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GLEN BURNIE BANCORP - Quarter Report: 2007 March (Form 10-Q)

Unassociated Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended March 31, 2007

OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-24047


GLEN BURNIE BANCORP

(Exact name of registrant as specified in its charter)

Maryland
52-1782444
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
101 Crain Highway, S.E.
 
Glen Burnie, Maryland
21061
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (410) 766-3300

Inapplicable
(Former name, former address and former fiscal year if changed from last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer o  Accelerated filer o  Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

At April 18, 2007, the number of shares outstanding of the registrant’s common stock was 2,487,561.



- 1 -
 
TABLE OF CONTENTS



Part I - Financial Information
Page
       
 
Item 1.
Consolidated Financial Statements:
 
       
   
Condensed Consolidated Balance Sheets, March 31, 2007
 
   
(unaudited) and December 31, 2006 (audited)
3
       
   
Condensed Consolidated Statements of Income for the Three
 
   
Months Ended March 31, 2007 and 2006 (unaudited)
4
       
   
Condensed Consolidated Statements of Comprehensive
 
   
Income (Loss) for the Three Months Ended March 31, 2007 and 2006 (unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the Three
 
   
Months Ended March 31, 2007 and 2006 (unaudited)
6
       
   
Notes to Unaudited Condensed Consolidated Financial Statements
7
       
 
Item 2.
Management’s Discussion and Analysis of Financial Condition
 
   
and Results of Operations
8
       
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
14
       
 
Item 4.
Controls and Procedures
14
       
       
       
Part II - Other Information
 
       
 
Item 6.
Exhibits
15
       
   
Signatures
16


- 2 -


PART I - FINANCIAL INFORMATION
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
 

GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

   
March 31,
 
December 31,
 
   
2007
 
2006
 
ASSETS
 
(unaudited)
 
(audited)
 
           
Cash and due from banks
 
$
8,632
 
$
9,006
 
Interest-bearing deposits in other financial institutions
   
299
   
342
 
Federal funds sold
   
6,271
   
3,972
 
Cash and cash equivalents
   
15,202
   
13,320
 
Investment securities available for sale, at fair value
   
96,255
   
95,811
 
Investment securities held to maturity, at cost
             
(fair value March 31: $727; December 31: $730)
   
683
   
683
 
Federal Home Loan Bank stock, at cost
   
887
   
928
 
Maryland Financial Bank stock, at cost
   
100
   
100
 
Common Stock in the Glen Burnie Statutory Trust I
   
155
   
155
 
Loans, less allowance for credit losses
             
(March 31: $1,804; December 31: $1,839)
   
194,050
   
193,337
 
Premises and equipment, at cost, less accumulated depreciation
   
3,329
   
3,406
 
Other real estate owned
   
50
   
50
 
Cash value of life insurance
   
6,959
   
6,892
 
Other assets
   
2,845
   
3,064
 
               
 Total assets
 
$
320,515
 
$
317,746
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
               
Liabilities:
             
Deposits
 
$
278,153
 
$
274,833
 
Short-term borrowings
   
272
   
545
 
Long-term borrowings
   
7,132
   
7,140
 
Junior subordinated debentures owed to unconsolidated subsidiary trust
   
5,155
   
5,155
 
Other liabilities
   
1,103
   
1,872
 
 Total liabilities
   
291,815
   
289,545
 
               
Commitments and contingencies
             
               
Stockholders’ equity:
             
Common stock, par value $1, authorized 15,000,000 shares;
             
issued and outstanding: March 31: 2,487,401shares;
             
December 31: 2,484,633 shares
   
2,487
   
2,485
 
Surplus
   
11,766
   
11,720
 
Retained earnings
   
14,620
   
14,312
 
Accumulated other comprehensive loss, net of tax benefits
   
(173
)
 
(316
)
 Total stockholders’ equity
   
28,700
   
28,201
 
               
 Total liabilities and stockholders’ equity
 
$
320,515
 
$
317,746
 

See accompanying notes to condensed consolidated financial statements.

- 3 -


GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)

   
Three Months Ended
 
   
March 31,
 
   
2007
 
2006
 
Interest income on:
         
Loans, including fees
 
$
3,171
 
$
2,936
 
U.S. Treasury and U.S. Government agency securities
   
702
   
662
 
State and municipal securities
   
388
   
342
 
Other
   
148
   
234
 
Total interest income
   
4,409
   
4,174
 
               
Interest expense on:
             
Deposits
   
1,271
   
962
 
Short-term borrowings
   
4
   
2
 
Long-term borrowings
   
105
   
105
 
Junior subordinated debentures
   
137
   
137
 
Total interest expense
   
1,517
   
1,206
 
               
Net interest income
   
2,892
   
2,968
 
               
Provision for credit losses
   
30
   
-
 
               
Net interest income after provision for credit losses
   
2,862
   
2,968
 
               
Other income:
             
Service charges on deposit accounts
   
193
   
197
 
Other fees and commissions
   
207
   
231
 
Other non-interest income
   
3
   
5
 
Income on life insurance
   
67
   
45
 
Gains on investment securities
   
1
   
-
 
Total other income
   
471
   
478
 
               
Other expenses:
             
Salaries and employee benefits
   
1,599
   
1,645
 
Occupancy
   
232
   
207
 
Other expenses
   
787
   
846
 
Total other expenses
   
2,618
   
2,698
 
               
Income before income taxes
   
715
   
748
 
               
Income tax expense
   
109
   
122
 
               
Net income
 
$
606
 
$
626
 
               
Basic and diluted earnings per share of common stock
 
$
0.24
 
$
0.25
 
               
Weighted average shares of common stock outstanding
   
2,484,893
   
2,467,436
 
               
Dividends declared per share of common stock
 
$
0.12
 
$
0.12
 

See accompanying notes to condensed consolidated financial statements.

- 4 -


GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)

   
 Three Months Ended
 
   
 March 31,
 
   
 2007
 
2006
 
            
Net income
 
$
606
 
$
626
 
               
Other comprehensive income (loss) , net of tax
             
               
Unrealized gains (losses) securities:
             
               
Unrealized holding gains (losses) arising
             
during the period
   
144
   
(674
)
               
Reclassification adjustment for gains
             
included in net income
   
(1
)
 
-
 
               
Comprehensive income (loss)
 
$
749
 
$
(48
)

See accompanying notes to condensed consolidated financial statements.

- 5 -


GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

   
Three Months Ended March 31,
 
   
2007
 
2006
 
           
Cash flows from operating activities:
             
Net income
 
$
606
 
$
626
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation, amortization, and accretion
   
145
   
263
 
Provision for credit losses
   
30
   
-
 
Gains on disposals of assets, net
   
(1
)
 
-
 
Income on investment in life insurance
   
(67
)
 
(45
)
Changes in assets and liabilities:
             
Decrease in other assets
   
101
   
100
 
Decrease in other liabilities
   
(652
)
 
(581
)
               
 Net cash provided by operating activities
   
162
   
363
 
               
Cash flows from investing activities:
             
Maturities of available for sale mortgage-backed securities
   
1,719
   
2,181
 
Proceeds from maturities and sales of other investment securities
   
781
   
1,000
 
Purchases of investment securities
   
(2,720
)
 
(23,383
)
Sales (purchases) of Federal Home Loan Bank stock
   
41
   
(9
)
(Increase) decrease in loans, net
   
(743
)
 
5,562
 
Purchases of premises and equipment
   
(30
)
 
(38
)
               
Net cash used by investing activities
   
(952
)
 
(14,687
)
               
Cash flows from financing activities:
             
Increase in deposits, net
   
3,320
   
27,576
 
Decrease in short-term borrowings
   
(273
)
 
(443
)
Repayment of long-term borrowings
   
(8
)
 
(8
)
Dividends paid
   
(415
)
 
(397
)
Common stock dividends reinvested
   
48
   
57
 
               
Net cash provided by financing activities
   
2,672
   
26,785
 
               
Increase in cash and cash equivalents
   
1,882
   
12,461
 
               
Cash and cash equivalents, beginning of year
   
13,320
   
15,450
 
               
Cash and cash equivalents, end of period
 
$
15,202
 
$
27,911
 

See accompanying notes to condensed consolidated financial statements.
- 6 -


GLEN BURNIE BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying condensed balance sheet as of December 31, 2006, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the unaudited consolidated financial statements have been included in the results of operations for the three months ended March 31, 2007 and 2006.

Operating results for the three month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

NOTE 2 - EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by including the average dilutive common stock equivalents outstanding during the periods. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

   
Three Months Ended
 
   
March 31,
 
   
2007
 
2006
 
Basic and diluted:
         
Net income
 
$
606,000
 
$
626,000
 
Weighted average common shares outstanding
   
2,484,893
   
2,467,436
 
Basic and dilutive net income per share
 
$
0.24
 
$
0.25
 
 
 
Diluted earnings per share calculations were not required for the three months ended March 31, 2007 and 2006, since there were no options outstanding.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS will be applied prospectively and is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement No. 115 which is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the fiscal year that begins on or after November 15, 2007, provided that the Company also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. Management is currently evaluating the impact of adopting this Statement on the Company’s financial statements for future periods.

- 7 -


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

Net interest income before provision for credit losses, for the first quarter, was $2,968,000 in 2006 compared to $2,892,000 in 2007, a 2.56% decrease. Interest income for the quarter grew from $4,174,000 in 2006 to $4,409,000 in 2007, a 5.63% increase. Total interest expense for the quarter increased from $1,206,000 in 2006 to $1,517,000 in 2007, a 25.79% increase. The Company realized consolidated net income of $606,000 for the first quarter of 2007 compared to $626,000 for the first quarter of 2006, a 3.20% decrease.

Net interest income is affected by the mix of loans in the Bank’s loan portfolio. Currently a majority of the Bank’s loans are mortgage and construction loans secured by real estate and indirect automobile loans secured by automobiles. While mortgage and construction loans secured by real estate produce higher yields than automobile loans, all of these types of loans are made at interest rates lower than unsecured loans. While the Bank’s loan volume increased in 2004 and 2005, this loan mix produced lower yields on the Company’s interest-earning assets. Meanwhile, market forces resulted in higher rates of interest being paid by the Bank on deposits and borrowings used to fund income producing assets resulting in a decline in net interest income for 2005.

In January of 2006, the Bank initiated a plan to increase net interest income by reducing its portfolio of lower yielding loans, acquiring additional deposits, expanding its customer base and increasing the Bank’s higher yielding commercial loan portfolio. As part of this plan, the Bank attracted additional deposits by temporarily offering a 15-month certificate of deposit with an above market rate which resulted in over $27 million in additional deposits. These additional funds were invested in marketable securities and overnight deposits making them readily available to fund loans. The Bank also hired a new commercial loan officer to increase its ability to reach this market segment. In accordance with this plan, the Bank successfully increased its higher yield commercial loans resulting in increased loan volume and yield on commercial mortgages, although the commercial loan volume increase was less than anticipated. Over the same period, yields on new indirect automobile loans increased as outstanding lower interest indirect loans matured. As a result, the Bank earned higher yields on its interest earning assets. However, market forces required us to pay higher rates of interest than anticipated on deposits overall and on borrowings used to fund income producing assets, thereby mitigating the successes of the Bank’s plan and resulting in an overall decline in net interest income for 2006 and the first quarter of 2007.

The Bank is currently developing programs to significantly increase its portfolio of commercial mortgage loans to offset the higher rates paid on deposits, and is repricing its interest rates on certificates of deposit which currently pay above market rates. Management anticipates that these steps will improve net interest margins in future periods.

FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in the Company’s periodic reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.

The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

RESULTS OF OPERATIONS

General. Glen Burnie Bancorp, a Maryland corporation (the “Company”), and its subsidiaries, The Bank of Glen Burnie (the “Bank”) and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $606,000 ($0.24 basic and diluted earnings per share) for the first quarter of 2007, compared to first quarter 2006 consolidated net income of $626,000 ($0.25 basic and diluted earnings per share). The decrease in consolidated net income for the three month period was due to increases in deposit expense and provision for loan losses, partially offset by increases in loan income and decreases in salaries and other expenses.

- 8 -


Net Interest Income. The Company’s consolidated net interest income prior to provision for credit losses for the three months ended March 31, 2007 was $2,892,000, compared to $2,968,000 for the same period in 2006, a decrease of $76,000 (2.56%) for the three month period.

Interest income increased $235,000 (5.63%) for the three months ended March 31, 2007, compared to the same period in 2006, primarily due to increases in income on loans, including fees.  

Interest expense increased $311,000 (25.79%) for the three months ended March 31, 2007, compared to the same 2006 period. Interest expense increased for the three month period ended March 31, 2007, primarily attributable to increases in interest rates on certificates of deposit and individual retirement accounts combined with increasing balances of interest bearing deposits.

Net interest margins for the three months ended March 31, 2007 was 4.47%, compared to tax equivalent net interest margins of 4.57% for the three months ended March 31, 2006.

Provision for Credit Losses. The Company made a provision for credit losses of $30,000 during the three month period ended March 31, 2007 and no provision for credit losses during the three months ended March 31, 2006. As of March 31, 2007, the allowance for credit losses equaled 929.90% of non-accrual and past due loans compared to 3,116.95% at December 31, 2006 and 2,963.01% at March 31, 2006. During the three month period ended March 31, 2007, the Company recorded net charge-offs of $65,000, compared to a net charge-off of $38,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2007 period represent 0.13 % of the average loan portfolio.

Other Income. Other income decreased from $478,000 for the three month period ended March 31, 2006, to $471,000 for the corresponding 2007 period, a $7,000 (1.47%) decrease. The decrease for the three month period was primarily due to a decrease in other fees and commissions partially offset by an increase in income on life insurance.

Other Expenses. Other expenses decreased from $2,698,000 for the three month period ended March 31, 2006, to $2,618,000 for the corresponding 2007 period, a $80,000 (2.97%) decrease. The decrease for the three month period was primarily due to a decrease in other operating expenses and salaries and employee benefits, partially offset by an increase in occupancy costs.

Income Taxes. During the three months ended March 31, 2007, the Company recorded income tax expense of $109,000, compared to income tax expense of $122,000, for the corresponding period of the prior year. The Company’s effective tax rate for the three month period in 2007 was 15.25%, compared to 16.31% for the prior year period. The decrease in the effective tax rate for the three months was due to increases in income on tax exempt securities and bank owned life insurance (BOLI).

Comprehensive Income. In accordance with regulatory requirements, the Company reports comprehensive income in its financial statements. Comprehensive income consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s investment portfolio of investment securities. For the first quarter of 2007, comprehensive income, net of tax, totaled $749,000, compared to the March 31, 2006 total of ($48,000). The increase for the first quarter, from the prior year, is due primarily to the increase in unrealized gains on available for sale securities.

FINANCIAL CONDITION

General. The Company’s assets increased to $320,515,000 at March 31, 2007 from $317,746,000 at December 31, 2006, primarily due to an increase in federal funds sold, investment securities and loans, partially offset by a decrease in cash and cash equivalents and other assets. The Bank’s net loans totaled $194,050,000 at March 31, 2007, compared to $193,337,000 at December 31, 2006, an increase of $713,000 (0.37%), primarily attributable to an increase in mortgage and mortgage loan participations purchased, partially offset by a decrease in demand loans.

The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $96,938,000 at March 31, 2007, a $444,000 (0.46%) increase from $96,494,000 at December 31, 2006. The Bank’s cash and due from banks (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of March 31, 2007, totaled $15,202,000, an increase of $1,882,000 (14.13%) from the December 31, 2006 total of $13,320,000. The aggregate market value of investment securities held by the Bank as of March 31, 2007 was $96,982,000 compared to $96,541,000 as of December 31, 2006, a $441,000 (0.46%) increase.

Deposits as of March 31, 2007 totaled $278,153,000, which is an increase of $3,320,000 (1.21%) from $274,833,000 at December 31, 2006. Demand deposits as of March 31, 2007 totaled $76,613,000, which is an increase of $1,884,000 (2.52%) from $74,729,000 at December 31, 2006. NOW accounts as of March 31, 2007 totaled $22,822,000, which is an increase of $548,000 (2.46%) from $22,274,000 at December 31, 2006. Money market accounts as of March 31, 2007 totaled $16,218,000, which is an increase of $877,000 (5.72%), from $15,341,000 at December 31, 2006. Savings deposits as of March 31, 2007 totaled $51,574,000, which is an increase of $1,340,000 (2.67%) from $50,234,000 at December 31, 2006. Certificates of deposit over $100,000 totaled $21,993,000 on March 31, 2007, which is a decrease of $387,000 (1.73%) from $22,380,000 at December 31, 2006. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $88,933,000 on March 31, 2007, which is a $941,000 (1.05%) decrease from the $89,874,000 total at December 31, 2006.
 
- 9 -


Asset Quality. The following table sets forth the amount of the Bank’s restructured loans, non-accrual loans and accruing loans 90 days or more past due at the dates indicated.


   
At March 31,
 
At December 31,
 
   
2007
 
2006
 
   
(Dollars in Thousands)
 
           
Restructured loans
 
$
1,133
 
$
-
 
               
Non-accrual loans:
             
Real-estate - mortgage:
             
Residential
 
$
11
 
$
3
 
Commercial
   
-
   
-
 
Real-estate - construction
   
-
   
-
 
Installment
   
51
   
46
 
Credit card and related
   
-
   
-
 
Commercial
   
128
   
8
 
               
Total non-accrual loans
   
190
   
57
 
               
Accruing loans past due 90 days or more:
             
Real-estate - mortgage:
             
Residential
   
1
   
2
 
Commercial
   
-
   
-
 
Real-estate - construction
   
3
   
-
 
Installment
   
-
   
-
 
Credit card and related
   
-
   
-
 
Commercial
   
-
   
-
 
Other
   
-
   
-
 
               
Total accruing loans past due 90 days or more
   
4
   
2
 
               
Total non-accrual loans and past due loans
 
$
194
 
$
59
 
               
Non-accrual and past due loans to gross loans
   
0.10
%
 
0.03
%
               
Allowance for credit losses to non-accrual and past due loans
   
929.90
%
 
3,116.95
%

At March 31, 2007, there were no loans outstanding, other than those reflected in the above table, as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. Reflected in the above table are $7,828 of prior period troubled debt restructurings that are now not performing under the terms of their modified agreements.

Allowance For Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrowers’ ability to pay.


- 10 -


Transactions in the allowance for credit losses for the three months ended March 31, 2007 and 2006 were as follows:

   
Three Months Ended March 31,
 
   
2007
 
2006
 
   
(Dollars in Thousands)
 
           
Beginning balance
 
$
1,839
 
$
2,201
 
               
Charge-offs
   
(126
)
 
(144
)
Recoveries
   
61
   
106
 
Net charge-offs
   
(65
)
 
(38
)
Provisions charged to operations
   
30
   
-
 
               
Ending balance
 
$
1,804
 
$
2,163
 
               
Average loans
 
$
193,925
 
$
187,658
 
               
Net charge-offs to average loans (annualized)
   
0.13
%
 
0.08
%

Reserve for Unfunded Commitments. As of March 31, 2007, the Bank had outstanding commitments totaling $19,819,516. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:

   
Three Months Ended March 31,
 
   
2007
 
2006
 
   
(Dollars in Thousands)
 
           
Beginning balance
 
$
200
 
$
200
 
               
Provisions charged to operations
   
-
   
-
 
               
Ending balance
 
$
200
 
$
200
 

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the first quarter of 2007.

MARKET RISK AND INTEREST RATE SENSITIVITY

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates or equity pricing. The Company’s principal market risk is interest rate risk that arises from its lending, investing and deposit taking activities. The Company’s profitability is dependent on the Bank’s net interest income. Interest rate risk can significantly affect net interest income to the degree that interest bearing liabilities mature or reprice at different intervals than interest earning assets. The Bank’s Asset/Liability and Risk Management Committee oversees the management of interest rate risk. The primary purpose of the committee is to manage the exposure of net interest margins to unexpected changes due to interest rate fluctuations. The Company does not utilize derivative financial or commodity instruments or hedging strategies in its management of interest rate risk. The primary tool used by the committee to monitor interest rate risk is a “gap” report which measures the dollar difference between the amount of interest bearing assets and interest bearing liabilities subject to repricing within a given time period. These efforts affect the loan pricing and deposit rate policies of the Company as well as the asset mix, volume guidelines, and liquidity and capital planning.

The following table sets forth the Company’s interest-rate sensitivity at March 31, 2007.


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Over 1
         
       
Over 3 to
 
Through
 
Over
     
   
0-3 Months
 
12 Months
 
5 Years
 
5 Years
 
Total
 
   
(Dollars in Thousands)
 
Assets:
                     
Cash and due from banks
 
$
-
 
$
-
 
$
-
 
$
-
 
$
8,931
 
Federal funds and overnight deposits
   
6,271
   
-
   
-
   
-
   
6,271
 
Securities
   
-
   
299
   
10,536
   
86,103
   
96,938
 
Loans
   
10,996
   
11,326
   
80,080
   
91,648
   
194,050
 
Fixed assets
   
-
   
-
   
-
   
-
   
3,329
 
Other assets
   
-
   
-
   
-
   
-
   
10,996
 
                                 
Total assets
 
$
17,267
 
$
11,625
 
$
90,616
 
$
177,751
 
$
320,515
 
                                 
Liabilities:
                               
Demand deposit accounts
 
$
-
 
$
-
 
$
-
 
$
-
 
$
76,613
 
NOW accounts
   
22,822
   
-
   
-
   
-
   
22,822
 
Money market deposit accounts
   
16,218
   
-
   
-
   
-
   
16,218
 
Savings accounts
   
51,574
   
-
   
-
   
-
   
51,574
 
IRA accounts
   
7,220
   
6,542
   
14,977
   
2,018
   
30,757
 
Certificates of deposit
   
30,306
   
30,899
   
18,898
   
66
   
80,169
 
Short-term borrowings
   
272
   
-
   
-
   
-
   
272
 
Long-term borrowings
   
8
   
25
   
7,099
   
-
   
7,132
 
Other liabilities
   
-
   
-
   
-
   
-
   
1,103
 
Junior subordinated debenture
   
-
   
-
   
5,155
   
-
   
5,155
 
Stockholders’ equity: 
   
-
   
-
   
-
   
-
   
28,700
 
                                 
Total liabilities and
                               
stockholders' equity
 
$
128,420
 
$
37,466
 
$
46,129
 
$
2,084
 
$
320,515
 
                                 
GAP
 
$
(111,153
)
$
(25,841
)
$
44,487
 
$
175,667
       
Cumulative GAP
 
$
(111,153
)
$
(136,994
)
$
(92,507
)
$
83,160
       
Cumulative GAP as a % of total assets
   
-34.68
%
 
-42.74
%
 
-28.86
%
 
25.95
%
     
 
The foregoing analysis assumes that the Company’s assets and liabilities move with rates at their earliest repricing opportunities based on final maturity. Mortgage backed securities are assumed to mature during the period in which they are estimated to prepay and it is assumed that loans and other securities are not called prior to maturity. Certificates of deposit and IRA accounts are presumed to reprice at maturity. NOW savings accounts are assumed to reprice at within three months although it is the Company’s experience that such accounts may be less sensitive to changes in market rates.

In addition to GAP analysis, the Bank utilizes a simulation model to quantify the effect a hypothetical immediate plus or minus 200 basis point change in rates would have on net interest income and the economic value of equity. The model takes into consideration the effect of call features of investments as well as prepayments of loans in periods of declining rates. When actual changes in interest rates occur, the changes in interest earning assets and interest bearing liabilities may differ from the assumptions used in the model. As of December 31, 2006, the model produced the following sensitivity profile for net interest income and the economic value of equity.


             
Immediate Change in Rates
             
-200
 
-100
 
+100
 
+200
             
Basis Points
 
Basis Points
 
Basis Points
 
Basis Points
                           
% Change in Net Interest Income
   
-4.8%
 
-0.8%
 
-1.4%
 
-3.6%
% Change in Economic Value of Equity
   
-9.5%
 
-1.5%
 
-5.4%
 
-12.0%

- 12 -


LIQUIDITY AND CAPITAL RESOURCES

The Company currently has no business other than that of the Bank and does not currently have any material funding commitments. The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank is subject to various regulatory restrictions on the payment of dividends.

The Bank’s principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans, interest received on investment securities and proceeds from maturing investment securities. Its principal funding commitments are for the origination or purchase of loans and the payment of maturing deposits. Deposits are considered a primary source of funds supporting the Bank’s lending and investment activities.

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of three months or less and money market mutual funds. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of March 31, 2007, totaled $15,202,000, an increase of $1,882,000 (14.13%) from the December 31, 2006 total of $13,320,000.

As of March 31, 2007, the Bank was permitted to draw on a $38,400,000 line of credit from the FHLB of Atlanta. Borrowings under the line are secured by a floating lien on the Bank’s residential mortgage loans. As of March 31, 2007, a $7.0 million long-term convertible advance was outstanding. In addition the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it did not have an outstanding balance at March 31, 2007. Furthermore, as of March 31, 2007, the Company had outstanding $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures issued to Glen Burnie Statutory Trust I, a Connecticut statutory trust subsidiary of the Company.

The Company’s stockholders’ equity increased $499,000 (1.77%) during the three months ended March 31 , 2007, due mainly to a decrease in accumulated other comprehensive loss, net of tax benefits, offset partially by increases in all the other items. The Company’s accumulated other comprehensive loss, net of tax benefits decreased by $143,000 (45.25%) from ($316,000) at December 31, 2006 to ($173,000) at March 31, 2007, as a result of an increase in the market value of securities classified as available for sale. Retained earnings increased by $308,000 (2.16%) as the result of the Company’s earnings for the three months, offset by dividends. In addition, $48,634 was transferred within stockholders’ equity in consideration for shares to be issued under the Company’s dividend reinvestment plan in lieu of cash dividends.

The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets. At March 31, 2007, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 10.50%, a Tier 1 risk-based capital ratio of 16.06% and a total risk-based capital ratio of 17.02%.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s accounting policies are more fully described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the variables most important in the estimation process:

Allowance for Credit Losses. The Bank’s allowance for credit losses is determined based upon estimates that can and do change when the actual events occur, including historical losses as an indicator of future losses, fair market value of collateral, and various general or industry or geographic specific economic events.  The use of these estimates and values is inherently subjective and the actual losses could be greater or less than the estimates.  For further information regarding the Bank’s allowance for credit losses, see “Allowance for Credit Losses”, above.


- 13 -


Accrued Taxes. Management estimates income tax expense based on the amount it expects to owe various tax authorities. Accrued taxes represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of the Company’s tax position.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For information regarding the market risk of the Company’s financial instruments, see “Market Risk and Interest Rate Sensitivity” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 4.     CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and believe that the system is effective. There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


- 14 -


PART II - OTHER INFORMATION

ITEM 6.     EXHIBITS


Exhibit No.

3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
3.2
Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2003, File No. 0-24047)
3.3
Articles Supplementary, dated November 16, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December 8, 1999, File No. 0-24047)
3.4
By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2003, File No. 0-24047)
4.1
Rights Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and restated as of December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
10.1
Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No.33-62280)
10.2
The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)
10.3
Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
10.4
The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047)
31.1
Rule 15d-14(a) Certification of Chief Executive Officer
31.2
Rule 15d-14(a) Certification of Chief Financial Officer
32.1
Section 1350 Certifications
99.1
Press Release dated May 8, 2007
 
- 15 -


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
GLEN BURNIE BANCORP
 
(Registrant)
     
     
Date: May 8, 2007
By:
/s/ F. William Kuethe, Jr.
   
F. William Kuethe, Jr.
   
President, Chief Executive Officer
     
     
 
By:
/s/ John E. Porter
   
John E. Porter
   
Chief Financial Officer
 
- 16 -