GLEN BURNIE BANCORP - Quarter Report: 2019 March (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly period ended March 31, 2019

☐ 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GLBZ	The Nasdaq Stock Market LLC

The number of shares of the registrant’s common stock outstanding as of May 6, 2019 was 2,821,230.

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

TABLE OF CONTENTS


		Page
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets: As of March 31, 2019 (unaudited) and December 31, 2018 (audited)	3

	Consolidated Statements of Income: Three Months Ended March 31, 2019 and 2018 (unaudited)	4

	Consolidated Statements of Comprehensive Income(Loss): Three Months Ended March 31, 2019 and 2018 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity: Three Months Ended March 31, 2019 and 2018 (unaudited)	6

	Consolidated Statements of Cash Flows: Three Months Ended March 31, 2019 and 2018 (unaudited)	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

	SIGNATURES	40

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PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	March 31,		December 31,
	2019			2018
		(unaudited)		(audited)
ASSETS
Cash and due from banks	$	2,341	$	2,605
Interest-bearing deposits in other financial institutions		14,194		13,349
Cash and Cash Equivalents		16,535		15,954

Investment securities available for sale, at fair value		61,420		81,572
Restricted equity securities, at cost		1,439		2,481

Loans, net of deferred fees and costs		299,417		299,120
Less: Allowance for loan losses		(2,605)		(2,541)
Loans, net		296,812		296,579

Real estate acquired through foreclosure		705		705
Premises and equipment, net		3,901		3,106
Bank owned life insurance		7,900		7,860
Deferred tax assets, net		1,197		1,392
Accrued interest receivable		1,110		1,198
Accrued taxes receivable		1,221		1,177
Prepaid expenses		515		466
Other assets		304		556
Total Assets	$	393,059	$	413,046

LIABILITIES
Noninterest-bearing deposits	$	107,249	$	101,369
Interest-bearing deposits		224,364		221,084
Total Deposits		331,613		322,453

Short-term borrowings		25,000		55,000
Defined pension liability		298		285
Accrued expenses and other liabilities		1,693		1,257
Total Liabilities		358,604		378,995

STOCKHOLDERS' EQUITY
Common stock, par value $1, authorized 15,000,000 shares, issued and outstanding 2,817,821 and 2,814,157 shares as of March 31, 2019 and December 31, 2018 , respectively.		2,818		2,814
Additional paid-in capital		10,433		10,401
Retained earnings		21,919		22,066
Accumulated other comprehensive loss		(715)		(1,230)
Total Stockholders' Equity		34,455		34,051

Total Liabilities and Stockholders' Equity	$	393,059	$	413,046

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,
	2019		2018
INTEREST INCOME
Interest and fees on loans	$	3,189	$	2,872
Interest and dividends on securities		400		524
Interest on deposits with banks and federal funds sold		120		48
Total Interest Income		3,709		3,444

INTEREST EXPENSE
Interest on deposits		332		309
Interest on short-term borrowings		238		143
Total Interest Expense		570		452

Net Interest Income		3,139		2,992

Provision for loan losses		173		360
Net interest income after provision for loan losses		2,966		2,632

NONINTEREST INCOME
Service charges on deposit accounts		61		67
Other fees and commissions		178		168
Gains on redemption of BOLI policies		—		207
Gain on securities sold		3		—
Income on life insurance		40		44
Total Noninterest Income		282		486

NONINTEREST EXPENSE
Salary and benefits		1,770		1,721
Occupancy and equipment expenses		314		305
Legal, accounting and other professional fees		232		262
Data processing and item processing services		176		132
FDIC insurance costs		56		58
Advertising and marketing related expenses		27		17
Loan collection costs		13		41
Telephone costs		66		57
Other expenses		423		242
Total Noninterest Expenses		3,077		2,835

Income before income taxes		171		283

Income tax expense		36		28

NET INCOME	$	135	$	255

Basic and diluted net income per share of common stock	$	0.05	$	0.09

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2019		2018

Net income	$	135	$	255

Other comprehensive income (loss):

Net unrealized gain (loss) on securities available for sale:
Net unrealized gain (loss) on securities during the period		932		(1,596)
Income tax (expense) benefit relating to item above		(255)		439
Reclassification adjustment for gain on sales of securities included in net income		(2)		—
Net effect on other comprehensive income (loss)		675		(1,157)

Net unrealized (loss) gain on interest rate swap:
Net unrealized (loss) gain on interest rate swap during the period		(221)		398
Income tax benefit (expense) relating to item above		61		(109)
Net effect on other comprehensive (loss) income		(160)		289

Other comprehensive income (loss)		515		(868)

Comprehensive income (loss)	$	650	$	(613)

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)





							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive
	Stock		Capital		Earnings		(Loss)		Total


Balance, December 31, 2017	$	2,801	$	10,267	$	21,605	$	(631)	$	34,042

Net income		—		—		255		—		255
Cash dividends, $0.10 per share		—		—		(279)		—		(279)
Dividends reinvested under
dividend reinvestment plan		3		34		—		—		37
Other comprehensive loss		—		—		—		(868)		(868)

Balance, March 31, 2018	$	2,804	$	10,301	$	21,581	$	(1,499)	$	33,187




							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive
	Stock		Capital		Earnings		(Loss)		Total

Balance, December 31, 2018	$	2,814	$	10,401	$	22,066	$	(1,230)	$	34,051

Net income		—		—		135		—		135
Cash dividends, $0.10 per share		—		—		(282)		—		(282)
Dividends reinvested under
dividend reinvestment plan		4		32		—		—		36
Other comprehensive income		—		—		—		515		515

Balance, March 31, 2019	$	2,818	$	10,433	$	21,919	$	(715)	$	34,455

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)



	Three Months Ended March 31,
	2019		2018
Cash flows from operating activities:
Net income	$	135	$	255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion of premises and equipment		318		319
Provision for loan losses		173		360
Gain on life insurance		—		(207)
Increase in cash surrender value of bank owned life insurance		(40)		(42)
Increase (decrease) in ground rents		(3)		3
Decrease (increase) in accrued interest receivable		89		(49)
Net (increase) decrease in other assets		(61)		700
Net decrease in accrued expenses and other liabilities		(416)		(175)

Net cash provided by operating activities		195		1,164

Cash flows from investing activities:
Redemptions and maturities of investment securities available for sale		22,815		2,663
Purchases of investment securities available for sale		(1,932)		(5,440)
Net sales of Federal Home Loan Bank stock		1,041		2
Net increase in loans		(408)		(4,138)
Purchases of premises and equipment		(47)		(19)

Net cash provided by (used in) investing activities		21,469		(6,932)

Cash flows from financing activities:
Net increase in deposits		9,163		1,932
Decrease in short term borrowings		(30,000)		—
Cash dividends paid		(282)		(279)
Common stock dividends reinvested		36		38

Net cash (used in) provided by financing activities		(21,083)		1,691

Net increase (decrease) in cash and cash equivalents		581		(4,077)

Cash and cash equivalents at beginning of year		15,954		12,605

Cash and cash equivalents at end of year	$	16,535	$	8,528

Supplemental Disclosures of Cash Flow Information:
Interest paid on deposits and borrowings	$	551	$	441
Net income taxes paid (refunded)		36		(583)
Net decrease (increase) in unrealized depreciation on available for sale securities		932		(1,596)
Net (increase) decrease in unrealized appreciation on swaps		(221)		398

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATIONAL

Nature of Business

Glen Burnie Bancorp (the “Company”) is a bank holding company organized in 1990 under the laws of the State of Maryland. The Company owns all the outstanding shares of capital stock of The Bank of Glen Burnie (the “Bank”), a commercial bank organized in 1949 under the laws of the State of Maryland (the “State”). The Bank provides financial services to individuals and corporate customers located in Anne Arundel County and surrounding areas of Central Maryland, and is subject to competition from other financial institutions. The Bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

NOTE 2 – BASIS OF PRESENTATION

In management’s opinion, the accompanying unaudited consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim period reporting, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position at March 31, 2019 and December 31, 2018, the results of operations for the three-month period ended March 31, 2019 and 2018, and the statements of cash flows for the three-month period ended March 31, 2019 and 2018. The operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019 or any future interim period. The consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2019. The unaudited consolidated financial statements for March 31, 2019 and 2018, the consolidated balance sheet at December 31, 2018, and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, The Bank of Glen Burnie. Consolidation resulted in the elimination of all intercompany accounts and transactions.

On January 10, 2019, the Board of Directors (the “Board”) of the Company and the Bank approved the contribution from the Company to the Bank of all of the common stock of GBB Properties, Inc. (“GBB”). The contribution and assignment of 3,600 shares of common stock occurred on January 22, 2019 and was treated as a capital contribution. Prior to the contribution, the Company owned all of the outstanding shares of common stock of GBB a Maryland corporation which was organized in 1994 and which is engaged in the business of acquiring, holding and disposing of real property, typically acquired in connection with foreclosure proceedings (or deeds in lieu of foreclosure) instituted by the Bank.

Cash Flow Presentation

In the statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, Federal Home Loan Bank of Atlanta (“FHLB Atlanta”) overnight deposits, and federal funds sold. Generally, federal funds are sold for one-day periods.

Reclassifications

Certain items in the 2018 consolidated financial statements have been reclassified to conform to the 2019 classifications. The reclassifications had no effect on previously reported results of operations or retained earnings.

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Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses (the “allowance”); the fair value of financial instruments, such as loans and investment securities; benefit plan obligations and expenses; and the valuation of deferred tax assets and liabilities.

NOTE 3 – EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average common shares outstanding, plus the effect of common stock equivalents (for example, stock options computed using the treasury stock method).


	Three Months Ended
	March 31,
	2019		2018
Basic and diluted earnings per share:
Net income	$	135,025	$	255,469
Weighted average common shares outstanding		2,816,518		2,802,509
Basic and dilutive net income per share	$	0.05	$	0.09

Diluted earnings per share calculations were not required for the three-month periods ended March 31, 2019 and 2018, as there were no stock options outstanding.

NOTE 4 – INVESTMENT SECURITIES

Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company held no trading securities at March 31, 2019 or December 31, 2018. Available-for-sale investment securities, comprised of debt and mortgage-backed securities, are those that may be sold before maturity due to changes in the Company's interest rate risk profile or funding needs, and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. Held-to-maturity investment securities are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company held no held-to-maturity securities at March 31, 2019 or December 31, 2018.

Realized gains and losses are recorded in noninterest income and are determined on a trade date basis using the specific identification method. Interest and dividends on investment securities are recognized in interest income on an accrual basis. Premiums and discounts are amortized or accreted into interest income using the interest method over the expected lives of the individual securities.

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The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at March 31, 2019 and December 31, 2018:


	At March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collateralized mortgage obligations	$	18,938	$	1	$	(460)	$	18,479
Agency mortgage-backed securities		27,104		11		(518)		26,597
Municipal securities		13,437		40		(115)		13,362
U.S. Government agency securities		1,999		—		(11)		1,988
U.S. Treasury securities		1,001		—		(7)		994

Total securities available for sale	$	62,479	$	52	$	(1,111)	$	61,420


	At December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collateralized mortgage obligations	$	20,463	$	6	$	(663)	$	19,806
Agency mortgage-backed securities		25,895		6		(914)		24,987
Municipal securities		34,205		78		(453)		33,830
U.S. Government agency securities		1,999		—		(40)		1,959
U.S. Treasury securities		1,001		—		(11)		990

Total securities available for sale	$	83,563	$	90	$	(2,081)	$	81,572

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2019 and December 31, 2018 are as follows:


March 31, 2019	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	—	$	—	$	17,280	$	(460)	$	17,280	$	(460)
Agency mortgage-backed securities		—		—		24,611		(518)		24,611		(518)
Municipal securities		—		—		7,464		(115)		7,464		(115)
U.S. Government agency securities		—		—		1,988		(11)		1,988		(11)
U.S. Treasury securities		—		—		994		(7)		994		(7)
	$	—	$	—	$	52,337	$	(1,111)	$	52,337	$	(1,111)

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December 31, 2018	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	1,625	$	(22)	$	17,546	$	(640)	$	19,171	$	(662)
Agency mortgage-backed securities		3,399		(74)		21,417		(840)		24,816		(914)
Municipal securities		13,162		(244)		8,415		(210)		21,577		(454)
U.S. Government agency securities		—		—		1,959		(40)		1,959		(40)
U.S. Treasury securities		—		—		990		(11)		990		(11)
	$	18,186	$	(340)	$	50,327	$	(1,741)	$	68,513	$	(2,081)

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary-impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2019, the Company recorded unrealized losses in its portfolio of debt securities totaling $1.1 million related to 111 securities, which resulted from increases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to be other-than-temporarily impaired.

At December 31, 2018, the Company recorded unrealized losses in its portfolio of debt securities totaling $2.1 million related to 142 securities, which resulted from increases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to be other-than-temporarily impaired.

Shown below are contractual maturities of debt securities at March 31, 2019. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.


	At March 31, 2019


	Amortized		Fair		Yield
(dollars in thousands)	Cost		Value		(1), (2)
Available for sale securities maturing:
Within one year	$	500	$	497	1.58	%
Over one to five years		1,001		993	1.72	%
Over five to ten years		15,645		15,347	1.84	%
Over ten years		45,333		44,583	2.38	%
Total debt securities	$	62,479	$	61,420

_____________________

(1) Yields are stated as book yields which are adjusted for amortization and accretion of purchase premiums and discounts, respectively.

(2) Yields on tax-exempt obligations are computed on a tax-equivalent basis.

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NOTE 5 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The fundamental lending business of the Company is based on understanding, measuring, and controlling the credit risk inherent in the loan portfolio. The Company's loan portfolio is subject to varying degrees of credit risk. These risks entail both general risks, which are inherent in the lending process, and risks specific to individual borrowers. The Company's credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type.

The Company currently manages its credit products and the respective exposure to loan losses by the following specific portfolio segments, which are levels at which the Company develops and documents its systematic methodology to determine the allowance for loan losses. The Company considers each loan type to be a portfolio segment having unique risk characteristics.


	March 31,			December 31,
	2019			2018
(dollars in thousands)	Amount		%	Amount		%
Consumer	$	12,876	4	$	13,071	4
Residential real estate		81,567	27		82,637	28
Indirect		115,800	39		116,698	39
Commercial		14,504	5		14,284	5
Construction		2,090	1		2,317	1
Commercial real estate		72,580	24		70,113	23
Loans, net of deferred fees and costs		299,417	100		299,120	100
Less: Allowance for loan losses		(2,605)			(2,541)
Loans, net	$	296,812		$	296,579

The Bank’s net loans totaled $296.8 million at March 31, 2019, compared to $296.6 million at December 31, 2018, an increase of $0.2 million, or 0.08%. Consumer loans decreased from $13.1 million at December 31, 2018 to $12.9 million at March 31, 2019, a decrease of $0.2 million, or 1.49%. Residential real estate loans decreased by $1.1 million, or 1.29%, from $82.6 million at December 31, 2018 to $81.6 million at March 31, 2019. Indirect loans decreased from $116.7 million at December 31, 2018 to $115.8 million at March 31, 2019, a decrease of $0.9 million, or 0.77%. Commercial loans increased $0.2 million, or 1.54%, to $14.5 million at March 31, 2019, compared to $14.3 million at December 31, 2018. Construction loans decreased by $0.2 million, or 9.80% to $2.1 million at March 31, 2019, compared to $2.3 million at December 31, 2018. Commercial real estate loans increased from $70.1 million at December 31, 2018 to $72.6 million at March 31, 2019, an increase of $2.5 million or 3.52%.

Credit Risk and Allowance for Loan Losses. Credit risk is the risk of loss arising from the inability of a borrower to meet his or her obligations and entails both general risks, which are inherent in the process of lending, and risks specific to individual borrowers. Credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry, or collateral type. Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as auto loans, generally experience medium credit losses. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and for that reason, the Bank has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance, based on evaluations of the collectability 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.

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The evaluations are performed for each class of loans and take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, value of collateral securing the loans and current economic conditions and trends that may affect the borrowers’ ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Based on that analysis, the Bank deems its allowance for loan losses in proportion to the total nonaccrual loans and past due loans to be sufficient.

For purposes of determining the allowance for loan losses, the Bank segments the loan portfolio into the following classifications:

Consumer

Residential Real Estate

Indirect

Commercial

Construction

Commercial Real Estate

Each of these segments are reviewed and analyzed quarterly using the average historical charge-offs over a forty-eight to sixty month period for their respective segments as well as the following qualitative factors:

Changes in asset quality metrics including past due loans (30 - 89 days), nonaccrual loans, classified assets, watch list loans all in relation to total loans. Also policy exceptions in relationship to loan volume.

Changes in the rate and direction of the loan volume by portfolio segment.

Concentration of credit including the concentration percentages, changes in concentration and concentrations relative to goals.

Changes in macro-economic factors including the rates and direction of unemployment, median income and population.

Changes in internal factors including external loan review required reserve changes, internal review penetration, internal required reserve changes, and weighted required reserve trends.

Changes in rate and direction of charge offs and recoveries.

Transactions in the allowance for loan losses for the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows:



March 31, 2019			Residential								Commercial
(dollars in thousands)	Consumer		Real Estate		Indirect		Commercial		Construction		Real Estate		Total

Balance, beginning of year	$	161	$	864	$	988	$	241	$	4	$	283	$	2,541
Charge-offs		—		(12)		(166)		(27)		—		—		(205)
Recoveries		10		—		80		6		—		—		96
Provision for loan losses		15		(35)		123		29		—		41		173

Balance, end of quarter	$	186	$	817	$	1,025	$	249	$	4	$	324	$	2,605

Individually evaluated for impairment:
Balance in allowance	$	52	$	—	$	—	$	203	$	—	$	—	$	255
Related loan balance		248		1,071		—		287		—		1,234		2,840

Collectively evaluated for impairment:
Balance in allowance	$	134	$	817	$	1,025	$	46	$	4	$	324	$	2,350
Related loan balance		12,628		80,496		115,800		14,217		2,090		71,346		296,577

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December 31, 2018			Residential								Commercial
(dollars in thousands)	Consumer		Real Estate		Indirect		Commercial		Construction		Real Estate		Total

Balance, beginning of year	$	214	$	1,061	$	774	$	237	$	12	$	291	$	2,589
Charge-offs		(208)		(589)		(341)		—		—		(13)		(1,151)
Recoveries		48		2		183		14		—		—		247
Provision for loan losses		107		390		372		(10)		(8)		5		856

Balance, end of year	$	161	$	864	$	988	$	241	$	4	$	283	$	2,541

Individually evaluated for impairment:
Balance in allowance	$	22	$	—	$	—	$	204	$	—	$	—	$	226
Related loan balance		138		854		—		204		—		1,054		2,250

Collectively evaluated for impairment:
Balance in allowance	$	139	$	864	$	988	$	37	$	4	$	283	$	2,315
Related loan balance		12,933		81,783		116,698		14,080		2,317		69,059		296,870

Management believes the allowance for credit losses is at an appropriate level to absorb inherent probable losses in the portfolio.


	March 31,			March 31,
(dollars in thousands)	2019			2018
Average loans	$	299,506		$	273,964
Net charge offs to average loans (annualized)		0.27	%		0.07	%

During the three-month period ended March 31, 2019, loans to 19 borrowers and related entities totaling approximately $205,000 were determined to be uncollectible and were charged off. During the three-month period ending March 31, 2018, loans to 7 borrowers and related entities totaling approximately $102,000 were determined to be uncollectible and were charged off.

Reserve for Unfunded Commitments. Loan commitments and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Bank generally requires collateral to support financial instruments with credit risk on the same basis as it does for on-balance sheet instruments. The collateral requirement is based on management's credit evaluation of the counter party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of March 31, 2019 and 2018, the Bank had outstanding commitments totaling $33.0 million and $24.7 million, respectively. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other

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loan commitments. The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:


	Three Months
	Ended March 31,
(dollars in thousands)	2019		2018
Beginning balance	$	35	$	24
Reduction of unfunded reserve		(9)		(18)
Provisions charged to operations		—		6

Ending balance	$	26	$	12

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the first quarter 2019.

Asset Quality. The following tables set forth the amount of the Bank’s current, past due, and non-accrual loans by categories of loans and restructured loans, at the dates indicated.


At March 31, 2019					90 Days or
(dollars in thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total

Consumer	$	12,412	$	152	$	—	$	312	$	12,876
Residential Real Estate		79,923		387		25		1,232		81,567
Indirect		114,981		633		—		186		115,800
Commercial		14,418		—		—		86		14,504
Construction		2,090		—		—		—		2,090
Commercial Real Estate		69,104		2,830		—		646		72,580

	$	292,928	$	4,002	$	25	$	2,462	$	299,417


At December 31, 2018					90 Days or
(dollars in thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total

Consumer	$	12,669	$	216	$	—	$	186	$	13,071
Residential Real Estate		80,923		732		26		956		82,637
Indirect		115,890		692		—		116		116,698
Commercial		14,171		86		—		27		14,284
Construction		2,317		—		—		—		2,317
Commercial Real Estate		69,451		—		—		662		70,113

	$	295,421	$	1,726	$	26	$	1,947	$	299,120

The balances in the above charts have not been reduced by the allowance for loan loss. For the period ending March 31, 2019, the allowance for loan loss is $2.6 million. For the period ending December 31, 2018, the allowance for loan loss is $2.5 million.

At March 31, 2019, there was $0.8 million in loans outstanding that were in an accrual status, but known information about possible credit problems of borrowers caused management to have 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. The three loans outstanding, totaling $1.0 million are as follows: $583,000 Commercial Real Estate loan where the guarantor is in bankruptcy and the loan has an accelerated

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payoff since we have an assignment of rents from the property which has a very long-term national tenant; and a $202,000 Commercial loan with a loan to value ratio which has deteriorated, which has a complete specific reserve of $202,000. Both of these loans are classified with a risk rating of Substandard.

Non-accrual loans with specific reserves at March 31, 2019 are comprised of:

Consumer loans – Three loans to three borrowers that totaled $174,870 with specific reserves of $51,920 established for the loans. One of these loans totaling $42,831 with a specific reserve in the amount of $16,371 was also a Troubled Debt Restructured loan.

Below is a summary of the recorded investment amount and related allowance for losses of the Bank’s impaired loans at March 31, 2019 and December 31, 2018.


March 31, 2019			Unpaid		Interest				Average
(dollars in thousands)	Recorded		Principal		Income		Specific		Recorded
	Investment		Balance		Recognized		Reserve		Investment
Impaired loans with specific reserves:
Consumer	$	175	$	175	$	1	$	52	$	223
Commercial		287		287		—		203		289
Total impaired loans with specific reserves		462		462		1		255		512


Impaired loans with no specific reserve:
Consumer	$	137	$	137	$	—	$	n/a	$	75
Residential Real Estate		1,235		2,004		1		n/a		2,176
Indirect		185		185		—		n/a		—
Commercial Real Estate		1,234		1,544		10		n/a		1,305
Total impaired loans with no specific reserve	$	2,791	$	3,869	$	11		—	$	3,556


December 31, 2018			Unpaid		Interest				Average
(dollars in thousands)	Recorded		Principal		Income		Specific		Recorded
	Investment		Balance		Recognized		Reserve		Investment
Impaired loans with specific reserves:
Consumer	$	89	$	89	$	3	$	22	$	136
Commercial		204		204		12		204		211
Total impaired loans with specific reserves		294		294		15		226		347

Impaired loans with no specific reserve:
Consumer	$	96	$	300	$	2		n/a	$	50
Residential Real Estate		956		1,545		4		n/a		1,981
Indirect		116		457		—		n/a		—
Commercial Real Estate		1,267		1,267		39		n/a		1,148
Total impaired loans with no specific reserve	$	2,435	$	3,569	$	45		—	$	3,179

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	March 31,			December 31,
(dollars in thousands)	2019			2018

Troubled debt restructured loans	$	245		$	248
Non-accrual and 90+ days past due and still accruing loans to average loans		0.90	%		0.73	%
Allowance for loan losses to nonaccrual & 90+ days past due and still accruing loans		104.7	%		128.7	%

At March 31, 2019, there were two troubled debt restructured loans consisting of a commercial loan of $202,000 and a consumer loan of $43,000. The consumer loan is in a nonaccrual status.

The following table shows the activity for non-accrual loans for the quarters ended March 31, 2018 and 2019.



		Residential				Commercial
(dollars in thousands)	Consumer	Real Estate	Indirect	Commercial	Construction	Real Estate	Totals

December 31, 2017	185	2,124	88	48	318	507	3,270
Transfers into nonaccrual	38	183	160	—	—	2,000	2,381
Loans paid down/payoffs	(9)	(17)	(33)	—	—	(17)	(76)
Loans returned to accrual status	—	—	(37)	—	—	—	(37)
Loans charged off	(63)	—	(34)	—	—	—	(97)

March 31, 2018	151	2,290	144	48	318	2,490	5,441


December 31, 2018	186	956	116	27	—	662	1,947
Transfers into nonaccrual	134	571	270	86	—	—	1,061
Loans paid down/payoffs	(8)	(283)	(8)	—	—	(16)	(315)
Loans returned to accrual status	—	—	(19)	—	—	—	(19)
Loans charged off	—	(12)	(173)	(27)	—	—	(212)

March 31, 2019	312	1,232	186	86	—	646	2,462

Other Real Estate Owned. At March 31, 2019 and December 31, 2018, the Company had $705,000 in real estate acquired in partial or total satisfaction of debt. All such properties are initially recorded at the lower of cost or fair value (net realizable value) at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in noninterest expense. Gains and losses realized from the sale of other real estate owned were included in noninterest income.

Credit Quality Information

In addition to monitoring the performance status of the loan portfolio, the Company utilizes a risk rating scale (1-8) to evaluate loan asset quality for all loans. Loans that are rated 1-4 are classified as pass credits. For the pass rated loans, management believes there is a low risk of loss related to these loans and, as necessary, credit may be strengthened through improved borrower performance and/or additional collateral.

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The Bank’s internal risk ratings are as follows:

Superior – minimal risk. (normally supported by pledged deposits, United States government securities, etc.)

Above Average - low risk. (all of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)

Average – moderately low risk. (most of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)

Acceptable – moderate risk. (the weighted overall risk associated with this credit based on each of the bank’s creditworthiness criteria is acceptable)

Other Assets Especially Mentioned – moderately high risk. (possesses deficiencies which corrective action by the bank would remedy; potential watch list)

Substandard – (the bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected)

Doubtful – (weaknesses make collection or liquidation in full, based on currently existing facts, improbable)

Loss – (of little value; not warranted as a bankable asset)

The following tables provides information with respect to the Company's credit quality indicators by loan portfolio segment at March 31, 2019 and December 31, 2018:



March 31, 2019			Residential								Commercial
(dollars in thousands)	Consumer		Real Estate		Indirect		Commercial		Construction		Real Estate		Total

Pass	$	12,564	$	80,397	$	115,615	$	14,217	$	2,090	$	71,346	$	296,229
Special mention		—		—		—		—		—		—		—
Substandard		312		1,170		67		287		—		1,234		3,070
Doubtful		—		—		118		—		—		—		118
Loss		—		—		—		—		—		—		—

	$	12,876	$	81,567	$	115,800	$	14,504	$	2,090	$	72,580	$	299,417

Nonaccrual	$	312	$	1,232	$	186	$	86	$	—	$	646	$	2,462
Troubled debt restructures	$	43	$	—	$	—	$	202	$	—	$	—	$	245
Number of TDRs accounts		1		—		—		1		—		—		2
Non-performing TDRs	$	43	$	—	$	—	$	—	$	—	$	—	$	43
Number of non-performing TDR accounts		1		—		—		—		—		—		1

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December 31, 2018			Residential								Commercial
(dollars in thousands)	Consumer		Real Estate		Indirect		Commercial		Construction		Real Estate		Total

Pass	$	12,888	$	82,111	$	115,724	$	14,284	$	2,317	$	69,900	$	297,224
Special mention		—		424		645		—		—		—		1,069
Substandard		183		102		244		—		—		213		742
Doubtful		—		—		85		—		—		—		85
Loss		—		—		—		—		—		—		—

	$	13,071	$	82,637	$	116,698	$	14,284	$	2,317	$	70,113	$	299,120

Nonaccrual	$	186	$	956	$	116	$	27	$	—	$	662	$	1,947
Troubled debt restructures	$	44	$	—	$	—	$	204	$	—	$	—	$	248
Number of TDRs accounts		1		—		—		1		—		—		2
Non-performing TDRs	$	44	$	—	$	—	$	—	$	—	$	—	$	44
Number of non-performing TDR accounts		1		—		—		—		—		—		1

NOTE 6 – FAIR VALUE

ASC Topic 820 provides a framework for measuring and disclosing fair value under GAAP. ASC 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or a nonrecurring basis (for example, impaired loans).

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Fair Value Hierarchy

ASC 820‑10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820‑10, these inputs are summarized in the three broad levels listed below:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities).

Level 3 – Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Investment Securities Available-for-Sale and Interest Rate Swaps. Investment securities available-for-sale and interest rate swap contracts are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded

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on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities, and interest rate swap contracts. Securities classified as Level 3 include asset-backed securities in illiquid markets.

The Bank may be required, from time to time, to measure certain other financial and non-financial assets and liabilities at fair value on a non-recurring basis in accordance with GAAP.

Loans. At March 31, 2019, these assets include 26 loans, excluding $349,000 of residential real estate, consumer and indirect loans, classified as impaired, which include nonaccrual, past due 90 days or more and still accruing, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs. Loans which are deemed to be impaired ($2.8 million of loans with $255,000 of specific reserves as of March 31, 2019) and foreclosed real estate assets are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. The Company is predominantly a cash flow lender with real estate serving as collateral on a majority of loans ($2.4 million of the total impaired loans as of March 31, 2019). On a quarterly basis, the Company determines such fair values through a variety of data points and mostly rely on appraisals from independent appraisers. We obtain an appraisal on properties when they become impaired and have new appraisals at least every year. Typically, these appraisals do not include an inside inspection of the property as our loan documents do not require the borrower to allow access to the property. Therefore the most significant unobservable inputs is the details of the amenities included within the property and the condition of the property. Further, we cannot always accurately assess the amount of time it takes to gain ownership of our collateral through the foreclosure process and the damage, as well as potential looting, of the property further decreasing our value. Thus, in determining the fair values we discount the current independent appraisals, with a range from 0% to 16%, based on individual circumstances. The remaining impaired loans ($785,000 million with $255,000 of specific reserves as of March 31, 2019) include mobile homes, commercial, consumer, and indirect auto loans, which are valued based on the value of the underlying collateral.

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The changes in the assets subject to fair value measurements are summarized below by level:


							Fair
(dollars in thousands)	Level 1		Level 2		Level 3		Value
March 31, 2019
Recurring:
Securities available for sale
Collateralized mortgage obligations	$	—	$	18,479	$	—	$	18,479
Agency mortgage-backed securities		—		26,597		—		26,597
Municipal securities		—		13,362		—		13,362
U.S. Government agency securities		—		1,988		—		1,988
U.S. Treasury securities		—		994		—		994
Interest rate swap		—		73		—		73

Non-recurring:
Maryland Financial Bank stock		—		—		5		5
Impaired loans		—		—		2,999		2,999
OREO		—		705		—		705
	$	—	$	62,198	$	3,004	$	65,202
December 31, 2018
Recurring:
Securities available for sale
Collateralized mortgage obligations	$	—	$	19,806	$	—	$	19,806
Agency mortgage-backed securities		—		24,987		—		24,987
Municipal securities		—		33,830		—		33,830
U.S. Government agency securities		—		1,959		—		1,959
U.S. Treasury securities		—		990		—		990
Interest rate swap		—		295		—		295

Non-recurring:
Maryland Financial Bank stock		—		—		5		5
Impaired loans		—		—		2,501		2,501
OREO				705				705
	$	—	$	82,572	$	2,506	$	85,078

The estimated fair values of the Company’s financial instruments at March 31, 2019 and December 31, 2018 are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of

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estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.


	March 31, 2019				December 31, 2018
(dollars in thousands)	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	2,341	$	2,341	$	2,605	$	2,605
Interest-bearing deposits in other financial institutions		14,194		14,194		12,468		12,468
Federal funds sold		62		62		881		881
Investment securities available for sale		61,420		61,420		81,572		81,572
Investments in restricted stock		1,439		1,439		2,481		2,481
Ground rents		146		146		143		143
Loans, less allowance for credit losses		296,812		293,507		296,579		293,175
Accrued interest receivable		1,110		1,110		1,198		1,198
Cash value of life insurance		7,900		7,900		7,860		7,860

Financial liabilities:
Deposits		331,613		309,010		322,453		307,271
Long-term borrowings		—		—		—		—
Short-term borrowings		25,000		25,004		55,000		55,851
Accrued interest payable		132		132		152		152
Unrecognized financial instruments:
Commitments to extend credit		24,664		24,664		19,905		19,905
Standby letters of credit		1,059		1,059		1,059		1,059

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments.


(dollars in thousands)
	Carrying		Fair
March 31, 2019	Amount		Value		Level 1		Level 2	Level 3

Financial instruments - Assets
Cash and cash equivalents	$	16,597	$	16,597	$	16,597	—	$	—
Loans receivable, net		296,812		293,507		—	—		293,507
Cash value of life insurance		7,900		7,900		—	7,900		—
Financial instruments - Liabilities
Deposits		331,613		309,010		—	309,010		—
Short-term debt		25,000		25,004		—	25,004		—

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments.

The fair value of cash and due from banks, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations if available, or measured using pricing models or other model-based valuation techniques such as present value and future value cash flows. The fair value of loans receivable is estimated using discounted cash flow analysis. For cash surrender value of life insurance, the carrying value is a reasonable estimate of fair value. Cash surrender value of life insurance is reported in the Level 2 fair value category. The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discounted rate comparable to the current market rate for such borrowings. FHLB borrowings are reported in the Level 2 fair value category.

The fair value of non-interest bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts. The fair value of fixed-maturity time deposits is estimated using discounted cash flow analysis.

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NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS

The FASB has issued several exposure drafts which, if adopted, could significantly alter the Company’s (and all other financial institutions’) method of accounting for, and reporting, its financial assets and some liabilities from a historical cost method to a fair value method of accounting as well as the reported amount of net interest income. The Company has not determined the extent of the possible changes at this time. The exposure drafts are in different stages of review, approval and possible adoption.

Accounting Standards Update (“ASU”) 2014‑09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014‑09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. ASU 2014‑09 was effective for the Company on January 1, 2018 and did not have a significant impact on our financial statements.

ASU 2016‑1, “Financial Instruments – Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 was effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU 2016-01 on January 1, 2018 and it did not have a material impact on the consolidated financial statement. The Bank’s equity securities are membership stocks in the Federal Home Loan Bank and Maryland Financial Bank and thereby excluded from fair value pricing. For exit pricing on loans, the Company used data on recent originations which captured expectations of the credit risk “premium” and an analysis of prepayments which captures the Company’s historical prepayment experience.

ASU 2016‑02, “Leases (Topic 842).” In February 2016, the FASB issued ASU No. 2016-02. This guidance provides that lessees will be required to recognize the following for all operating leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the provisions of ASU No. 2016-02 on January 1, 2019 and elected several practical expedients made available by the FASB. Specifically, the Company elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance. In addition, the Company elected the package of practical expedients which among other things, requires no reassessment of whether existing contracts are or contain leases as well as no reassessment of lease classification for existing leases and the practical expedient which permits the Company to not separate nonlease components from lease components in determining the consideration in the lease agreement when the Company is a lessee and a lessor. The Company identified the primary lease agreements in scope of this new guidance as those

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relating to branch premises. As a result, the Company recognized a lease liability of $0.8 million and a related right-of-use asset of $0.8 million on its consolidated balance sheet on January 1, 2019.

ASU No. 2016‑13, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” which updated guidance intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The updated guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. While the Company generally expects that the implementation of ASU 2016-13 will increase the allowance for loan losses balance, the Company is continuing to evaluate the potential impact on the Company’s financial statements.

ASU 2016‑15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016‑15”). ASU 2016 15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016‑15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted, including adoption in an interim period. The Company’s adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

ASU 2016‑18, “Statement of Cash Flows (Topic 230) - Restricted Cash.” ASU 2016‑18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016‑18 was effective for the Company on January 1, 2018 and did not have a significant impact on our financial statements.

ASU 2017‑01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business.” ASU 2017‑01 clarifies the definition and provides a more robust framework to use in determining when a set of assets and activities constitutes a business. ASU 2017‑01 is intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017‑01 was effective for the Company on January 1, 2018 and did not have a significant impact on our financial statements.

ASU 2017‑08, “Receivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities.” ASU 2017‑08 shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017‑08 was effective for interim and annual reporting periods beginning after December 15, 2018. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2017-08 was effective for the Company on January 1, 2019 and did not have a significant impact on our financial statements.

ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This standard better aligns an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedge instruments and the hedged item in the financial statements. Adoption for this ASU is required for fiscal years and

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interim periods beginning after December 15, 2018 and early adoption was permitted. ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on our financial statements.

ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The ASU does not have any impact on the underlying ASC 740 guidance that requires the effect of a change in tax law be included in income from continuing operations. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted the guidance in the ASU in its December 31, 2017 consolidated financial statements resulting in a reclassification of $104,000 of stranded tax effects related to net unrealized losses on investment securities. The impact was not material.

ASU No. 2018-11, “Leases - Targeted Improvements.” ASU No. 2018-11 provides entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for the Company). The Company elected both transition options. ASU 2018-11 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2018-14, “Compensation – Retirement Benefit Plans – General (Subtopic 715-20).” ASU 2018-14 makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2019-01, Leases (Topic 842): “Codification Improvements.” On March 5, 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which amends certain aspects of the Board’s new leasing standard, ASU 2016-02 to address two lessor implementation issues and clarify when lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new leases standard, Topic 842, Leases. ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. As ASU 2019-01 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

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

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.

OVERVIEW

Glen Burnie Bancorp, a Maryland corporation (the “Company”), through its subsidiary, The Bank of Glen Burnie, a Maryland banking corporation (the “Bank”), operates a commercial bank with eight offices in Anne Arundel County Maryland. In the first three months of 2019, the Bank’s loan portfolio grew by $0.2 million or 0.08%, and deposit balances increased by $9.2 million or 2.84%. The Company has a very strong capital position and capacity for future growth with estimated total regulatory capital to risk weighted assets of 13.46% as of March 31, 2019, compared to 13.85% for the same period of 2018.

Return on average assets for the three-month period ended March 31, 2019 was 0.14%, compared to 0.26% for the three-month period ended March 31, 2018. Return on average equity for the three-month period ended March 31, 2019 was 1.59%, compared to 3.06% for the three-month period ended March 31, 2018. The decrease was primarily caused by lower gains on redemption of bank-owned life insurance policies (“BOLI”) and higher noninterest expenses.

The book value per share of Bancorp’s common stock was $12.23 at March 31, 2019, compared to $11.83 per share at March 31, 2018.

At March 31, 2019, the Bank remained above all “well-capitalized” regulatory requirement levels. The Bank’s estimated tier 1 risk-based capital ratio was 12.51% at March 31, 2019, compared to 12.27% at December 31, 2018.

Our liquidity position remained strong due to available cash and cash equivalents, borrowing lines with the FHLB of Atlanta and correspondent banks, and the size and composition of the bond portfolio.

Net income available to common stockholders for the three-month period ended March 31, 2019 was $135,000, or $0.05 per basic and diluted common share compared to $255,000, or $0.09 per basic and diluted common share for the same period of 2018. The results recorded for the three-month period ending March 31, 2019 were lower than the same period of 2018 resulting primarily from $242,000 higher non-interest expenses and $204,000 lower non-interest income.

RESULTS OF OPERATIONS

Net Interest Income. The Company’s net interest income for the three-month period ended March 31, 2019 was $3.1 million, as compared to $3.0 million for the same period in 2018, an increase of $147,000, or 4.92%.

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Total interest income for the first quarter 2019 increased $266,000, or 7.71% when compared to the same period in 2018, from $3.4 million in 2018 to $3.7 million in 2019. The primary driver of the increase was an increase of $316,000 in interest and fees on loans as a result of a $25.5 million increase in average loan balances.

Interest expense for the first quarter 2019 increased $117,000 from $452,000 for the same period in 2018 to $570,000 in 2019, an increase of 25.96%. The primary driver for the increase in interest expense was a 0.12% increase in the cost of funds resulting primarily from an $18.4 million increase in the average balance of borrowed funds and higher interest paid on certificates of deposit in 2019 when compared to 2018.

Net interest margin for the three-month period ended March 31, 2019 was 3.30% as compared to 3.22% for the three-month period ended March 31, 2018. The increase was primarily due to higher average balances and yields on interest-earning assets. The yield on interest earning assets increased by 0.19% from 3.71% for the three-month period ended March 31, 2018 to 3.90% for the same period of 2019. The cost of funds increased 0.12% from 0.51% for the three-month period ended March 31, 2018 to 0.63% for the same period of 2019.

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The following tables set forth, for the periods indicated, information regarding the average balances of interest earning assets and interest bearing liabilities, the amount of interest income and interest expense and the resulting yields on average interest earning assets and rates paid on average interest bearing liabilities.



	Three Months Ended March 31,
	2019						2018
	Average				Yield/		Average				Yield/
(dollars in thousands)	Balance		Interest		Cost		Balance		Interest		Cost
ASSETS:
Interest-earning assets:
Interest-bearing deposits w/ banks & fed funds	$	14,081	$	80	2.29	%	$	8,654	$	33	1.53	%
Investment securities available for sale		69,939		400	2.29			92,449		524	2.30
Restricted equity securities		2,118		40	7.73			1,339		15	4.50
Total interest bearing deposits/investments		86,138		520	2.45			102,442		572	2.27

Loans:
Commercial & industrial		14,673		225	6.23			11,167		164	5.97
Commercial real estate		70,310		892	5.14			73,388		881	4.87
Residential real estate		82,172		919	4.48			81,996		914	4.52
Indirect automobile		117,137		874	2.98			87,575		606	2.80
Construction		2,399		50	8.42			4,154		62	6.08
Consumer & other		12,815		229	7.25			15,684		245	6.33
Total loans		299,506		3,189	4.32			273,964		2,872	4.25
Total interest-earning assets		385,644		3,709	3.90			376,406		3,444	3.71

Cash		2,433						2,673
Allowance for loan losses		(2,577)						(2,622)
Market valuation		(1,829)						(1,780)
Other assets		16,393						17,156
Total non-earning assets		14,420						15,427
Total assets	$	400,064					$	391,833

LIABILITIES AND STOCKHOLDER'S EQUITY:
Interest-bearing deposits:
Interest-bearing checking and savings	$	112,402		16	0.06	%	$	116,030		16	0.05	%
Money market		19,261		2	0.05			20,488		3	0.05
Certificates of deposit		89,883		314	1.42			94,610		290	1.24
Total interest-bearing deposits		221,546		332	0.61			231,128		309	0.54

Borrowed Funds:
Federal Funds Purchased		538		4	3.35			—		—	—
FHLB advances		40,643		234	2.33			22,752		143	2.55
Total borrowed funds		41,181		238	2.34			22,752		143	2.55
Total interest-bearing liabilities		262,727		570	0.88			253,880		452	0.72

Non-interest-bearing deposits		101,736						103,364
Total cost of funds		364,463		570	0.63			357,244		452	0.51

Other liabilities and accrued expenses		1,255						893
Total liabilities		365,718						358,137

Stockholder's equity		34,346						33,696
Total liabilities and equity	$	400,064					$	391,833
Net interest income			$	3,139					$	2,992
Yield on earning assets					3.90	%					3.71	%
Cost of interest-bearing liabilities					0.88	%					0.72	%
Net interest spread					3.02	%					2.99	%
Net interest margin					3.30	%					3.22	%

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Provision for Credit Losses. The Company recognized provisions for credit losses in the amount of $173,000 and $360,000 for the three-month periods ending March 31, 2019 and 2018, respectively. The decrease in provision for credit losses in the 2019 period was primarily the result of $294,000 lower required reserves offset by $59,000 higher net charge offs. As of March 31, 2019, the allowance for credit losses equaled 104.7% of non-accrual and 90+ days past due loans as compared to 52.7% at March 31, 2018.

Noninterest Income. Noninterest income decreased to $282,000 for the three-month period ended March 31, 2019, from $486,000 for the corresponding period in 2018, a decrease of $204,000, or 41.96%. The decrease was primarily due to $207,000 lower gains on redemption of bank-owned life insurance policies (“BOLI”).

Noninterest Expenses. Noninterest expenses increased from $2.8 million for the three-month period ended March 31, 2018, to $3.1 million for the corresponding period in 2019, an increase of $242,000, or 8.52%. The increase was primarily due to increases in salary and employee benefits costs, data processing and items processing services, litigation settlement costs, OREO expenses, bank robbery loss and other insurance expense, offset by decreases in legal, accounting and professional fees and loan collection costs.

Income Taxes. During the three-month period ended March 31, 2019, the Company recorded income tax expense of $36,000 compared to $28,000 for the same period in 2018. The Company’s annualized effective tax rate at March 31, 2019 was 19.40% compared to 11.76% for the prior year period. The significant difference in the annualized effective tax rate in 2018 was due to the gain on the redemptions of BOLI policies in the period, which are tax exempt and the sale of tax-exempt municipal securities in the first quarter 2019.

Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s portfolio of investment securities and interest rate swap contracts. For the first quarter of 2019, comprehensive income, net of tax, totaled $650,000 as compared to comprehensive loss of $613,000 for the same period in 2018. The increase was due to net unrealized gains on available for sale securities, offset by lower net income and net unrealized losses on interest rate swaps.

FINANCIAL CONDITION

General. The Company’s assets decreased to $393.1 million at March 31, 2019 from $413.0 million at December 31, 2018, a decrease of $20.0 million or 4.84%, primarily due to the sale of available for sale investment securities in the first quarter of 2019. The Bank’s cash and cash equivalents as of March 31, 2019, totaled $16.5 million, an increase of $0.6 million, or 3.64% from $16.0 million at December 31, 2018.

The Company’s investment securities available for sale totaled $61.4 million at March 31, 2019, a $20.2 million, or 24.7% decrease from $81.6 million at December 31, 2018. The decrease resulted primarily from security sales; the proceeds from which were used to repay borrowings that funded 2018 loan originations.

The Bank’s net loans totaled $296.8 million at March 31, 2019 as compared to $296.6 million at December 31, 2018, an increase of $233,000 or 0.08%, primarily attributable to an increase in commercial and commercial real estate loans, offset by decreases in consumer, residential real estate, indirect and construction loans.

Loans are placed on nonaccrual status when they are past due 90 days as to either principal or interest or when, in the opinion of management, the collection of all interest and/or principal is in doubt. Placing a loan on nonaccrual status means that we no longer accrue interest or amortize deferred fees or costs on such loans and reverse any interest previously accrued but not collected. Management may grant a waiver from nonaccrual status for a 90 day past due loan that is both well secured and in the process of collection. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and the borrower has demonstrated the ability to make payments in accordance with the terms of the loan and remain current.

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are

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measured based on the fair value of the collateral for collateral dependent loans and at the present value of expected future cash flows using the loans’ effective interest rates for loans that are not collateral dependent.

At March 31, 2019, impaired loans totaled $3.2 million. Included in the impaired loans total were $2.5 million in loans classified as nonaccrual loans. At March 31, 2019, troubled debt restructurings included in impaired loans totaled $244,000. Borrowers under all other restructured loans are paying in accordance with the terms of the modified loan agreement and have been placed on accrual status after a period of performance with the restructured terms.

The following table presents details of our nonperforming loans and nonperforming assets, as these asset quality metrics are evaluated by management, at the dates indicated:


	March 31,			December 31,
(dollars in thousands)	2019			2018
Nonaccrual loans	$	2,462		$	1,947
TDR loans excluding those in nonaccrual loans		202			204
Accruing loans past due 90+ days		25			26

Total nonperforming loans		2,689			2,177

Real estate acquired through foreclosure		705			705

Total nonperforming assets	$	3,394		$	2,882

Nonperforming assets to total assets		0.86	%		0.70	%

Deposits as of March 31, 2019 totaled $331.6 million, an increase of $9.2 million, or 2.84% from $322.5 million at December 31, 2018. Demand deposits as of March 31, 2019, totaled $107.2 million, an increase of $5.9 million, or 5.8% from $101.4 million at December 31, 2018. Interest-bearing checking accounts as of March 31, 2019, totaled $31.3 million, an increase of $4.6 million, or 17.4% from $26.7 million at December 31, 2018. Savings accounts as of March 31, 2019 totaled $84.7 million, an increase of $0.6 million, or 0.7%, from $84.1 million at December 31, 2018. Money market accounts as of March 31, 2019, totaled $20.4 million, an increase of $1.8 million, or 9.7%, from $18.6 million at December 31, 2018. Time deposits under $100,000 totaled $49.5 million on March 31, 2019, a $600,000 or 1.2% decrease from $50.1 million at December 31, 2018. Time deposits over $100,000 totaled $38.5 million on March 31, 2019, a decrease of $3.2 million, or 7.7% from $41.7 million at December 31, 2018.

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Deposits for the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows:


	March 31, 2019				December 31, 2018				2019 vs 2018
(dollars in thousands)	Amount		% of Total		Amount		% of Total		$ Change		% Change
Noninterest-bearing deposits	$	107,249	32.3	%	$	101,369	31.4	%	$	5,880	5.8	%

Interest-bearing deposits:
Checking		31,296	9.5	%		26,654	8.3	%		4,642	17.4	%
Savings		84,720	25.6	%		84,097	26.1	%		623	0.7	%
Money market		20,356	6.1	%		18,564	5.8	%		1,792	9.7	%
Total interest-bearing checking, savings and money market deposits		136,372	41.2	%		129,315	40.2	%		7,057	5.5	%

Time deposits under $100,000		49,523	14.9	%		50,104	15.5	%		(581)	(1.2)	%
Time deposits of $100,00 or more		38,469	11.6	%		41,665	12.9	%		(3,196)	(7.7)	%
Total time deposits		87,992	26.5	%		91,769	28.4	%		(3,777)	(4.1)	%

Total interest-bearing deposits		224,364	67.7	%		221,084	68.6	%		3,280	1.5	%

Total Deposits	$	331,613	100.0	%	$	322,453	100.0	%	$	9,160	2.8	%

Lease Commitments. The Financial Accounting Standards Board (“FASB”) issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The Bank adopted this guidance on January 1, 2019. It was applied using a modified retrospective approach which allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the current period consolidated financial statements. For leases where the Bank is the lessee, operating leases are included in premises and equipment, net, and accrued expenses and other liabilities on the Consolidated Balance Sheet. The Bank currently does not have any finance leases. The initial adoption of this guidance had no material effect on the Bank and there was no cumulative-effect adjustment to beginning retained earnings. The Bank will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, "Leases". Management will evaluate the effects of the lease guidance on a quarterly basis.

Operating lease Right-of-Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

Future minimum payments of the Bank’s operating leases as of March 31, 2019 are as follows:


Year ending December 31,	Amount
	(dollars in thousands)
2019	$	139
2020		189
2021		158
2022		150
2023		153
2024		158
Total	$	948

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Pension and Profit Sharing Plans. The Bank has a defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code that is funded through a profit sharing agreement and voluntary employee contributions. The plan provides for discretionary employer matching contributions to be determined annually by the Board of Directors. The plan covers substantially all employees.

For the three months ended March 31, 2019, the Bank accrued $88,000 for its projected 401(k) match contribution as well as other profit sharing benefits.

MARKET RISK AND INTEREST RATE SENSITIVITY

Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on liabilities. Our interest rate risk represents the level of exposure we have to fluctuations in interest rates and is primarily measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The Asset Liability Committee (“ALCO”) oversees our management of interest rate risk. The objective of the management of interest rate risk is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs, and protect us from any material financial consequences associated with changes in interest rate risk.

Interest rate risk is that risk to earnings or capital arising from movement of interest rates. It arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships across yield curves that affect bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The value of a bank’s assets, liabilities, and interest-rate related, off-balance sheet contracts is affected by a change in rates because the present value of future cash flows, and in some cases the cash flows themselves, is changed.

We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and the Board have chosen an interest rate risk profile that is consistent with our strategic business plan.

The Company’s Board of Directors has established a comprehensive interest rate risk management policy, which is administered by our ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology we employ. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

We prepare a current base case and eight alternative simulations at least once a quarter and report the analysis to the Board of Directors. In addition, more frequent forecasts are produced when the direction or degree of change in interest rates are particularly uncertain to evaluate the impact of balance sheet strategies or when other business conditions so dictate.

The statement of condition is subject to quarterly testing for eight alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/ - 100, 200, 300, and 400 basis points (“bp”), although we may elect not to use particular scenarios that we determine are impractical in the current rate

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environment. It is our goal to structure the balance sheet so that net interest-earnings at risk over a 12-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

At March 31, 2019, the simulation analysis reflected that the Bank is in a neutral to slightly asset sensitive position. Management currently strives to manage higher costing fixed rate funding instruments, while seeking to increase assets that are more fluid in their repricing. An asset sensitive position, theoretically, is favorable in a rising rate environment since more assets than liabilities will re-price in a given time frame as interest rates rise. Similarly, a liability sensitive position, theoretically, is favorable in a declining interest rate environment since more liabilities than assets will re-price in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.

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 within nine months although it is the Company’s experience that such accounts may be less sensitive to changes in market rates.


	Static Balance Sheet/Immediate Change in Rates
Estimated Changes in Net Interest Income	`-200 bp		`-100 bp		`+100 bp		`+200 bp
Policy Limit	(4)	%	(3)	%	(3)	%	(4)	%
March 31, 2019	(12)	%	(5)	%	5	%	10	%
March 31, 2018	(16)	%	(7)	%	3	%	5	%

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The following table sets forth the Company’s interest-rate sensitivity at March 31, 2019.


							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	$	—		$	—		$	—		$	—		$	2,341
Federal funds and overnight deposits		14,194			—			—			—			14,194
Securities		—			497			993			59,930			61,420
Loans		1,059			3,072			75,454			217,227			296,812
Fixed assets		—			—			—			—			3,901
Other assets		—			—			—			—			14,391
Total assets	$	15,253		$	3,569		$	76,447		$	277,157		$	393,059

Liabilities:
Demand deposit accounts	$	—		$	—		$	—		$	—		$	107,249
NOW accounts		31,296			—			—			—			31,296
Money market deposit accounts		20,356			—			—			—			20,356
Savings accounts		84,720			—			—			—			84,720
IRA accounts		3,559			7,490			16,169			—			27,218
Certificates of deposit		15,854			21,579			23,341			—			60,774
Long-term borrowings		—			—			—			—			—
Short-term borrowings		25,000			—			—			—			25,000
Other liabilities		—			—			—			—			1,991
Stockholders’ equity:		—			—			—			—			34,455
Total liabilities and stockholders' equity	$	180,785		$	29,069		$	39,510		$	—		$	393,059

GAP	$	(165,532)		$	(25,500)		$	36,937		$	277,157
Cumulative GAP	$	(165,532)		$	(191,032)		$	(154,095)		$	123,062
Cumulative GAP as a % of total assets		(42.11)	%		(48.60)	%		(39.20)	%		31.31	%

As shown above, measures of net interest income at risk were more favorable at March 31, 2019 than at March 31, 2018 over a 12-month modeling period. All measures remained within prescribed policy limits in the up interest rate scenarios. Given the current rate environment, down shocks may not be meaningful as market rates can only be shocked down to zero. The primary contributor to the more favorable position was the more asset sensitive balance sheet.

The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of the Company’s net assets.


	Static Balance Sheet/Immediate Change in Rates
Estimated Changes in Economic Value of Equity (EVE)	`-200 bp		`-100 bp		`+100 bp		`+200 bp
Policy Limit	(15)	%	(10)	%	(10)	%	(15)	%
March 31, 2019	(7)	%	(3)	%	23	%	41	%
March 31, 2018	(3)	%	(2)	%	(7)	%	(17)	%

Inasmuch as a large portion of the Company’s deposits are non-interest bearing, in an increasing interest rate environment the Company’s interest income increases at a proportionally greater rate than its total interest expense, thereby resulting in higher net interest income. Conversely, in a declining interest rate environment the decreases in the Company’s interest income will be greater than decreases in its already low interest expense, thereby resulting in lower net interest income. In a rising interest rate environment, the Company is positioned to generate less economic value of

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equity as asset values fall faster than funding sources because the liabilities reprice much slower than our assets, especially considering our interest earning assets are much greater than our interest bearing liabilities. The Company’s economic value of equity worsens in declining interest rate environments as the majority of our liabilities cannot continue to decrease much from their current low levels thus the economic value of liabilities and assets both worsen.

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 six 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, 2019, totaled $16.5 million, an increase of $0.6 million, or 3.64% from the $16.0 million at December 31, 2018.

As of March 31, 2019, the Bank was permitted to draw on a $103.3 million 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. At December 31, 2018, there were $55.0 million in short-term borrowings from FHLB and as of March 31, 2019, there were $25.0 million in short-term borrowings outstanding. The decrease in FHLB short-term borrowings resulted from the sale of available-for-sale investment securities, the proceeds of which were used to payoff $30.0 million in short-term borrowings. In addition, the Bank has two unsecured federal funds lines of credit in the amount of $5.0 million and $8.0 million, of which $0 was outstanding as of March 31, 2019. At March 31, 2019 the Bank was in the process of establishing a Discount Window line of credit at the Federal Reserve Bank. However, the Bank must first pledge loans or investment securities as collateral before it is able to draw on this line of credit.

The Company’s stockholders’ equity increased $404,000, or 1.19% during the three-month period ended March 31, 2019, primarily due to a decrease in accumulated other comprehensive loss, net of taxes (“AOCI”),and stock issuances under the dividend reinvestment program, offset by decreases in retained earnings and unrealized gains on interest rate swap contracts. The Company’s AOCI decreased by $515,000, or 41.87% from a loss of $1,230,000 at December 31, 2018 to a loss of $715,000 at March 31, 2019, resulting from lower net unrealized losses on the available for sale bond portfolio. Retained earnings decreased by $147,000, or 0.66% as the result of dividends paid on common stock, offset by the Company’s net income for the three-month period ended March 31, 2019.

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. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2015, federal bank regulatory agencies issued final results to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the

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Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). Effective January 1, 2015, the final rules required the Company and the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. These are the initial capital requirements, which were phased in over a four-year period. The rules were fully phased in on January 1, 2019, and require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

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, 2019, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 8.68%, a Tier 1 risk-based capital ratio of 12.51%, a common equity Tier 1 risk-based capital ratio of 12.51%, and a total risk-based capital ratio of 13.46%. The Company’s capital amounts and ratios at March 31, 2019 and December 31, 2018 were as follows:


									To Be Well Capitalized
					To Be Considered				Under Prompt Corrective
	Actual				Adequately Capitalized				Action Provisions
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
Common equity tier 1	$	34,681	12.51	%	$	12,472	4.50	%	$	18,014	6.50	%
Total capital	$	37,311	13.46	%	$	22,172	8.00	%	$	27,715	10.00	%
Tier 1 capital	$	34,681	12.51	%	$	16,629	6.00	%	$	22,172	8.00	%
Tier 1 leverage	$	34,681	8.68	%	$	15,983	4.00	%	$	19,978	5.00	%


									To Be Well Capitalized
					To Be Considered				Under Prompt Corrective
	Actual				Adequately Capitalized				Action Provisions
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
Common equity tier 1	$	34,778	12.27	%	$	12,757	4.50	%	$	18,427	6.50	%
Total capital	$	37,354	13.18	%	$	22,679	8.00	%	$	28,349	10.00	%
Tier 1 capital	$	34,778	12.27	%	$	17,009	6.00	%	$	22,679	8.00	%
Tier 1 leverage	$	34,778	8.52	%	$	16,330	4.00	%	$	20,413	5.00	%

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, 2018 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

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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.

Valuation of the Securities Portfolio. Securities are evaluated periodically to determine whether a decline in their value is other than temporary. The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of an investment. We review other criteria such as magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

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.

Deferred Income Taxes. Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not that such amount will be realized based on consideration of available evidence.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. We recognize a tax position as a benefit only if it “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination presumed to occur. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The judgment about the level of future taxable income is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a “smaller reporting company” and, as such, disclosure pursuant to this Item 3 is not required.

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 have concluded that the system is effective. There have been no changes in the Company’s internal control

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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.

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In the normal course of business, we are party to litigation arising from the banking, financial, and other activities we conduct. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results, or liquidity.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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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 June 30, 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 June 30, 2003, 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)

31.1	Rule 15d‑14(a) Certification of Chief Executive Officer (filed herewith)

31.2	Rule 15d‑14(a) Certification of Chief Financial Officer (filed herewith)

32	Section 1350 Certifications: Certification by the Principal Executive Officer and Principal Accounting Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith

101.INS	XBRL Instance Document (filed herewith)

101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith)

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)

101.LAB	XBRL Taxonomy Extension Label Linkbase Document (filed herewith)

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

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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 13, 2019	By:		/s/ John D. Long
			John D. Long
			President, Chief Executive Officer

	By:		/s/ Jeffrey D. Harris
			Jeffrey D. Harris
			Chief Financial Officer

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