacing the incurred loss methodology. This resulted in a $1,472,000 decrease to retained earnings upon adoption[315][348] - As of December 31, 2022, the Bank was categorized as 'well capitalized' under Basel III Capital Rules, exceeding all minimum regulatory capital requirements[456][460] - The fair value of investment securities available for sale decreased to $144.1 million at December 31, 2022, from $155.9 million at December 31, 2021, with significant unrealized losses primarily due to market interest rate movements, not credit deterioration[360][373] Note 1. Summary of Significant Accounting Policies This note details the Company's key accounting policies, including those for investment securities, fair value measurements, and the CECL methodology for credit losses. - The Company's financial statements are prepared in accordance with U.S. GAAP, requiring management estimates in areas like loan valuations, allowance for credit losses, investment securities, fair value measurements, and deferred tax assets[293] - Investment securities are classified as available-for-sale (AFS) and reported at fair value, with unrealized gains/losses in other comprehensive income. Debt securities are classified as held-to-maturity (HTM) if the intent and ability to hold to maturity exist[295][296] - The CECL methodology, adopted January 1, 2021, requires estimating lifetime expected credit losses for loans and unfunded commitments, based on historical data, current conditions, and reasonable forecasts[315][316] Note 2. Restrictions on Cash and Amounts Due from Banks This note explains that Federal Reserve reserve requirements were set to zero, resulting in no average reserve balances for the reporting periods. - The Federal Reserve System set reserve requirement ratios to zero percent on March 26, 2020, and extended this for three years on December 22, 2020. As a result, average reserve balances were $0 at December 31, 2022 and 2021[359] Note 3. Investment Securities This note provides details on the Company's investment securities portfolio, including classifications, fair values, and unrealized gains or losses. Investment Securities Available for Sale (2021-2022) | Security Type | December 31, 2022 Fair Value ($ thousands) | December 31, 2021 Fair Value ($ thousands) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | U.S. Treasury | $6,783 | $0 | | U.S. Government agency | $36,580 | $31,351 | | Residential mortgage-backed securities | $67,148 | $77,877 | | State and municipal | $32,297 | $45,225 | | Corporate securities | $1,325 | $1,474 | | Total debt securities | $144,133 | $155,927 | - Unrealized losses on investment securities available for sale amounted to $29.3 million at December 31, 2022, compared to $2.1 million at December 31, 2021. These losses are considered temporary and primarily due to market interest rate movements, not credit deterioration[373] - The Company does not intend to sell, nor is it likely to be required to sell, securities in an unrealized loss position before maturity or recovery of amortized cost bases[367] Note 4. Loans and Allowance for Credit Losses - Loans This note details the composition of the loan portfolio, changes in net loan receivables, and information on nonaccrual and nonperforming loans. Gross Loans by Major Categories (2021-2022) | Loan Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Loans Secured by Real Estate | $133,323 | $136,705 | | Commercial and Industrial Loans | $15,148 | $17,447 | | Consumer Loans | $37,969 | $56,240 | | Total Loans, net of deferred fees and costs | $186,440 | $210,392 | | Less: Allowance for credit losses | ($2,162) | ($2,470) | | Loans, net | $184,278 | $207,922 | - The Company's net loan receivables decreased by $23.6 million to $184.3 million at December 31, 2022, primarily due to paydowns outpacing new originations across all loan segments[154] Nonaccrual Loans and Nonperforming Assets (2021-2022) | Metric | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Nonaccrual loans | $488 | $338 | | Accruing loans past due 90+ days | $10 | $15 | | Total nonperforming loans | $498 | $353 | | Total nonperforming assets | $498 | $353 | Note 5. Premises and Equipment This note provides a breakdown of the Company's premises and equipment, including land, buildings, and accumulated depreciation. Premises and Equipment, Net (2021-2022) | Item | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :----------------------- | :-------------------------------- | :-------------------------------- | | Land | $685 | $685 | | Buildings | $6,781 | $6,723 | | Equipment and fixtures | $8,515 | $8,354 | | Construction in progress | $71 | $36 | | Operating Lease Assets | $366 | $478 | | Total | $16,418 | $16,276 | | Accumulated depreciation | ($13,141) | ($12,712) | | Net Premises and Equipment | $3,277 | $3,564 | - Depreciation and software amortization expenses were $0.3 million and $0.1 million, respectively, for both 2022 and 2021[407] Note 6. Federal Home Loan Bank, Short- and Long-term Borrowings This note details the Bank's FHLB borrowings and federal funds lines of credit, including changes in outstanding balances and credit availability. - The Bank had $0 in short- and long-term FHLB advances at December 31, 2022, down from $10.0 million each in 2021. Total FHLB credit availability was $103.9 million at December 31, 2022[410] - The Bank also has $17.0 million in unsecured federal funds lines of credit from two financial institutions[412] - The Company terminated two interest rate swap contracts early on October 31, 2022, recognizing a gain of $206,000 in noninterest income. As of December 31, 2022, there were no outstanding interest rate swaps designated as cash flow hedges[417] Note 7. Deposits This note provides a detailed breakdown of deposit balances by type, highlighting changes in composition and total deposits. Major Classifications of Deposit Balances (2021-2022) | Deposit Type | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Noninterest-bearing deposits | $143,262 | $155,624 | | Interest-bearing checking | $40,086 | $37,305 | | Money Market | $15,791 | $23,103 | | Savings | $113,101 | $106,818 | | Time deposits, $100,000 or more | $19,999 | $24,624 | | Time deposits below $100,000 | $30,708 | $35,773 | | Total Deposits | $362,947 | $383,247 | - Total deposits decreased by $20.3 million (5.3%) in 2022. Noninterest-bearing deposits, money market, and time deposits decreased, while interest-bearing checking and savings increased[174] Note 8. Income Taxes This note details the components of income tax expense, including current and deferred taxes, and the impact of income before taxes. Income Tax Expense Components (2021-2022) | Item | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Current income tax expense | $450 | $295 | | Deferred income tax expense | ($210) | $282 | | Total Income tax expense | $240 | $577 | - The decrease in total income tax expense in 2022 was primarily due to lower income before taxes. Management believes all deferred tax assets will be fully realizable, and there are no uncertain tax positions[142][427] Note 9. Pension and Profit Sharing Plans This note outlines the Company's contributions to its 401(k) plan for employees. 401(k) Plan Contributions (2021-2022) | Item | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Annual contributions to 401(k) plan | $277 | $493 | Note 10. Other Benefit Plans This note describes other employee benefit plans, including Bank Owned Life Insurance (BOLI) and a change-in-control severance plan. Bank Owned Life Insurance (BOLI) (2021-2022) | Item | December 31, 2022 ($ millions) | December 31, 2021 ($ millions) | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Cash value of BOLI policies | $8.5 | $8.3 | | Income on insurance investment | $0.2 | $0.2 | - The Bank has an unfunded grantor trust as part of a change-in-control severance plan for substantially all employees, entitling them to cash severance benefits upon qualifying termination[431] Note 11. Other Noninterest Expenses This note provides a breakdown of various other noninterest expenses, including loan-related costs and professional fees. Other Noninterest Expenses (2021-2022) | Expense Category | Year Ended December 31, 2022 ($ thousands) | Year Ended December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Loan related expenses | $145 | $195 | | Director, executive and audit committee fees and expenses | $177 | $167 | | Provision (release) for unfunded commitments | $107 | ($119) | | Other expenses (total) | $1,303 | $1,109 | Note 12. Commitments and Contingencies This note details the Bank's off-balance sheet commitments, such as loan commitments and letters of credit, and the associated reserve for losses. Outstanding Loan Commitments and Letters of Credit (2021-2022) | Item | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Other mortgage loans | $9,280 | $2,863 | | Home-equity lines | $10,142 | $9,224 | | Commercial lines | $10,717 | $15,432 | | Unsecured consumer lines | $579 | $648 | | Letters of credit | $45 | $55 | | Total Commitments to extend credit | $30,718 | $28,167 | - The Bank accrued $477,215 as a reserve for losses on unfunded commitments at December 31, 2022, an increase from $370,680 in 2021[436] Note 13. Stockholders' Equity This note details the components of stockholders' equity, dividend restrictions, and the Bank's compliance with regulatory capital requirements. - The Company's ability to pay dividends is subject to regulatory restrictions, requiring prior approval if dividends exceed net profits for the current year plus retained net profits for the preceding two years. Approximately $20.7 million of retained earnings were restricted at December 31, 2022[439][440] - The Company has an employee stock purchase plan and a dividend reinvestment and stock purchase plan. In 2022, 11,166 shares were purchased under the dividend reinvestment plan[443][446] - The Bank was 'well-capitalized' at December 31, 2022 and 2021, exceeding all Basel III Capital Rules requirements. The Company's risk-based capital ratios are not materially different from the Bank's[456][459][460] Note 14. Earnings Per Common Share This note presents the calc