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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to _______
Commission File No. 33-62278
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 18, 1998, the aggregate market value of the registrant's voting
stock held by non-affiliates was approximately $14.0 million based on the most
recent sales price of $24.00 per share of the registrant's Common Stock on such
date as reported on the OTC Bulletin Board. For purposes of this calculation
only, it is assumed that directors, officers and beneficial owners of more than
5% of the registrant's outstanding voting stock are deemed affiliates.
Number of shares of Common Stock outstanding as of March 18, 1998: 1,092,768
===============================================================================
<PAGE>
PART I
Item 1. Business
Glen Burnie Bancorp (the "Company") is a bank holding company organized in
1990 under the laws of the State of Maryland. It presently 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,
serving Anne Arundel County and surrounding areas from its main office in Glen
Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville and
Severn, Maryland. The Bank is engaged in the commercial and retail banking
business as authorized by the banking statutes of the State of Maryland,
including the receiving of demand and time deposits, and the making of loans to
individuals, associations, partnerships and corporations. Real estate financing
consists of residential first and second mortgage loans, home equity lines of
credit and commercial mortgage loans. Commercial lending consists of both
secured and unsecured loans. The Bank's deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC").
The Company's principal executive office is located at 101 Crain Highway,
S.E., Glen Burnie, Maryland 21061. Its telephone number at such office is (410)
766-3300.
Market Area
The Bank considers its principal market area for lending and deposit
products to consist of Northern Anne Arundel County, Maryland. Northern Anne
Arundel County is a mature suburb of the City of Baltimore which in recent years
has experienced modest population growth and is characterized by an aging
population. Management believes that the majority of the working population in
its market area either commutes to Baltimore or is employed at the nearby
Baltimore Washington International airport. Anne Arundel County is generally
considered to have more affordable housing than other suburban Baltimore areas
and has begun to attract younger persons and minorities on this basis. This
inflow, however, has not been sufficient to affect current population trends.
Memoranda of Understanding
Effective June 13, 1996, the Board of Directors, the FDIC and the Maryland
State Bank Commissioner (the "Commissioner") entered into a Memorandum of
Understanding ("M.O.U.") which required the Bank to establish written programs
to reduce classified assets and contingent liabilities and to report to the FDIC
and the Commissioner quarterly on the status of such assets and liabilities, to
collect or charge-off certain classified loans, to maintain ratios relating to
capital and to delinquent and non-accrual loans, to provide the FDIC and the
Commissioner with thirty days notice prior to dividend declaration, to develop
an internal loan review and grading system, policies for loan underwriting and
administration, a strategic plan for improving operations and budgets, and
policies and monitoring systems for liquidity and interest rate risk, to
evaluate the allowance for loan and lease losses quarterly, to engage a chief
lending officer, to cease any violations of law or regulations cited by the FDIC
or the Commissioner, and to establish a committee of three directors to monitor
compliance with the M.O.U.
Effective July 10, 1997, the Board of Directors entered into a revised
Memorandum of Understanding (the "Revised M.O.U.") with the FDIC and the
Commissioner which supersedes the June 13, 1996 M.O.U. Under the Revised M.O.U.,
the Bank may not declare or pay any dividends to the Company without the prior
written consent of the FDIC and the Commissioner if the ratio of the Bank's Tier
1 capital to assets would be less than 6.0%. Dividends to the Company may not
exceed 50% of net operating income after taxes for the period declared without
the prior written consent of the FDIC and the Commissioner. Within 360 days of
the Effective Date of the Revised M.O.U., the Bank is required to reduce its
classified assets to 25% of Tier 1 Capital plus its Allowance for Loan and Lease
Losses and to reduce its ratio of non-accrual loans and loans 30 days or more
past due to no more than 3.5% of gross loans. Additionally, the Bank will adopt
and implement an internal loan review and grading system meeting certain
criteria and make certain changes in existing policies and in its strategic
plan.
2
<PAGE>
Should the Bank fail to comply with the provisions of the Revised M.O.U.,
the FDIC or the Commissioner could seek to impose greater sanctions on the Bank.
Enforcement actions may include the issuance of formal and informal agreements,
the imposition of civil money penalties and the issuance of a cease-and-desist
order that can be judicially enforced. Neither the FDIC nor the Commissioner has
sought to initiate any such measures.
Lending Activities
The Bank offers a full range of consumer and commercial loans. The Bank's
lending activities include residential and commercial real estate loans,
construction loans, land acquisition and development loans, equipment and
automobile lease financing, commercial loans and consumer installment lending.
Substantially all of the Bank's loan customers are residents of Anne Arundel
County and surrounding areas of Central Maryland. The Bank solicits loan
applications for commercial loans from small to medium sized businesses located
in its market area. The Bank believes that this is a market in which a
relatively small community bank, like the Bank, has a competitive advantage in
personal service and flexibility. The Bank's lease financing portfolio consists
of loans purchased from third party originators.
During the last fiscal year, the Bank continued to experience run-off in
the loan portfolio. The Bank's loan portfolio has decreased in size primarily
due to declines in the size of construction loan portfolio and in its
installment and commercial loan portfolios. The declines in the construction
portfolio reflect the significant increase in such lending in fiscal year 1994
which was not sustained in subsequent years. The run-off in the commercial
portfolio reflects the Bank's decision to decrease its equipment and automobile
lease-based lending because of the difficulties encountered in monitoring the
financial condition of borrowers on purchased leases. The declines in the
installment and commercial loan portfolios also reflect in part the substantial
charge-offs which the Bank took during fiscal years 1996 and 1995.
3
<PAGE>
The following table provides information on the composition of the loan
portfolio at the indicated dates.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ----------------- ------------------ --------------- -----------------
$ % $ % $ % $ % $ %
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Mortgage:
Residential........$ 38,048 32.68% $ 36,505 27.95% $ 38,142 24.60% $ 35,079 22.29% $ 34,445 23.72%
Commercial......... 43,276 37.17 47,757 36.57 46,888 30.24 39,398 25.04 39,277 27.05
Construction and
land development.. 4,888 4.20 5,515 4.22 14,265 9.20 21,014 13.35 12,372 8.52
Installment.......... 18,862 16.20 22,281 17.06 27,898 17.99 32,352 20.66 27,537 18.97
Credit card.......... 1,397 1.20 1,434 1.10 1,484 0.96 1,233 0.78 953 0.66
Commercial........... 9,964 8.56 17,095 13.09 26,366 17.01 28,278 17.97 30,615 21.08
------- ----- ------ ----- ------- ----- ------ ----- ------- ------
Gross loans..... 116,435 100.00% 130,587 100.00% 155,043 100.00% 157,354 100.00% 145,199 100.00%
====== ====== ====== ====== ======
Unearned income
on loans............ (751) (854) (873) (776) (781)
------- ------- ------- ------- -------
Gross loans net
of unearned
income........... 115,684 129,733 154,170 156,578 144,418
Allowance for
credit losses....... (4,139) (5,061) (3,698) (2,764) (2,552)
------- ------- ------- ------- --------
Loans, net ..........$111,545 $124,672 $150,472 $153,814 $141,866
======== ======== ========= ======== ========
</TABLE>
The following table sets forth the maturities for various categories of the
loan portfolio at December 31, 1997. Demand loans and loans which have no stated
maturity are treated as due in one year or less. At December 31, 1997, the
Company had $12,030,263 in loans due after one year with variable rates and
$94,340,688 in such loans with fixed rates. The Bank's long-term real estate
loans allow the Bank to call the loan after three years in order to adjust the
interest rate if necessary. The Bank has generally not exercised its call option
and the following table assumes no exercise of the Bank's call option.
<TABLE>
<CAPTION>
Due Over
Due Within One to Five Due Over
One Year Years Five Years Total
-------- ----- ---------- -----
<S> <C> <C> <C> <C>
(In thousands)
Real estate -- mortgage:
Residential................................. $ 3,475 $ 1,837 $ 83,143 $ 38,048
Commercial.................................. 575 2,686 39,624 42,885
Real estate -- construction................... 2,262 318 2,292 4,872
Installment................................... 977 14,998 2,887 18,862
Credit Card................................... 1,397 -- -- 1,397
Commercial.................................... 1,378 2,864 5,722 9,964
-------- -------- --------- -------
$ 10,064 $ 22,703 $ 83,668 $ 116,435
========= ======== ======== =========
</TABLE>
4
<PAGE>
Real Estate Lending. The Bank offers long-term mortgage financing for
residential and commercial real estate as well as shorter term construction and
land development loans. Residential mortgage and residential construction loans
are originated with fixed rates while commercial mortgages may be originated on
either a fixed or variable rate basis. Commercial construction loans are
generally originated on a variable rate basis. The Bank's long-term, fixed-rate
mortgages include a provision allowing the Bank to call the loan after three
years in order to adjust the interest rate. The Bank, however, has never
exercised this right. Substantially all of the Bank's real estate loans are
secured by properties in Anne Arundel County, Maryland. Under the Bank's loan
policies, the maximum permissible loan-to-value ratio for owner-occupied
residential mortgages is 80% of the lesser of the purchase price or appraised
value. For residential investment properties, the maximum loan-to-value ratio is
75%. The maximum permissible loan-to-value ratio for residential and commercial
construction loans is 80%. The maximum loan-to-value ratio for permanent
commercial mortgages is 75%. The maximum loan-to-value ratio for land
development loans is 70% and for unimproved land is 65%. The Bank also offers
home equity loans secured by the borrower's primary residence provided that the
aggregate indebtedness on the property does not exceed 80% of its value.
Commercial Lending. The Bank's commercial loan portfolio consists
principally of demand and time loans for commercial purposes and purchased lease
financings. The Bank's business demand and time lending includes various working
capital loans, lines of credit and letters of credit for commercial customers.
Demand loans require the payment of interest until called while time loans
require a single payment of principal and interest at maturity. Such loans may
be made on a secured or an unsecured basis. All such loans are underwritten on
the basis of the borrower's creditworthiness rather than the value of the
collateral. The Bank's lease financing portfolio includes leases on various
types of commercial equipment that have been purchased from various vendors. The
Bank has determined to de-emphasize lease financing because of the difficulties
encountered in monitoring the financial condition of borrowers on purchased
leases.
Installment Lending. The Bank makes consumer and commercial installment
loans for the purchase of automobiles, boats, other consumer durable goods,
capital goods and equipment. Such loans provide for repayment in regular
installments and are secured by the goods financed. Also included in installment
loans are overdraft loans and other credit repayable in installments. As of
December 31, 1997, approximately $10,626,446, or 56%, of the installment loans
in the Bank's portfolio had been originated for commercial purposes and
$8,235,436, or 44%, had been originated for consumer purposes.
Credit Card and Related Loans. Credit card and related loans consist of
outstanding balances on credit cards and overdraft lines of credit. The Bank
offers no annual fee VISA(R) and MasterCard(R) credit cards to qualified
customers. Credit card billing and payment processing is done for the Bank by an
unaffiliated third party which receives a fee for such services. The Bank's
overdraft protection line of credit is offered as a convenience to qualified
customers.
Although the risk of non-payment for any reason exists with respect to all
loans, certain other specific risks are associated with each type of loan. The
primary risks associated with commercial loans, including commercial real estate
loans, are the quality of the borrower's management and a number of economic and
other factors which induce business failures and depreciate the value of
business assets pledged to secure the loan, including competition, insufficient
capital, product obsolescence, changes in the cost of production, environmental
hazards, weather, changes in laws and regulations and general changes in the
marketplace. Primary risks associated with residential real estate loans include
fluctuating land and property values and rising interest rates with respect to
fixed-rate, long-term loans. Residential construction lending exposes the
Company to risks related to builder performance. Consumer loans are affected
primarily by domestic instability and a variety of factors that may lead to the
borrower's unemployment, including deteriorating economic conditions in one or
more segments of a local or broader economy.
5
<PAGE>
The Bank's lending activities are conducted pursuant to written policies
approved by the Board of Directors intended to ensure proper management of
credit risk. Loans are subject to a well defined credit process that includes
credit evaluation of borrowers, establishment of lending limits and application
of lending procedures, including the holding of adequate collateral and the
maintenance of compensating balances, as well as procedures for on going
identification and management of credit deterioration. Regular portfolio reviews
are performed by the Senior Credit Officer to identify potential underperforming
credits, estimate loss exposure and to ascertain compliance with the Bank's
policies. On a quarterly basis, the internal auditor performs an independent
loan review. For significant problem loans, management review consists of
evaluation of the financial strengths of the borrower and the guarantor, the
related collateral, and the effects of economic conditions.
The Bank's loan approval policy provides for various levels of individual
lending authority. The maximum lending authority granted by the Bank to any one
individual is $500,000. A combination of approvals from certain officers may be
used to lend up to an aggregate of $750,000. The Bank's Executive Committee is
authorized to approve loans up to $1.0 million. Larger loans must be approved by
the full Board of Directors.
Under Maryland law, the maximum amount which the Bank is permitted to lend
to any one borrower and their related interests may generally not exceed 10% of
the Bank's unimpaired capital and surplus which is defined to include the Bank's
capital, surplus, retained earnings and 50% of its reserve for possible loan
losses. Under this authority, the Bank would have been permitted to lend up to
$2.0 million to any one borrower at December 31, 1997. By interpretive ruling of
the Commissioner, Maryland banks have the option of lending up to the amount
that would be permissible for a national bank which is generally 15% of
unimpaired capital and surplus (defined to include a bank's total capital for
regulatory capital purposes plus any loan loss allowances not included in
regulatory capital). Under this formula, the Bank would have been permitted to
lend up to $3.3 million to any one borrower at December 31, 1997. It is
currently the Bank's policy to limit its exposure to any one borrower to no more
than $1.85 million in the aggregate unless the loan is approved by a 75% vote of
the Board of Directors. At December 31, 1997, the largest amount outstanding to
any one borrower and their related interests was $2.6 million.
Non-Performing Loans
It is the current policy of the Bank to discontinue the accrual of interest
when a loan becomes 90 days or more delinquent and circumstances indicate that
collection is doubtful. For fiscal years prior to the 1997 fiscal year, the
Bank's policy was to consider real estate loans on a case-by-case basis subject
to collateral. For the year ended December 31, 1997, interest of approximately
$307,950, would have been accrued on non-accrual loans if such loans had been
current in accordance with their original terms. During such period there was no
interest on such loans included in income.
6
<PAGE>
The following table sets forth the amount of the Bank's restructured loans,
non accrual loans and accruing loans 90 days or more past due at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Restructured Loans.................................. $ 344 $ -- $ -- $ -- $ --
--------- ---------- ---------- ----------- ----------
Non-accrual Loans:
Real estate -- mortgage:
Residential.................................... 1,078 2,065 812 347 800
Commercial..................................... 761 1,935 274 209 0
Real estate -- construction...................... 608 0 0 0 0
Installment...................................... 665 168 165 25 15
Credit card & related ........................... 0 0 4 0 0
Commercial....................................... 369 378 1,120 74 299
--------- ---------- ---------- ----------- -----------
Total Nonaccrual Loans....................... 3,481 4,546 2,375 655 1,114
--------- ---------- ---------- ----------- -----------
Accruing Loans Past Due 90 Days or More:
Real estate -- mortgage:
Residential.................................... 5 87 1,467 1,153 1,602
Commercial..................................... 0 0 1,500 1,451 0
Real estate -- construction...................... 0 0 0 0 0
Installment...................................... 0 0 300 0 0
Credit card & related ........................... 0 0 28 5 19
Commercial....................................... 0 0 610 310 424
--------- ---------- ---------- ----------- -----------
Total accruing loans past due 90 days
or more.................................... 5 87 3,905 2,919 2,045
--------- ---------- ---------- ----------- -----------
Total non-accrual and past due loans......... $ 3,486 $ 4,633 $ 6,280 $ 3,574 $ 3,159
========= ========== ========== =========== ===========
Non-accrual and past due loans to
gross loans................................ 2.99% 3.55% 4.05% 2.27% 2.18%
========= ========== ========== =========== ===========
Allowance for credit losses to
non-accrual and past due loans............. 118.73% 109.24% 58.89% 77.34% 80.79%
========= ========== ========== =========== ===========
</TABLE>
Approximately $2,590,300, or 74% of the Bank's non-accrual loans at
December 31, 1997 were attributable to ten borrowers. Charge-offs of $1,068,500
have previously been taken on these loans. Six of these borrowers with loans
totaling $1,474,726 were in bankruptcy at that date. Because of the legal
protections afforded to borrowers in bankruptcy, collections on such loans are
difficult and the Bank anticipates that such loans may remain delinquent for an
extended period of time. Each of these loans is secured by collateral with a
value well in excess of the principal amount of the Bank's loan.
At December 31, 1997, there were $828,785 in loans outstanding not
reflected in the above table as to which known information about possible credit
problems of borrowers caused management to have serious doubts as to the ability
of such borrowers to comply with present loan repayment terms. Such loans
consist of loans which were not 90 days or more past due but where the borrower
is in bankruptcy or has a history of delinquency or the loan to value ratio is
considered excessive due to deterioration of the collateral or other factors.
At December 31, 1997, the Company had $748,231 in real estate acquired in
partial or total satisfaction of debt compared to $602,000 and $432,926 in such
properties at December 31, 1996 and 1995, respectively. All such properties are
recorded at the lower of cost or fair 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
non-interest expense. Gains and losses realized from the sale of other real
estate owned are included in non-interest income or expense. For a description
of the properties comprising other real estate owned at December 31, 1997. See
"Item 2. -- Properties."
7
<PAGE>
Allowance for Credit Losses
The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the allowance for
credit losses when management believes that the collectibility of the principal
is unlikely. The allowance, based on evaluations of the collectibility of loans
and prior loan loss experience, is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and trends
that may affect the borrowers' ability to pay.
Transactions in the allowance for credit losses during the last five fiscal
years were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Beginning balance................................. $ 5,061 $ 3,698 $ 2,764 $ 2,552 $ 1,755
----------- -------- ---------- ---------- ----------
Loans charged off
Real estate -- mortgage:
Residential.................................. $ 270 $ 250 $ 1,044 $ 419 $ 67
Commercial................................... 0 797 497 6 31
Real estate -- construction.................... 435 0 0 0 0
Installment.................................... 171 786 270 29 41
Credit card & related ......................... 45 182 194 1 1
Commercial..................................... 697 3,453 5,056 520 194
----------- -------- ---------- ---------- ----------
Total................................... 1,618 5,468 7,061 975 334
----------- -------- ---------- ---------- ----------
Recoveries
Real estate -- mortgage:
Residential.................................. $ 25 $ 22 $ 23 $ 15 $ 0
Commercial................................... 17 81 10 3 1
Real estate -- construction.................... 0 0 0 0 0
Installment.................................... 89 57 11 20 19
Credit card & related ......................... 5 2 0 0 0
Commercial..................................... 290 73 26 29 31
----------- -------- ---------- ---------- ----------
Total.................................... 426 235 70 67 51
----------- -------- ---------- ---------- ----------
Net charge-offs................................... 1,192 5,233 6,991 908 385
Provisions charged to operations.................. 270 6,596 7,925 1,120 1,080
----------- -------- ---------- ---------- ----------
Ending balance.................................... $ 4,139 $ 5,061 $ 3,698 $ 2,764 $ 2,552
=========== ======== ========== ========== ==========
Average loans..................................... $ 119,161 $146,922 $156,219 $151,933 $139,280
Net charge-offs to average loans ................. 1.00% 3.56% 4.48% 0.60% 0.20%
</TABLE>
The Bank's high level of loan charge-offs during fiscal years 1996 and 1995
was primarily attributable to its lending relationships with Mr. Brian Davis and
various affiliated entities. Such loans primarily consisted of loans for
purchases of trucks and other non-real estate secured loans which are
categorized under commercial loans in the above table. In addition, during
fiscal year 1996, the Bank began charging off all non-real estate secured loans
upon 90 days delinquency which contributed to a continued high level of
charge-offs.
8
<PAGE>
The following table shows the allowance for credit losses broken down by
loan category as of December 31, 1997 and 1996. Such information for earlier
periods is not available.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
---------------------------------- ----------------------------------
Reserve Percent of Loans Reserve Percent of Loans
for Each in Each Category for Each in Each Category
Portfolio Category to Total Loans Category to Total Loans
- --------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Real estate -- mortgage:
Residential................... $ 389 32.68% $ 432 27.85%
Commercial.................... 987 37.17 987 36.57
Real estate -- construction..... 390 4.20 690 4.22
Installment..................... 159 16.20 448 17.06
Credit Card.................... 47 1.20 49 1.10
Commercial..................... 1,186 8.56 2,455 13.09
Unallocated..................... 981 0.00 0 0.00
---------- ------ ---------- ------
Total....................... $ 4,139 100.00% $ 5,061 100.00%
========== ====== ========== ======
</TABLE>
Investment Securities
The Bank maintains a substantial portfolio of investment securities to
provide liquidity as well as a source of earnings. The Bank's investment
securities portfolio consists primarily of U.S. Treasury securities as well as
securities issued by U.S. government agencies including mortgage-backed
securities. The Bank also invests in obligations of certain states and their
political subdivisions.
The following table presents at amortized cost the composition of the
investment portfolio by major category at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1997 1996 1995
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury securities ............................ $ 9,068 $ 13,061 $ 15,071
U.S. Government agencies and
mortgage-backed securities......................... 63,414 56,607 30,235
Obligations of states and political
subdivisions....................................... 8,073 25,726 27,380
Other securities and stock........................... 936 748 699
--------- ---------- ---------
Total investment securities.......................... $ 81,491 $ 96,142 $ 73,385
========= ========== =========
</TABLE>
9
<PAGE>
The following table sets forth the scheduled maturities, book values and
weighted average yields for the Company's investment securities portfolio at
December 31, 1997. Weighted average yields for obligations of states and
political subdivisions are presented on a tax-equivalent basis.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
---------------- ----------------- -----------------
Weighted Weighted Weighted
Book Average Book Average Book Average
Value Yield Value Yield Value Yield
----- ------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
U.S. Treasury securities........... $2,500 5.27% $ 5,090 6.45% $ 1,478 5.83%
U.S. Government agencies and
mortgage-backed securities....... 0 0.00 18,767 6.47 18,461 6.92
Obligations of states and political
subdivisions...................... 115 9.48 3,485 8.79 2,686 9.10
Other securities and stock.......... 936 7.25 0 0.00 0 0.00
------ ---- ------ ---- ------ ----
Total investment securities.... $3,551 5.93% $27,342 6.76% $22,625 7.11%
====== ==== ======= ==== ======= =====
</TABLE>
More than Ten Years Total
------------------ ------------------
Weighted Weighted
Book Average Book Average
Value Yield Value Yield
----- --------- ----- ---------
(Dollars in thousands)
U.S. Treasury securities.......... $ 0 0.00% $ 9,068 6.02%
U.S. Government agencies and
mortgage-backed securities...... 26,186 6.64 63,414 6.75
Obligations of states and political
subdivisions.................... 1,787 9.83 8,073 9.13
Other securities and stock........ 0 0.00 936 7.25
------ ---- ------- -----
Total investment securities.. $27,973 6.84% $81,491 6.91%
======= ==== ======= =====
At December 31, 1997, the Bank had no investments in securities of a single
issuer (other than the U.S. government securities and securities of federal
agencies and government-sponsored enterprises) which aggregated more than 10% of
stockholders' equity other than its investments in Maryland State, County and
Municipal securities which had an aggregate book value of $8,073,000 and
aggregate market value of $8,452,000 at that date. The foregoing totals include
securities payable from or secured by different sources of revenue or taxing
authorities.
Deposits and Sources of Funds
The funds needed by the Bank to make loans are generated by deposit
accounts solicited from the communities surrounding its main office and five
branches in northern Anne Arundel County. Consolidated total deposits were
$207,110,272 as of December 31, 1997. In addition, the Bank may borrow up to $26
million under a line of credit from the Federal Home Loan Bank of Atlanta.
The Bank's deposit products include regular savings accounts (statements),
money market deposit accounts, demand deposit accounts, NOW checking accounts,
IRA accounts and certificates of deposit accounts. Variations in service
charges, terms and interest rates are used to target specific markets. Ancillary
products and services for deposit customers include safe deposit boxes, money
orders and travelers checks, night depositories, automated clearinghouse
transactions, wire transfers, automated teller machines, telephone banking, and
a customer call center.
The Bank obtains deposits principally through its network of six offices.
The Bank does not solicit brokered deposits. At December 31, 1997, the Bank had
approximately $10,070,518 in certificates of deposit and other time deposits of
$100,000 including IRA accounts. The following table provides information as to
the maturity of all time deposits of $100,000 or more at December 31, 1997.
Amount
------
(In thousands)
Three months or less.................................. $ 1,583
Over three through six months......................... 1,029
Over six through 12 months............................ 1,340
Over 12 months........................................ 6,119
-------
Total............................................. $ 10,071
========
10
<PAGE>
Competition
The Bank faces competition from other community banks and financial
institutions and larger intrastate and interstate banks and financial
institutions compete vigorously (currently, twelve financial institutions
operate within two miles of the Bank's headquarters). Former directors of the
Bank, including its former Chief Executive Officer, have established a new bank
with a main office in Glen Burnie close to the Bank's headquarters. The Bank
anticipates that this new bank will solicit a significant number of its
customers.
The Bank's interest rates, loan and deposit terms, and offered
products and services are governed, to a large extent, by such competition. The
Bank attempts to provide superior service within its community and to know and
facilitate services to its customers. It seeks commercial relationships with
small to medium size businesses which, it believes, would welcome personal
service and flexibility. While it believes it is the sixth largest deposit
holder in Anne Arundel County, Maryland, with an estimated 5.74% market share as
of June 1996 (the latest date for which the Bank has relevant data available),
it believes its greatest competition comes from smaller community banks which
offer similar personalized services.
Other Activities
The Company also owns all outstanding shares of capital stock of GBB
Properties, Inc. ("GBB"), another 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 or acquired in connection
with branch expansions by the Bank. No branch expansion occurred in 1997.
Employees
At December 31, 1997, the Bank had 120 full-time equivalent employees.
Neither the Company nor GBB currently has any employees.
SUPERVISION AND REGULATION
Regulation of the Company
General. The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956 (the "BHCA"). As such, the Company is
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and subject to Federal Reserve Board regulation,
examination, supervision and reporting requirements. As a bank holding company,
the Company is required to furnish to the Federal Reserve Board annual and
quarterly reports of its operations at the end of each period and to furnish
such additional information as the Federal Reserve Board may require pursuant to
the BHCA. The Company is also subject to regular inspection by Federal Reserve
Board examiners.
Under the BHCA, a bank holding company must obtain the prior approval
of the Federal Reserve Board before: (1) acquiring direct or indirect ownership
or control of any voting shares of any bank or bank holding company if, after
such acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency of 1994 (the "Riegle-Neal Act") authorized the Federal
Reserve Board to approve an application of an adequately capitalized and
11
<PAGE>
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Reigle-Neal Act also prohibits the Federal Reserve Board from
approving such an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Reigle-Neal Act
does not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank or bank holding
company to the extent such limitation does not discriminate against out-of-state
banks or bank holding companies. Individual states may also waive the 30%
state-wide concentration limit contained in the Reigle-Neal Act. Under Maryland
law, a bank holding company is prohibited from acquiring control of any bank if
the bank holding company would control more than 30% of the total deposits of
all depository institutions in the State of Maryland unless waived by the
Commissioner.
Additionally, beginning on June 1, 1997, the federal banking agencies
are authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opted out of the Reigle-Neal Act by adopting a law
after the date of enactment of the Reigle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. The State of Maryland did not pass
such a law during this period. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions will also be
subject to the nationwide and statewide insured deposit concentration amounts
described above.
The BHCA also prohibits, with certain exceptions, a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The activities of the Company are
subject to these legal and regulatory limitations under the BHCA and the Federal
Reserve Board's regulations thereunder. Notwithstanding the Federal Reserve
Board's prior approval of specific nonbanking activities, the Federal Reserve
Board has the power to order a holding company or its subsidiaries to terminate
any activity, or to terminate its ownership or control of any subsidiary, when
it has reasonable cause to believe that the continuation of such activity or
such ownership or control constitutes a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that holding company.
The Maryland Financial Institutions Code prohibits a bank holding
company from acquiring more than 5% of any class of voting stock of a bank or
bank holding company without the approval of the Commissioner except as
otherwise expressly permitted by federal law or in certain other limited
situations. The Maryland Financial Institutions Code additionally prohibits any
person from acquiring voting stock in a bank or bank holding company without 60
days' prior notice to the Commissioner if such acquisition will give the person
control of 25% or more of the voting stock of the bank or bank holding company
or will affect the power to direct or to cause the direction of the policy or
management of the bank or bank holding company. Any doubt whether the stock
acquisition will affect the power to direct or cause the direction of policy or
management shall be resolved in favor of reporting to the Commissioner. The
Commissioner may deny approval of the acquisition if the Commissioner determines
it to be anti-competitive or to threaten the safety or soundness of a banking
institution. Voting stock acquired in violation of this statute may not be voted
for five years.
Capital Adequacy. The Federal Reserve Board has adopted guidelines
regarding the capital adequacy of bank holding companies, which require bank
holding companies to maintain specified minimum ratios of capital to total
assets and capital to risk-weighted assets. See "Regulation of the Bank --
Capital Adequacy."
12
<PAGE>
Dividends and Distributions. The Federal Reserve Board has the power
to prohibit dividends by bank holding companies if their actions constitute
unsafe or unsound practices. The Federal Reserve Board has issued a policy
statement on the payment of cash dividends by bank holding companies, which
expresses the Federal Reserve Board's view that a bank holding company should
pay cash dividends only to the extent that the company's net income for the past
year is sufficient to cover both the cash dividends and a rate of earning
retention that is consistent with the company's capital needs, asset quality,
and overall financial condition.
Bank holding companies are required to give the Federal Reserve Board
notice of any purchase or redemption of their outstanding equity securities if
the gross consideration for the purchase or redemption, when combined with the
net consideration paid for all such purchases or redemptions during the
preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve Board order, directive, or any condition imposed by,
or written agreement with, the Federal Reserve Board. Bank holding companies
whose capital ratios exceed the thresholds for "well capitalized" banks on a
consolidated basis are exempt from the foregoing requirement if they were rated
composite 1 or 2 in their most recent inspection and are not the subject of any
unresolved supervisory issues.
Regulation of the Bank
General. As a state-chartered bank with deposits insured by the FDIC
but which is not a member of the Federal Reserve System (a "state non-member
bank"), the Bank is subject to the supervision of the Commissioner and the FDIC.
The Commissioner and FDIC regularly examine the operations of the Bank,
including but not limited to capital adequacy, reserves, loans, investments and
management practices. These examinations are for the protection of the Bank's
depositors and not its stockholders. In addition, the Bank is required to
furnish quarterly and annual call reports to the Commissioner and FDIC. The
FDIC's enforcement authority includes the power to remove officers and directors
and the authority to issue cease-and-desist orders to prevent a bank from
engaging in unsafe or unsound practices or violating laws or regulations
governing its business.
The Bank's deposits are insured by the FDIC to the legal maximum of
$100,000 for each insured depositor. Some of the aspects of the lending and
deposit business of the Bank that are subject to regulation by the Federal
Reserve Board and the FDIC include reserve requirements and disclosure
requirements in connection with personal and mortgage loans and savings deposit
accounts. In addition, the Bank is subject to numerous federal and state laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
Capital Adequacy. The Federal Reserve Board and the FDIC have
established guidelines with respect to the maintenance of appropriate levels of
capital by bank holding companies and state non-member banks, respectively. The
regulations impose two sets of capital adequacy requirements: minimum leverage
rules, which require bank holding companies and banks to maintain a specified
minimum ratio of capital to total assets, and risk-based capital rules, which
require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.
The regulations of the Federal Reserve Board and the FDIC require bank
holding companies and state non-member banks, respectively, to maintain a
minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve Board has
13
<PAGE>
indicated that whenever appropriate, and in particular when a bank holding
company is undertaking expansion, seeking to engage in new activities or
otherwise facing unusual or abnormal risks, it will consider, on a case-by-case
basis, the level of an organization's ratio of tangible Tier 1 capital (after
deducting all intangibles) to total assets in making an overall assessment of
capital.
The risk-based capital rules of the Federal Reserve Board and the FDIC
require bank holding companies and state non-member banks, respectively, to
maintain minimum regulatory capital levels based upon a weighting of their
assets and off-balance sheet obligations according to risk. Risk-based capital
is composed of two elements: Tier 1 capital and Tier 2 capital. Tier 1 capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less all
intangible assets, except for certain purchased mortgage servicing rights and
credit card relationships. Tier 2 capital elements include, subject to certain
limitations, the allowance for losses on loans and leases; perpetual preferred
stock that does not qualify as Tier 1 capital and long-term preferred stock with
an original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and
credit equivalent amounts of off-balance sheet obligations to one of four broad
risk categories based principally on the degree of credit risk associated with
the obligor. The assets and off-balance sheet items in the four risk categories
are weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets. The risk-based capital regulations require all banks and
bank holding companies to maintain a minimum ratio of total capital (Tier 1
capital plus Tier 2 capital) to total risk-weighted assets of 8%, with at least
4% as Tier 1 capital. For the purpose of calculating these ratios: (i) Tier 2
capital is limited to no more than 100% of Tier 1 capital; and (ii) the
aggregate amount of certain types of Tier 2 capital is limited. In addition, the
risk-based capital regulations limit the allowance for loan losses includable as
capital to 1.25% of total risk-weighted assets.
FDIC regulations and guidelines additionally specify that state
non-member banks with significant exposure to declines in the economic value of
their capital due to changes in interest rates may be required to maintain
higher risk-based capital ratios. The federal banking agencies, including the
FDIC, have proposed a system for measuring and assessing the exposure of a
bank's net economic value to changes in interest rates. The federal banking
agencies, including the FDIC, have stated their intention to propose a rule
establishing an explicit capital charge for interest rate risk based upon the
level of a bank's measured interest rate risk exposure after more experience has
been gained with the proposed measurement process. Federal Reserve Board
regulations do not specifically take into account interest rate risk in
measuring the capital adequacy of bank holding companies.
The FDIC has issued regulations which classify state non-member banks
by capital levels and which authorize the FDIC to take various prompt corrective
actions to resolve the problems of any bank that fails to satisfy the capital
standards. Under such regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has or exceeds the following capital levels: a total risk-based capital
ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of
5%. An adequately capitalized bank is one that does not qualify as
well-capitalized but meets or exceeds the following capital requirements: a
total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%,
and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest
composite examination rating. A bank not meeting these criteria is treated as
undercapitalized, significantly undercapitalized, or critically undercapitalized
depending on the extent to which the bank's capital levels are below these
standards. A state non-member bank that falls within any of the three
undercapitalized categories established by the prompt corrective action
regulation will be subject to severe regulatory sanctions. As of December 31,
1997, the Bank was well-capitalized as defined by the FDIC's regulations.
Branching. Maryland law provides that, with the approval of the
Commissioner, Maryland banks may establish branches within the State of Maryland
without geographic restriction and may establish branches in other states by any
means permitted by the laws of such state or by federal law. The Reigle-Neal Act
authorizes the FDIC to
14
<PAGE>
approve interstate branching de novo by state banks, only in states which
specifically allow for such branching. The Reigle-Neal Act also requires the
appropriate federal banking agencies to prescribe regulations by June 1, 1997
which prohibit any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production. These regulations
must include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve.
Dividend Limitations. Pursuant to the Maryland Financial Institutions
Code, Maryland banks may only pay dividends from undivided profits or, with the
prior approval of the Commissioner, their surplus in excess of 100% of required
capital stock. The Maryland Financial Institutions Code further restricts the
payment of dividends by prohibiting a Maryland bank from declaring a dividend on
its shares of common stock until its surplus fund equals the amount of required
capital stock or, if the surplus fund does not equal the amount of capital
stock, in an amount in excess of 90% of net earnings. In addition, the Bank is
prohibited by federal statute from paying dividends or making any other capital
distribution that would cause the Bank to fail to meet its regulatory capital
requirements. Further, the FDIC also has authority to prohibit the payment of
dividends by a state non-member bank when it determines such payment to be an
unsafe and unsound banking practice. Under the Revised M.O.U., the Bank may not
pay a dividend without prior notice to the Commissioner and the FDIC if its
ratio of Tier 1 capital to assets would be less than 6.0%. In addition,
dividends may not exceed 50% of net operating income after taxes for the period
declared without the prior written consent of the FDIC and the Commissioner.
Deposit Insurance. The Bank is required to pay semi-annual assessments
based on a percentage of its insured deposits to the FDIC for insurance of its
deposits by the Bank Insurance Fund ("BIF"). Under the Federal Deposit Insurance
Act, the FDIC is required to set semi-annual assessments for BIF-insured
institutions to maintain the designated reserve ratio of the BIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the BIF.
Under the risk-based deposit insurance assessment system adopted by
the FDIC, the assessment rate for an insured depository institution depends on
the assessment risk classification assigned to the institution by the FDIC,
which is determined by the institution's capital level and supervisory
evaluations. Based on the data reported to regulators for the date closest to
the last day of the seventh month preceding the semi-annual assessment period,
institutions are assigned to one of three capital groups -- "well capitalized,
adequately capitalized or undercapitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis of supervisory
evaluations by the institution's primary supervisory authority and such other
information as the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance fund. Under the current
assessment schedule, well-capitalized banks with the best supervisory ratings
are not required to pay any premium for deposit insurance. All BIF-insured
banks, however are required to pay an assessment to the FDIC in an amount equal
to 1.3 basis points times their assessable deposits to help fund interest
payments on certain bonds issued by the Financing Corporation, an agency
established by the federal government to finance takeovers of insolvent thrifts.
Transactions with Affiliates. A state non-member bank or its
subsidiaries may not engage in "covered transactions" with any one affiliate in
an amount greater than 10% of such bank's capital stock and surplus, and for all
such transactions with all affiliates a state non-member bank is limited to an
amount equal to 20% of capital stock and surplus. All such transactions must
also be on terms substantially the same, or at least as favorable, to the bank
or subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and similar other types of transactions. An affiliate of a state
non-member bank is any company or entity which controls, is controlled by or is
under common control with the state non-member bank. In a holding company
context, the parent holding company of a state nonmember bank (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the state nonmember bank. The BHCA further prohibits a
depository institution from extending credit to or offering any other services,
or fixing or varying the consideration for such extension of credit or service,
on the condition that the customer obtain some additional service
15
<PAGE>
from the institution or certain of its affiliates or not obtain services of a
competitor of the institution, subject to certain limited exceptions.
Loans to Directors, Executive Officers and Principal Stockholders.
Loans to directors, executive officers and principal stockholders of a state
non-member bank must be made on substantially the same terms as those prevailing
for comparable transactions with persons who are not executive officers,
directors, principal stockholders or employees of the Bank unless the loan is
made pursuant to a compensation or benefit plan that is widely available to
employees and does not favor insiders. Loans to any executive officer, director
and principal stockholder together with all other outstanding loans to such
person and affiliated interests generally may not exceed 15% of the bank's
unimpaired capital and surplus and all loans to such persons may not exceed the
institution's unimpaired capital and unimpaired surplus. Loans to directors,
executive officers and principal stockholders, and their respective affiliates,
in excess of the greater of $25,000 or 5% of capital and surplus (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested" director not participating in the voting. State
non-member banks are prohibited from paying the overdrafts of any of their
executive officers or directors. In addition, loans to executive officers may
not be made on terms more favorable than those afforded other borrowers and are
restricted as to type, amount and terms of credit.
Item 2. Properties
The Bank owns its Banking Operations Center, its Executive Offices,
its main banking facility in Glen Burnie, and four branch offices in various
communities in Anne Arundel County, Maryland, all of which are unencumbered. The
Bank also leases a fifth branch office. The Company owns no real estate at
present. At December 31, 1997, GBB owned one parcel of real estate obtained from
a foreclosure by the Bank. The book value of this property was $143,000. The
property consists of office condominiums. GBB intends to sell this property. At
December 31, 1997, the Bank owned two foreclosed real estate properties having a
book value of $605,231, which consisted of residential property which the Bank
is holding for sale.
Item 3. Legal Proceedings
McCafferty's Restaurant ("McCafferty's") had commenced an adversary
proceeding (McCafferty's, Inc. v. Bank of Glen Burnie Adversary Case, Case No.
96-5137-ESD, U.S. Bank. Ct., D. Md.) on March 20, 1996 in McCafferty's pending
Chapter 11 bankruptcy case (In re McCafferty's, Inc., Case No. 96-5-2444-SD,
U.S. Bank. Ct., D. Md.). The United States District Court for the District of
Maryland has assumed jurisdiction (Bank of Glen Burnie v. McCafferty's, Inc.,
Civil Action No. MJG-96-3656, D-Md, 1996). McCafferty's alleges that the Bank,
acting in concert with Brian Davis (McCafferty's former treasurer and chief
financial officer who has pled guilty to fraud against the Bank and various
other banks), defrauded McCafferty's through alleged forgery of loan documents,
improper payment of checks, wrongful diversion of loan proceeds, illegal
overbilling and conspiracy to conceal illegal acts. McCafferty's seeks
$5,000,000 in compensatory damages, $50,000,000 in punitive damages and
declaratory and injunctive relief under numerous counts, including one count
pled under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). On
December 4, 1997, the U.S. District Court dismissed McCafferty's claims under
RICO but denied the Bank's motion to dismiss McCafferty's other claims which
have been reduced to $1,700,000 in total. The Bank denies any wrongdoing and any
liability, and intends to continue contesting the litigation vigorously. The
Company does not believe that the outcome of this litigation will have a
material adverse effect on its business.
In addition to the foregoing litigation, the Bank is a defendant in
three suits filed in the Circuit Court for Baltimore County by creditors of a
company controlled by Mr. Davis alleging in each case that the Bank improperly
negotiated checks for loan proceeds over forged endorsements. The aggregate
damages sought in First National Bank of Maryland v. The Bank of Glen Burnie
(Case No. 03-C-96-001925 filed February 28, 1996), Elkridge National Bank v. The
Bank of Glen Burnie (Case No.03-C-96-002064 filed March 4, 1996) and Commercial
and Farmers Bank v. The Bank of Glen Burnie (Case No. 03-C-96-002941 filed March
25, 1996) total approximately $1,700,000. In Elkridge National Bank, a judgment
in the amount of $284,000 has been rendered in favor of plaintiffs and has been
upheld on
16
<PAGE>
appeal. The Bank intends to file a motion for reconsideration in this case. The
Bank denies liability in each of these suits. In addition, the Bank has filed a
counter-claim in the First National Bank of Maryland suit seeking damages in
excess of the amounts sought by the plaintiff. Accordingly, the Bank does not
believe that the outcome of these suits will have a material adverse effect on
the Bank.
The Bank is also a defendant in Beal GMC v. The Bank of Glen Burnie
(Case No. C96-32383OC filed October 2, 1996 in Anne Arundel County Circuit
Court) in which it is alleged that employees of the Bank falsely represented to
a third party that checks drawn on Mr. Davis's account and payable to plaintiff
had cleared the Bank. Plaintiff seeks compensatory damages of $500,000 and
punitive damages of $5.0 million. The Bank does not believe that this claim has
merit and is vigorously defending this action.
A stockholder derivative suit was filed on March 6, 1998 against the
Company, the Bank and each individual director in the Circuit Court for
Baltimore County under the caption Williams v. Glen Burnie Bancorp, Civil Action
No. C-98-2004. The suit alleges various breaches of fiduciary duty and seeks
total damages of $2,500,000 from each director plus unspecified punitive
damages, the appointment of a receiver for the Bank and an order declaring the
Company's Stockholders' Rights Plan invalid. The Company believes that this suit
is baseless.
The Bank is involved in various other legal actions relating to its
business activities. These actions involve claims for money damages which do not
exceed 10% of the Company's consolidated current assets in any one case or in
any group of proceedings presenting in large degree the same legal and factual
issues. The Company does not believe that any ultimate liability or risk of loss
with respect to these actions will materially affect its consolidated financial
position.
Item 4. Submission of Matters to Vote of Security-Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's stock is traded in the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol "GLBZ." There is not currently
an active trading market for the Common Stock. The following table sets forth
the high and low sales prices for the Common Stock for each full quarterly
period during 1997 and 1996, based on trades reported on the OTC Bulletin Board
or by Legg Mason Wood Walker, Inc., the principal market maker for the Company's
stock. Prices have been adjusted to give retroactive effect to six-for-five
stock splits effected through stock dividends paid on January 3, 1996 and
January 10, 1998.
1997 1996
------------------------ ----------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31, $23.333 $17.917 $31.250 $28.333
June 30, 20.833 18.333 30.208 27.500
September 30, 20.625 19.583 27.917 27.500
December 31, 20.833 20.260 28.333 20.833
As of March 18, 1998, the latest date for which the Company was able
to obtain information on a reported sale of the Common Stock, the last reported
sales price for the Common Stock on the OTC Bulletin Board was $24.00 per share.
17
<PAGE>
As of December 31, 1997, the number of record holders of the Common
Stock was 477.
Since its inception, the Company has paid quarterly cash dividends on
its Common Stock. Per share cash dividends declared for each full quarter during
last two fiscal years, giving retroactive effect to six-for-five stock splits
effected through stock dividends paid on January 3, 1996 and January 10, 1998,
were as follows:
Quarter Ended 1997 1996
------------- ------ ------
March 31, $0.133 $0.250
June 30, 0.050 0.250
September 30, 0.050 0.250
December 31, 0.075 0.040
The Company intends to pay dividends equal to forty percent (40%) of
its profits for each quarter. However, dividends remain subject to declaration
by the Board of Directors in its sole discretion and there can be no assurance
that the Company will be legally or financially able to make such payments.
Payment of dividends may be limited by Federal and state regulations which
impose general restrictions on a bank's and bank holding company's right to pay
dividends (or to make loans or advances to affiliates which could be used to pay
dividends). Generally, dividend payments are prohibited unless a bank or bank
holding company has sufficient net (or retained) earnings and capital as
determined by its regulators. See "Item 1. Business -- Supervision and
Regulation -- Regulation of the Company -- Dividends and Distributions" and
"Item 1. Business -- Supervision and Regulation -- Regulation of the Bank --
Dividend Limitations." The Bank's payment of dividends is further restricted by
the M.O.U. which requires prior approval of the FDIC and the Commissioner for
the payment of dividends by the Bank in excess of 50% of its net operating
income or if the Bank's Tier 1 capital ratio would be reduced below 6.0%. See
"Item 1. Business -- Memoranda of Understanding." The Company does not believe
that these restrictions will materially limit its ability to pay dividends.
18
<PAGE>
Item 6. Selected Financial Data
The following table presents consolidated selected financial data for
the Company and its subsidiaries for each of the periods indicated. Dividends
and earnings per share have been adjusted to give retroactive effect to stock
splits and stock dividends accounted for as stock splits.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operations Data:
Net Interest Income............................... $ 10,567 $ 10,884 $ 11,339 $ 11,868 $ 10,736
Provision for Credit Losses....................... 270 6,596 7,925 1,120 1,080
Other Income...................................... 1,728 2,230 1,904 1,515 1,408
Other Expense..................................... 11,593 9,019 8,740 7,139 6,716
Net Income (Loss)................................. 747 (1,020) (1,727) 3,517 3,047
Share Data:
Net Income (Loss) Per Share....................... $ 0.68 $ ( 0.94) $ (1.62) $ 3.41 $ 2.98
Cash Dividends Declared
Per Common Share............................... 0.30 0.30 0.78 0.65 0.63
Weighted Average Common
Shares Outstanding............................ 1,092,768 1,089,495 1,064,650 1,030,989 1,021,536
Financial Condition Data:
Total Assets...................................... $ 231,900 $ 254,325 $ 246,165 $ 232,935 $ 223,422
Loans Receivable, net............................. 111,545 124,672 150,472 153,814 141,866
Total Deposits.................................... 207,110 232,746 221,121 208,566 202,911
Total Stockholders' Equity........................ 18,965 18,586 20,537 21,677 18,617
Performance Ratios:
Return on Average Assets.......................... 0.32% (0.41)% (0.73)% 1.53% 1.40%
Return on Average Equity.......................... 3.95 (5.29) (7.42) 17.24 17.70
Net Interest Margin 1............................. 5.09 5.04 5.42 5.88 5.67
Dividend Payout Ratio............................. 44.12 * * 19.06 21.14
Capital Ratios:
Average Equity to Average
Assets.......................................... 8.01% 7.82% 9.89% 8.86% 7.92%
Leverage Ratio.................................... 7.60 7.20 8.20 9.40 8.60
Total Risk-Based Capital
Ratio.......................................... 16.00 14.00 13.70 15.30 14.30
Asset Quality Ratios:
Allowance for Credit Losses to
Gross Loans..................................... 3.55% 3.88% 2.39% 1.76% 1.76%
Non-accrual and Past Due Loans to
Gross Loans..................................... 2.99 3.55 4.05 2.27 2.18
Allowance for Credit Losses to
Non-accrual and Past Due Loans.................. 118.73 109.24 58.89 77.34 80.79
Net Loan Charge-offs to
Average Loans................................... 1.00 3.56 4.48 0.60 0.20
- ---------------
* Not meaningful
1 Presented on a tax-equivalent basis.
</TABLE>
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company recorded $747,247 in net income for the year ended
December 31, 1997 after incurring losses in each of the two prior fiscal years.
The Company's recent results of operations have been significantly affected by
charge-offs related to loans outstanding to Mr. Brian Davis and affiliated
entities. During the 1995 fiscal year, the Bank's aggregate outstanding loans to
these entities totaled as much as $6.0 million and these entities represented
the Bank's largest single group of borrowers. Included in total outstandings
were loans made to various borrowers who allegedly funneled the proceeds to Mr.
Davis. Mr. Davis has since pled guilty to defrauding the Bank and other
financial institutions and the Bank's former Chief Lending Officer has pled
guilty to accepting bribes from Mr. Davis in connection with these loans. The
Board of Directors of the Bank has entered into Memoranda of Understanding with
the FDIC and the Maryland Commissioner of Banking to address certain factors
relating to its recent losses. See "Item 1. Business -- Memoranda of
Understanding."
The Bank continues to be involved in litigation related to Mr. Davis'
activities including suits by entities affiliated with Mr. Davis. See "Item 1.
Business -- Legal Proceedings." Although the Company does not believe that
outcome of this litigation will have a material adverse effect on the Bank,
these lawsuits have required the Company to incur considerable legal and
professional fees which have significantly increased the Company's other
expense. Adverse publicity related to these lawsuits is also believed to have
also hurt the Bank's competitive position in its market place.
In 1995, the Company also underwent a change in management as a slate
of nominees proposed by F. William Kuethe, Jr. and John E. Demyan, members of
two of the Bank's founding families, defeated management's nominees in a proxy
contest at the 1995 annual meeting of stockholders. Expenses related to this
contest resulted in a $687,841 restructuring charge during 1995. The Bank's
current management has been focused on addressing the Bank's asset quality and
other operating problems and resolving the litigation in which the Bank is
involved while maintaining the Bank as the locally owned and oriented community
bank which it has historically been.
Forward-Looking Statements
When used in this discussion and elsewhere in this Annual Report on
Form 10-K, 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 to advise readers that various factors, including
regional and national economic conditions, unfavorable judicial decisions,
substantial changes in levels of market interest rates, credit and other risks
of lending and investment activities and competitive and regulatory 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.
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.
20
<PAGE>
Comparison of Results of Operations For the Years Ended December 31, 1997, 1996
and 1995
General. For the year ended December 31, 1997, the Company reported
consolidated net income of $747,247 ($0.68 per share) compared to consolidated
net losses of $1,020,177 ($0.94 per share) and $1,726,748 ($1.62 per share) for
the years ended December 31, 1996 and 1995. The increase in net income during
the 1997 period was principally attributable to a lower provision for credit
losses. The losses during 1996 and 1995 were primarily due to a significant
increase in the provision for credit losses to $6,596,000 for 1996 and
$7,925,000 for 1995. The increase resulted from provisions being made to charge
- -off delinquent and non-performing loans. The collectibility of certain loans,
significant in aggregate amount, became doubtful during 1996 and the Bank
charged-off a significant amount of such loans. Charge-offs in 1997 amounted to
$1,617,800, following the $5,468,293 charged off in 1996 and the $7,060,650
charged off in 1995.
Net Interest Income. The primary component of the Company's net income
is its net interest income which is the difference between income earned on
assets and interest expense paid on deposits and borrowings used to fund them.
Net interest income is determined by the spread between the yields earned on the
Company's interest-earning assets and the rates paid on interest-bearing
liabilities as well as the relative amounts of such assets and liabilities. Net
interest income, divided by average interest-earning assets, represents the
Company's net interest margin.
Consolidated net interest income for the year ended December 31, 1997
was $10,567,211 compared to $10,884,253 for the year ended December 31, 1996 and
$11,339,137 for the year ended December 31, 1995. The decrease in net interest
income for the most recent year was primarily attributable to lower interest
income. Interest income fell $1,169,357 (6.27%) for the year ended December 31,
1997. The decline in interest income was attributable to continued run-off of
the loan portfolio. As the Company has shifted its investment securities
portfolio into repricable GNMA securities from state, county and municipals, the
Company expects a reduction in the yield on its investment portfolio during
1998. Interest expense declined $852,315, or 10.98%, for the year ended December
31, 1997. The Company's earnings performance continues to be impacted by a
decline in earning assets and a shift in the asset mix from loans to lower
yielding investment securities. Net interest margin for the year ended December
31, 1997 was 5.09% compared to 5.04% for the year ended December 31, 1996. The
increase in the net interest margin for fiscal 1997 was primarily due to the
loss of accrued interest on loans charged off during fiscal 1996.
Consolidated net interest income decreased by $454,884 (4.0%) to
$10,884,253 in 1996 from $11,339,137 in 1995. The 1996 decrease was primarily
due to an increase in interest expense on deposits and a decrease in total
interest revenues from lending activities for such period. The movement of
deposits from lower yielding savings and money market accounts to higher
yielding certificates of deposit resulted in an increase in the Bank's cost of
deposits during 1996. In addition, loans on which accrual of interest has been
discontinued amounted to $4,545,581 at December 31, 1996. Interest that would
have accrued under the terms of these loans was $457,035. Interest income on
loans fell $1,394,512 (9.6%) from $14,475,876 at the end of 1995 to $13,081,364
at the end of 1996, after increasing $390,234 (2.8%) during 1995. In addition to
increased loan charge offs, the Bank made fewer loans during 1996 than 1995.
During 1996 and 1995, the Bank shifted investments from U.S. Treasury
securities to U.S. government agency and state and municipal securities because
they have offered higher yields. Interest from Federal funds sold almost doubled
during 1996, increasing from $138,678 in 1995 to $261,423 in 1996 as Federal
funds sold increased significantly. Significant gains in investment securities
($506,695) occurred in 1995 as a result of a restructuring of the Bank's
investment securities portfolio. The gains were much smaller in 1996 after the
restructuring was complete.
21
<PAGE>
The following table allocates changes in income and expense
attributable to the Bank's interest-earning assets and interest-bearing
liabilities for the periods indicated between changes due to changes in rate and
changes in volume. Changes due to rate/volume are allocated to changes due to
volume.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------------- -----------------------------------
Change Due to Change Due to
Increase/ -------------------- Increase/ -------------------
Decrease Rate Volume Decrease Rate Volume
-------- ---- ------ -------- ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Federal funds sold........................... $ 41 $ 12 $ 29 $ 122 $ (37) $ 159
---------- ---------- --------- --------- -------- -------
Interest-bearing deposits.................... 19 13 6 (31) (17) (14)
---------- ---------- --------- --------- -------- -------
Investment securities:
U.S. Treasury securities and obligations
of U.S. government agencies.............. 1,545 (74) 1,619 1,082 234 848
Obligations of states and
political subdivisions 1................ (804) 4 (808) 472 (74) 546
All other investment securities............ 9 (1) 10 2 (1) 3
---------- ---------- --------- --------- -------- -------
Total investment securities............. 750 (71) 821 1,556 159 1,397
---------- ---------- --------- --------- -------- -------
Loans, net of unearned income:
Demand, time and lease .................... (684) 89 (773) (613) (56) (557)
Mortgage and construction.................. (1,181) 86 (1,267) (269) (604) 335
Installment and credit card................ (370) 47 (417) (517) 31 (548)
---------- ---------- --------- --------- -------- -------
Total gross loans 2..................... (2,235) 222 (2,457) (1,399) (629) (770)
---------- ---------- --------- --------- -------- -------
Allowance for credit losses................
---------- ---------- --------- --------- -------- -------
Total net loans......................... (2,235) 222 (2,457) (1,399) (629) (770)
---------- ---------- --------- --------- -------- -------
Total interest-earning assets................... $ (1,110) $ 23 $ (1,133) $ 248 $ (524) $ 772
========== ========== ========= ========= ======== =======
Liabilities
Interest-bearing deposits:
Savings and NOW.............................. $ (379) $ (286) $ (93) $ (112) $ (191) $ 79
Money market................................. (196) (50) (146) (111) (42) (69)
Other time deposits.......................... (296) (153) (143) 762 7 755
---------- ---------- --------- --------- -------- -------
Total interest-bearing deposits............ (871) (490) (381) 539 (226) 765
Non-interest-bearing deposits................... -- -- -- -- -- --
Borrowed funds.................................. 18 7 11 (39) (9) (30)
---------- ---------- --------- --------- -------- -------
Total interest-bearing liabilities.............. $ (853) $ (483) $ (370) $ 500 $ (235) $ 735
========== ========== ========= ========= ======== =======
</TABLE>
- --------------
1 Tax equivalent basis.
2 Non-accrual loans included in average balances.
22
<PAGE>
The following table provides information for the designated periods
with respect to the average balances, income and expense and annualized yields
and costs associated with various categories of interest-earning assets and
interest-bearing liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997
----------------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Federal funds sold................................... $ 5,755 $ 302 5.25%
--------- --------- ----
Interest-bearing deposits............................ 1,397 73 5.23
--------- --------- ----
Investment securities:
U.S. Treasury securities and obligations
of U.S. government agencies..................... 77,045 5,214 6.77
Obligations of States and
political subdivisions 1........................ 18,114 1,503 8.30
All other investment securities................... 871 63 7.23
--------- --------- ----
Total investment securities.................... 96,030 6,780 7.06
--------- --------- ----
Loans, net of unearned income
Demand, time and lease............................... 13,459 1,260 9.36
Mortgage and construction............................ 83,805 7,685 9.17
Installment and credit card.......................... 21,897 1,908 8.71
--------- --------- ----
Total gross loans 2............................ 119,161 10,853 9.11
Allowance for credit losses.................... 4,460
---------
Total net loans................................. 114,701 10,853 9.46
--------- --------- ----
Total interest-earning assets................... 217,883 18,008 8.26
--------- ----
Cash and due from banks................................. 7,125
Other assets............................................ 11,170
---------
Total assets................................... $ 236,178 $ 18,008
========= =========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Savings and NOW....................................... $ 68,269 $ 1,696 2.48%
Money market.......................................... 22,116 622 2.81
Other time deposits................................... 81,006 4,523 5.58
--------- --------- ----
Total interest-bearing deposits..................... 171,391 6,841 3.99
Borrowed funds.......................................... 1,261 68 5.39
--------- --------- ----
Total interest-bearing liabilities.................. 172,652 6,909 4.00
---------
Non-interest-bearing deposits........................... 43,543
Other liabilities....................................... 1,056
Stockholders' equity.................................... 18,927
---------
Total liabilities and equity............................ $ 236,178 $ 6,909
========= =========
Net interest income..................................... $ 11,099
=========
Net interest spread..................................... 4.26%
====
Net interest margin..................................... 5.09%
====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995
---------------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S>
Assets: <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold.............................$ 5,185 $ 261 5.03% $ 2,416 $ 139 5.75%
---------- ----------- ---- --------- ---------- ----
Interest-bearing deposits...................... 1,267 54 4.26 1,526 85 5.57
---------- ----------- ---- --------- ---------- ----
Investment securities:
U.S. Treasury securities and obligations
of U.S. government agencies............... 53,454 3,669 6.86 40,263 2,587 6.43
Obligations of States and
political subdivisions 1.................. 27,875 2,307 8.28 21,479 1,835 8.54
All other investment securities............. 737 54 7.33 696 52 7.47
--------- --------- ---- ---------- ---------- ----
Total investment securities.............. 82,066 6,030 7.35 62,438 4,474 7.12
--------- ---------- ---- ---------- ---------- ----
Loans, net of unearned income
Demand, time and lease......................... 22,343 1,944 8.70 28,559 2,557 8.95
Mortgage and construction...................... 97,777 8,886 9.07 94,322 9,135 9.68
Installment and credit card.................... 26,802 2,278 8.50 33,338 2,795 8.38
---------- --------- ---- ---------- ---------- ----
Total gross loans 2...................... 146,922 13,088 8.91 156,219 14,487 9.27
Allowance for credit losses.............. 3,835 2,766
---------- ---------
Total net loans........................... 143,087 13,088 9.15 153,453 14,487 9.44
---------- --------- ---- ---------- ---------- ----
Total interest-earning assets............. 231,605 19,433 8.39 219,833 19,185 8.73
--------- ---- ---------- ----
Cash and due from banks........................... 7,936 7,152
Other assets...................................... 7,318 8,471
---------- ---------
Total assets.............................$ 246,859 $ 235,456
========== =========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Savings and NOW................................. $ 71,455 $ 2,075 2.90% $ 68,957 $ 2,187 3.17%
Money market.................................... 26,911 818 3.04 29,081 929 3.19
Other time deposits............................. 83,486 4,819 5.77 70,382 4,057 5.76
---------- --------- ---- ---------- ---------- ----
Total interest-bearing deposits............... 181,852 7,712 4.24 168,420 7,173 4.26
Borrowed funds.................................... 1,029 50 4.86 1,549 89 5.75
---------- --------- ---- ---------- ---------- ----
Total interest-bearing liabilities............ 182,881 7,762 4.24 169,969 7,262 4.27
--------- ----------
Non-interest-bearing deposits..................... 44,570 41,500
Other liabilities................................. 110 699
Stockholders' equity.............................. 19,298 23,288
---------- ----------
Total liabilities and equity...................... $ 246,859 $ 235,456
========== ==========
Net interest income............................... $ 11,671 $ 11,923
========= =========
Net interest spread............................... 4.15% 4.46%
==== ====
Net interest margin............................... 5.04% 5.42%
==== ====
</TABLE>
- --------------
1 Tax equivalent basis. The incremental tax rate applied was 37.42% for 1997,
37.04% for 1996 and 38.62% for 1995 and 1994.
2 Non-accrual loans included in average balance.
23
<PAGE>
Provision for Credit Losses. During the year ended December 31, 1997,
the Company provided $270,000 for credit losses compared to $6,596,000 and
$7,925,000 in provisions during the years ended December 31, 1996 and 1995. The
decrease in the provision reflects a decline in charge-off activity and a
reduction in classified loans. During the year ended December 31, 1997, the
Company recorded net charge-offs of $1,191,196 compared to $5,233,679 and
$6,990,603 in net charge-offs during the years ended December 31, 1996 and 1995.
During fiscal year 1996, the Company provided $6,596,000 for credit losses
compared to $7,925,000 in such provisions during 1995. The higher provisions
during fiscal years 1996 and 1995 reflect the amount determined by the Company
to be necessary to maintain the allowance for credit losses to an adequate level
after significant increases in loan charge-offs during these years.
Other Income. Other income decreased $502,643 (22.5%) during the year
ended December 31, 1997 compared to the prior year period. The higher level of
other income in 1996 reflects income from proceeds from insurance settlements in
that year. The absence of such income during 1997 resulted in lower other income
for the year notwithstanding improved income from other fees and commissions and
higher gains on the sale of investment securities during 1997. In order to
improve its interest rate sensitivity, the Bank sold $16.0 million in long-term,
fixed-rate state, county and municipal securities which had been classified as
available-for-sale and invested the proceeds in adjustable-rate, mortgage-backed
securities issued by the Government National Mortgage Association ("GNMA").
Other income for fiscal year 1996 was $2,230,457, an increase of $326,174, or
17.1%, over fiscal year 1995. The improvement in other income reflects increased
service charges on deposit accounts attributable to growth in deposits and
$560,000 in proceeds from an insurance settlement with the Bank's fidelity bond
company relating to the reimbursement of legal fees expended by the Bank in
defending certain actions. These improvements in other income offset a decline
in gains on sales of securities following a restructuring of the Bank's
securities portfolio.
Other Expenses. Other expense increased by $2,573,983, or 28.5%, for
the year ended December 31, 1997 primarily due to $996,161 in litigation and
restructuring charges including a $284,000 accrual for a judgment rendered
against the Bank in the third quarter of 1997 and a $700,000 expense incurred in
connection with the settlement of certain litigation during the second quarter.
In addition, the Company experienced increases in other expenses due to
professional fees incurred in connection with other litigation in which the
Company is involved. The Company anticipates continued high legal expenses
during 1998 due to expenses associated with a proxy contest during the first
quarter. Salary and employee benefit expenses increased $497,732 (12.0%) during
the year ended December 31, 1996 rising from $4,137,232 in 1995 to $4,634,964 in
1996. During 1996, Bank staff was increased in the credit analysis and loan
collection areas to deal with the Bank's troubled loans. Increased other
expenses of the Company and its subsidiaries in 1996 primarily resulted from
increased legal fees and other continuing costs of litigation. See "Item 3.
Legal Proceedings." The Bank has obtained insurance reimbursement for
approximately $560,000 of its 1995 restructuring and litigation charges which is
included in other income.
Income Taxes. During the year ended December 31, 1997, the Company
recorded an income tax benefit of $315,284 compared to a tax benefit of
$1,480,192 during the year ended December 31, 1996 and $1,694,444 in tax
benefits for 1995. Due primarily to its holdings of tax-exempt state, county and
municipal securities, the Company has recorded tax losses during the past three
fiscal years. These net operating losses have been applied to prior years'
earnings resulting in tax benefits in each of the periods. The Company has
recently reduced its holdings of tax-exempt state, county and municipal
securities and reinvested the proceeds in U.S. Government agency securities the
income on which is not exempt from federal taxation. Accordingly, the Company
anticipates an increase in taxable income which may reduce the availability of
future tax benefits.
Comparison of Financial Condition at December 31, 1997, 1996 and 1995.
The Company's total assets declined to $231,899,594 at December 31,
1997 after increasing to $254,324,701 at December 31, 1996 from $246,164,736 at
December 31, 1995. The reduction in assets during the year ended December 31,
1997 reflects a decline in the loan portfolio to $111,545,262 at December 31,
1997, net of allowances and unearned income, from $124,672,414 at December 31,
1996. Although the net loan portfolio had declined to
24
<PAGE>
$124,672,414 at December 31, 1996 from $150,471,768 at December 31, 1995, total
assets grew due to an expansion of the investment securities portfolio.
The decline in the loan portfolio during the most recent year was
largely due to a decrease in commercial and industrial loans during the period.
Commercial mortgage loans increased during the period while residential
mortgages decreased slightly and lease financing and installment loans also
decreased. The declines in the loan portfolio during fiscal years 1996 and 1995
were principally due to a decrease in construction and land development loans
which had substantially increased during the preceding year but declined during
the most recent fiscal years due to decreased origination activity and loan
charge-offs. Commercial mortgage loans increased during 1995 and again slightly
in 1996. Residential mortgages increased in 1995 but fell in 1996, as did demand
and time loans. The decline in demand and time loans reflects decreased lending
activity and increased charge-offs. Lease financing and installment loans
decreased in both 1995 and 1996. The Bank has decided to decrease its equipment
and automobile lease based lending because of the difficulties in monitoring the
financial condition of the clients of lease company borrowers.
The Company's total investment securities portfolio (including both
investment securities available for sale and investment securities held to
maturity) totaled $81,858,000 at December 31, 1997, a $14,716,000 or 15.24%,
decrease from $96,574,000 at December 31, 1996. The Company used the proceeds
from maturing and called securities to fund deposit outflows during the period.
During fiscal year 1996, the total investment securities portfolio grew by
$21,975,153, or 29.46%, after growing by $14,197,134, or 23.50% during fiscal
year 1995 to $74,598,847. The increases in the investment securities portfolio
during fiscal years 1996 and 1995 reflects increases in deposits coupled with a
decline in new lending activity and increased loan amortization primarily in the
shorter term construction and land development, lease financing and installment
portfolios. The Bank has allowed some run-off in the investment securities
portfolio as deposits have declined during the current fiscal year.
Deposits as of December 31, 1997 totaled $207,110,000, a decrease of
$25,636,000 (11.01%) for the year. Demand deposits as of December 31, 1997
totaled $47,651,000, a $1,762,000 (3.56%) decrease from $49,413,000 at December
31, 1996. NOW accounts as of December 31, 1997 totaled $20,582,000, a decrease
of $2,210,000 (9.70%) for the year. Money market accounts declined by $6,334,000
(24.16%) for the year to total $19,877,000 on December 31, 1997. Savings
deposits decreased by $5,131,000, or 10.65%. Meanwhile, certificates of deposit
over $100,000 totaled $7,464,000 on December 31, 1997, a decrease of $1,156,000
(13.41%) from December 31, 1996. Other time deposits (made up of certificates of
deposit less than $100,000 and individual retirement accounts) totaled
$68,474,000 on December 31, 1997, a $9,043,000 (11.67%) decrease from December
31, 1996.
The Company experienced a $378,220, or 2%, increase in total
stockholders' equity during the year ended December 31, 1997 as the increase in
retained earnings resulting from net income during the period offset a decline
in net unrealized appreciation on securities available for sale resulting from
the disposition of certain available-for-sale securities. Operating losses
during 1995 and 1996 significantly affected retained earnings which fell
$1,856,647 (36.1%) during 1996 to end 1996 at $3,290,077. Surplus steadily
increased, however, rising to $275,857 (4.7%) during 1996 to $6,192,900. The
increase in the surplus account was primarily a result of the reinvestment of
dividends pursuant to the Dividend Reinvestment Plan and the payment of three
one-percent stock dividends in lieu of cash dividends during the year ended
December 31, 1997.
Asset/Liability Management
Net interest income, the primary component of the Company's net
income, arises from the difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities and the relative amounts of such
assets and liabilities. The Company manages its assets and liabilities by
coordinating the levels of and gap between interest-rate sensitive assets and
liabilities to minimize changes in net interest income and in the economic value
of its equity despite changes in market interest rates. The Bank's
Asset/Liability and Risk Management Committee meets on a monthly basis to
monitor compliance with the Board's objectives. Among other tools used by the
Asset/Liability and Risk Management Committee to monitor interest rate risk is a
"gap" report which measures the dollar difference between the
25
<PAGE>
amount of interest-earning assets and interest-bearing liabilities subject to
repricing within a given time period. Generally, during a period of rising
interest rates, a negative gap position would adversely affect net interest
income, while a positive gap would result in an increase in net interest income,
while, conversely, during a period of falling interest rates, a negative gap
would result in an increase in net interest income and a positive gap would
adversely affect net interest income.
During recent periods, the Company has maintained a negative gap
position that has benefitted earnings as interest rates have fallen. In order to
reduce its negative gap position, the Company has recently begun investing in
mortgage-backed and other government securities which have rates that adjust to
market rates. The Company also maintains a significant portfolio of
available-for-sale securities that can be quickly converted to more liquid
assets if needed.
The following table sets forth the Bank's interest-rate sensitivity at
December 31, 1997.
<TABLE>
<CAPTION>
Over 1
Over 3 to through Over
0-3 Months 12 Months 5 Years 5 Years Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks.............. $ -- $ -- $ -- $ -- $ 8,235,970
Federal funds and overnight
deposits.......................... 20,323,420 -- -- -- 20,323,420
Securities........................... 22,316,050 15,284,767 24,526,978 19,729,875 81,857,670
Loans................................ 15,983,527 10,172,330 31,284,495 58,220,409 115,660,761
Fixed assets......................... -- -- -- -- 4,319,421
Other assets......................... -- -- -- -- (638,517)
------------- ------------- ------------- ------------- --------------
Total assets...................... $ 58,622,997 $ 25,457,097 $ 55,811,473 $ 77,950,284 $ 229,758,725
============= ============= ============= ============= ==============
Liabilities:
Demand deposit accounts.............. $ -- $ -- $ -- $ -- $ 48,004,109
NOW accounts......................... 20,581,703 -- -- -- 20,581,703
Money market deposit accounts........ 19,876,925 -- -- -- 19,876,925
Savings accounts..................... 42,896,711 -- -- -- 42,896,711
IRA accounts......................... 4,017,421 4,103,357 13,153,907 640,475 21,915,160
Certificates of deposit.............. 13,140,636 23,895,418 16,154,870 718,566 53,909,490
Other liabilities.................... -- -- -- -- 4,059,782
Stockholders' equity.............. -- -- -- -- 18,514,845
------------- ------------- ------------- ------------- --------------
Total liabilities and stockholders'
equity....................... $ 100,513,396 $ 27,998,775 $ 29,308,777 $ 1,359,041 $ 229,758,725
============= ============= ============= ============= ==============
GAP..................................... $ (41,890,399) $ (2,541,678) $ 26,502,696 $ 76,591,243
Cumulative GAP.......................... (41,890,399) (44,432,077) (17,929,381) 58,661,862
Cumulative GAP as a % of
total assets.......................... (18.23)% (19.34)% (7.80)% 25.53%
</TABLE>
The foregoing analysis assumes that the Bank'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 three months although it is the Company's experience that such
accounts may be less sensitive to changes in market rates.
26
<PAGE>
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 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.
Cash and cash equivalents (cash due from banks, interest -bearing
deposits in other financial institutions, and federal funds sold), as of
December 31, 1997, totaled $28,536,611, an increase of $5,858,950 (21%) from the
December 31, 1996 total of $22,677,661. Most of this increase was in Federal
funds sold which totaled $18,850,000 at December 31, 1997 compared to
$10,175,000 at the end of 1996. The larger balance in Federal funds sold at the
end of 1997 reflects a decision to increase liquid assets in order to fund
January securities purchase commitments.
The Bank may draw on a $26,000,000 line of credit from the Federal
Home Loan Bank of Atlanta. Borrowings under the line are secured by a lien on
the Bank's residential mortgage loans. As of December 31, 1997, however, no
amounts were outstanding under this line. In addition the Bank has a secured
line of credit in the amount of $2.0 million from another commercial bank.
Year 2000 Planning
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. For many years, software applications routinely
conserved magnetic storage space by using only two digits to record calendar
years; for example, the year 1999 is stored as "99". On January 1, 2000, the
calendars in many software applications will change from "99" to "00". Many of
these software applications, in their current form, will produce erroneous
results or will fail to run at all since their logic cannot deal with this
transaction.
The Company's mainframe computer hardware and systems software are
Year 2000 compliant. The Company primarily utilizes third-party vendor
application software for all computer applications. The third-party vendors for
the Company's banking applications are in the process of modifying, upgrading or
replacing their computer applications to insure Year 2000 compliance. In
addition, the Company has instituted a Year 2000 compliance program whereby the
Company is reviewing the Year 2000 compliance issues that may be faced by its
third-party vendors. Under such program, the Company will examine the need for
modifications or replacement of all non-Year 2000 compliant pieces of software.
The Company does not currently expect that the cost of its Year 2000 compliance
program will be material to its financial conditions and believes that it will
satisfy such compliance program by the end of 1998 without material disruption
of its operations. In the event that the Company's significant suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's business of
operations could be adversely affected.
27
<PAGE>
Recently Adopted Accounting Standards
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This Statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per Share,"
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented. The adoption of
this pronouncement did not impact any previously reported earnings per share
information.
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS No. 121), requires that certain long-lived assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss is recognized if the sum of
expected future cash flows is less than the carrying amount of the asset and its
face value. An impairment loss is measured based on the difference between the
carrying amount of the asset and its fair value. The Bank adopted this
pronouncement in 1996, and there are no other asset impairment adjustments
reflected in the 1997 and 1996 consolidated financial statements, except those
assets classified as Other Real Estate Owned (OREO).
Statement of Financial Accounting Standards No. 122, Accounting for
Mortgage Servicing Rights (SFAS No. 122), requires that rights to serviced
mortgage loans be recognized as an intangible asset when the underlying loans
are sold and servicing rights related to these loans are retained. The standard
also requires that capitalized mortgage servicing rights be assessed for
impairment based on the fair value of such rights. The Bank adopted this
pronouncements in 1996, and there were no loans sold for which it had maintained
servicing rights. Accordingly, adoption of this pronouncement has no effect on
the 1997 and 1996 consolidated financial statements.
Statements of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130), establishes additional standards for
reporting and display of "comprehensive income" and its components of the
Company's financial statements. Adoption of this pronouncement will be effective
for 1998 and the Company would be reporting its net change in unrealized
appreciation on securities available for sale as other comprehensive income and
total net unrealized appreciation on securities available for sale reflected in
stockholders' equity as accumulated other comprehensive income.
Comprehensive income, as determined under SFAS No. 130 for 1997, 1996
and 1995 would be as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ -------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
Net change in unrealized appreciation
on available for sale securities (39,873) (480,431) 754,435
------------ ------------- ------------
Comprehensive income (loss) $ 707,374 $ (1,500,608) $ (972,313)
============ ============= ============
</TABLE>
28
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, nearly all of the Company's assets and liabilities are
monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements appear in this Annual
Report on Form 10-K beginning on the page immediately following Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On April 11, 1996, the Company's Board of Directors decided not to
reengage Rowles & Company, LLP to audit the Company's consolidated financial
statements for its 1996 fiscal year. Such accountants' report on the Company's
consolidated financial statements for each of its prior two fiscal years did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. There were no
disagreements between the Company and Rowles & Company, LLP. On June 27, 1996,
the Company's board of directors decided to engage Trice & Geary LLC to perform
such function and Trice and Geary LLC was so engaged on August 16, 1996.
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is information about the directors, executive
officers and significant employees of the Company, the Bank and GBB. Directors
of the Company are elected by stockholders annually for one-year terms. Unless
indicated otherwise, the positions stated for each individual are positions held
in the Company and in each of its subsidiaries, and the positions stated are
positions which are currently held and which have been held for at least the
past five years.
<TABLE>
<CAPTION>
Name Age Director Since
- ---- --- --------------
<S> <C> <C> <C>
Directors:
Theodore L. Bertier 69 1997
Retired since 1993. Manager of design and drafting department of Westinghouse
Electric Corp. prior to retirement. Previously served as a director of the Bank
from 1970 through 1995.
Shirley Boyer 60 1995
Owner/Manager of a large number of residential properties in Anne Arundel
County, Maryland. Thirteen years experience in various banks (1954-1967) in
positions from Teller to Assistant Branch Manager.
Thomas Clocker 62 1995
Owner/Operator of Angel's Food Market in Pasadena, Maryland since 1960. Charter
member of and assisted in founding Pasadena Business Association. Community
involvement including local charities, schools, church, scout groups and
athletic programs.
John E. Demyan 49 1990
Chairman of the board since 1995. Director of the Company and the Bank from 1990
through 1994. Completed Maryland Banking School in 1994. Owner/Manager of
commercial and residential properties in northern Anne Arundel County, Maryland.
Alan E. Hahn 62 1997
Owner/Manager of residential real estate. Retired information systems manager.
Chairman of Data Processing Committee for the Bank
Charles L. Hein 75 1997
Retired clergyman. Purchaser and restorer of residential properties. Mortgagee
of residential properties.
F. William Kuethe, Jr. 64 1995
President and Chief Executive Officer of the Company and the Bank since 1995.
Director of the Bank from 1963 through 1989. Former President - Glen Burnie
Mutual Savings Bank from 1960 through 1995. Licensed appraiser and real estate
broker. Banking experience from 1960 to present at all levels.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
Frederick W. Kuethe, III 37 1988
Vice President of the Company since 1995. Director of the Bank since 1988.
Software design and systems integration - Northrop Grumman Corp. (formerly
Westinghouse Electric Corporation). Chairman of the Audit Committee. Graduated
from Maryland Banking School. Frederick W. Kuethe, III is the son of F. William
Kuethe, Jr.
Eugene P. Nepa 67 1997
Retired. Mechanical engineer at Premier Rides Incorporated 1992-1997.
William N. Scherer, Sr. 75 1995
Attorney specializing in wills and estates. Formerly accountant and tax
specialist.
Karen B. Thorwarth 40 1995
Independent insurance agent. Formerly, manager, Yacht Department - Basil-Voges,
Inc. of Annapolis, Maryland from 1979 to 1997. Licensed insurance agent
specializing in underwriting and marketing private pleasure yacht insurance.
Member - Annapolis Yacht Club.
Mary Lou Wilcox 49 1997
Elementary school teacher.
Executive Officers who are not Directors:
Michael P. Gavin 41
Appointed Executive Vice President and Chief Operating Officer effective January
12, 1998. Previously Senior Vice President, Director of Operations, Susquehanna
Bank, Baltimore, Maryland since May 1997 and President, Atlantic Federal Savings
Bank, Baltimore, Maryland from December 1991 to May 1997.
Michael Livingston 43
Appointed Senior Vice President in January 1998. Chief Lending Officer of the
Bank since 1996. Regional Vice President and commercial loan officer with
Citizens Bank from March 1993 until April 1996. Comptroller with Land Services
Group from April 1992 through January 1993.
John E. Porter 43
Appointed Senior Vice President in January 1998. Treasurer and Chief Financial
Officer of the Company since 1995. Vice President, Treasurer and Chief Financial
Officer of the Bank since 1990. Secretary/Treasurer of GBB since 1995.
</TABLE>
Directors' Fees
Each director receives a $700 fee for attending each meeting of the
board of directors of the Bank or of committees of the board of the Bank. During
1997, $137,900 was paid in directors' fees. No additional fees are paid for
service on the Company's Board of Directors.
31
<PAGE>
The Company maintains a Director Stock Purchase Plan pursuant to which
directors may purchase the Common Stock at its fair market value on the date an
option is granted. At December 31, 1997, there were 21,884 shares of Common
Stock reserved for issuance under the plan. No options are currently outstanding
under the plan. The plan was suspended in 1996.
Compensation Committee
A compensation committee of directors of the Bank approved by its
board sets director compensation. The Bank's board sets the compensation of the
chief executive officer. The chief executive officer sets the compensation of
the other executive officers. Executive officers are placed at certain grade
levels with the salary range of each grade level established by the compensation
committee, subject to board approval, based on comparable salaries paid by
similar financial institutions. Within such range, an individual's salary is
based on a performance review conducted by the board or president, as indicated
above. Bonuses are discretionary and largely based on the Bank's financial
performance.
Item 11. Executive Compensation
The following table sets forth the compensation paid by the Company
and the Bank to F. William Kuethe, Jr., their chief executive officer, during
the years indicated.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------- ----------------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Award(s) Options Compensation
- ------------------ ---- ------ ----- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
F. William Kuethe, Jr. 1997 $80,000 $ -- $ -- $ -- -- $14,006 2
1996 80,000 -- -- -- -- 35,183
1995 65,538 7,500 250 1 -- 250 16,904
</TABLE>
- --------------
1 Mr. Kuethe's 1995 "Other Annual Compensation" consisted solely of the
differences between the exercise price of stock options exercised by him
during the respective years and the fair market value of the shares at the
time of exercise as determined by information furnished by Legg Mason.
2 Mr. Kuethe's "Other Compensation" for 1997 consisted of $1,406 in paid
insurance premiums and $12,600 in directors' fees.
Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan,
employees of the Bank, including its chief executive officer, may receive the
right to purchase shares of the Company's Common Stock, at a per share price
equal to the greater of (a) 15% less than the market price for such shares on
the date of grant or exercise (whichever is lower) or (b) their book value as of
the end of the Company's fiscal year preceding the grant date. Options have been
awarded on the basis of five shares for every $1,000 of salary and bonus paid
during the preceding year although the plan leaves the amount of option awards
at the discretion of the board as long as the board applies uniform salary
guidelines. At December 31, 1997, there were 25,000 shares reserved for issuance
under the plan. The plan was suspended in 1996, and no options are currently
outstanding under the plan.
The options issued to Mr. Kuethe referenced in the first note to the
Summary Compensation Table were issued under the Director Stock Option Plan. Mr.
Kuethe neither received nor exercised any options in 1997. (Neither the Company
nor the Bank grants any stock appreciation rights.)
Pension Plan. The Bank maintains a defined benefit pension plan for
substantially all employees pursuant to which benefits are based on the
employee's average rate of earnings and years of service. Vesting occurs after
six months of employment but benefits are reduced for job termination within ten
years of employment and for early
32
<PAGE>
retirement. A participant's pension is based on the average amount of his annual
earnings for his five most highly paid consecutive years during the ten years
immediately preceding his retirement. His pension is determined by multiplying
2% of the "covered" portion of this amount and .65% of any additional portion by
the lesser of the number of his years of service or 20. The "covered" portion is
his social security taxable wage basis taken over a period of up to 35 years.
The following table shows the estimated annual benefits payable upon retirement
in specified compensation and years of service classifications based on the
assumption that the "covered" portion equals $65,400 (the current maximum salary
subject to social security tax) for all employees receiving more than such
amount and that the highest salary payable is $100,000 per annum. Currently, no
employee earns this much and the Bank does not anticipate that any employee will
in the foreseeable future.
Years of Service
--------------------------------------------
Remuneration 5 10 15 20
------------ ------ ------ ------- -------
$40,000 $4,000 $8,000 $12,000 $16,000
60,000 6,000 12,000 18,000 24,000
80,000 7,015 14,029 21,044 28,058
100,000 7,665 15,329 22,994 30,658
The total compensation covered by the pension plan for the year ended
December 31, 1997 was $3,429,879. 1.91% of the covered compensation represents
compensation paid to F. William Kuethe, Jr. His credited years of service is
three years.
Benefits under the pension plan are not subject to deduction for
social security payments or other offsets.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table provides information as of February 6, 1998
concerning ownership of the Company's Common Stock (which constitutes its only
class of equity securities) by any individual or group known to the Company to
be the beneficial owner of more than 5% of its Common Stock, each of its
directors, the individual listed in the Summary Compensation Table included
above and all executive officers and directors as a group. Each person listed
has sole voting and sole investment power with respect to the shares listed
across from his name except as noted otherwise.
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial Ownership Percent of Class
- ---- ----------------------- ----------------
<S> <C> <C>
John E. Demyan 1 94,333 2 8.63%
F. William Kuethe, Jr. 3 74,337 4 6.81%
Theodore L. Bertier 8,011 5 *
Shirley Boyer 5,455 6 *
Thomas Clocker 3,427 7 *
Alan E. Hahn 5,454 8 *
Charles L. Hein 45,444 9 4.16%
Frederick W. Kuethe, III 12,329 10 1.13%
Eugene P. Nepa 49,957 4.57%
William N. Scherer, Sr. 3,007 11 *
Karen B. Thorwarth 619 *
Mary Lou Wilcox 391 *
All directors and executive officers as a group 303,588 27.78%
Ethel Webster 12 207,111 18.95%
</TABLE>
(Footnotes on following page)
<PAGE>
* Less than 1.0% of shares outstanding.
1 Mr. Demyan's address is 101 Crain Highway, S.E., Glen Burnie, Maryland
21061.
2 Includes 90,466 shares as to which he shares voting and investment power and
3,743 shares held by his spouse as to which he disclaims beneficial
ownership.
3 Mr. Kuethe's address is 101 Crain Highway, S.E., Glen Burnie, Maryland
21061.
4 Includes 39,065 shares as to which he shares voting and investment power and
19, 670 shares held by his spouse as to which he disclaims beneficial
ownership.
5 Includes 248 shares as to which he shares voting and investment power and
591 shares beneficially owned by his spouse as to which he disclaims
beneficial ownership.
6 Includes 4,916 shares as to which she shares voting and investment power.
7 Includes 2,967 shares as to which he shares voting power and investment
power.
8 Includes 2,285 shares to which he shares voting and investment power.
9 Includes 29,079 shares as to which he shares voting and investment power and
16,303 shares held by his spouse as to which he disclaims beneficial
ownership.
10 Includes 7,863 shares as to which he shares voting and investment power and
2,172 shares held by his spouse as to which he disclaims beneficial
ownership.
11 Includes 2,930 shares as to which he shares voting and investment power.
12 Mrs. Webster's address is 104 W. Pasadena Road, Pasadena, Maryland. A
statement on Schedule 13D has been filed with the Securities and Exchange
Commission stating that First Mariner Bancorp ("First Mariner"), a bank
holding company headquartered in Baltimore, Maryland, has entered into an
agreement to acquire substantially all the shares of Common Stock owned by
Ethel Webster at an aggregate purchase price equal to $4.5 million. Upon
consummation of this purchase, First Mariner would beneficially own
approximately 19.5% of the outstanding Common Stock.
Item 13. Certain Relationships and Related Transactions
The executive officers and directors of the Bank, and their
affiliates, enter into loan transactions with the Bank in the ordinary course of
business. Loans are made to such persons on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable loans with
unrelated borrowers and the Bank does not believe that they involve more than
the normal risk of collectibility or present other unfavorable features. At
December 31, 1997, 1996 and 1995, the outstanding amounts of such loans were
$1,270,382, $2,587,122 and $2,878,742, respectively. Loans to directors and
executive officers declined during 1997 after certain directors serving during
1996 and 1995 were not re-elected to the Board of Directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Documents Filed as Part of this Report
(1) Financial Statements. The following is a list of the consolidated
financial statements which are being filed as part of this Annual Report on Form
10-K.
Page
----
Independent Auditors' Reports F-1
Consolidated Balance Sheets as of December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Income for the Years Ended December 31,
1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
34
<PAGE>
(2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the required information is included in the consolidated
financial statements and related notes thereto.
(3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.
No. Description
--- -----------
3.1 Articles of Incorporation. Incorporated herein by reference to
Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995, SEC File Number 33-62278 (the
"1995 Form 10-K")
3.2 By-Laws. Incorporated herein by reference to Exhibit 3.2 to the
1995 Form 10-K
4.1 Rights Agreement, dated as of February 13, 1998, between Glen
Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent.
Incorporated by reference herein by reference from Exhibit 4 to
Registrant's Current Report on Form 8-K filed March 2, 1998
10.1 Glen Burnie Bancorp Stockholder Purchase Plan. Incorporated herein
by reference from Exhibit 10.1 to Registrant's Registration
Statement on Form S-1 (Commission File No. 333-37073) (the "Form
S-1")
10.2 Glen Burnie Bancorp Dividend Reinvestment and Stock Purchase Plan.
Incorporated herein by reference to Exhibit 10.2 to the Form S-1
10.3 Glen Burnie Bancorp Director Stock Purchase Plan. Incorporated
herein by reference to Exhibit 10.3 to the 1995 Form 10-K
10.4 The Bank of Glen Burnie Employee Stock Purchase Plan. Incorporated
herein by reference Exhibit 10.4 to Amendment No. 1 to the 1995
Form 10-K
10.5 The Bank of Glen Burnie Pension Plan. Incorporated herein by
reference to Exhibit 10.5 to the 1995 Form 10-K
10.6* Employment Agreement with Michael P. Gavin
10.7* Change-in-Control Severance Plan
16 Letter re: change in certifying public accountant. Incorporated
herein by reference to Exhibit 16 to the 1995 Form 10-K
21 Subsidiaries of the registrant. Incorporated herein by reference
to Exhibit 21 to the 1995 Form 10-K
23.1 Consent of Trice & Geary LLC
23.2 Consent of Rowles & Company, LLP
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule
- ---------------
* Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K. During the quarter ended December 31,
1997, the Company did not file a current report on Form 8-K.
(c) Exhibits. The exhibits required by Item 601 of Regulation S-K
are either filed as part of this Annual Report on Form 10-K or incorporated by
reference herein.
(d) Financial Statements and Schedules Excluded from Annual
Report. There are no other financial statements and financial statement
schedules which were excluded from the Annual Report to Stockholders pursuant to
Rule 14a-3(b)(1) which are required to be included herein.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland
We have audited the accompanying consolidated balance sheets of Glen Burnie
Bancorp and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
consolidated financial statements of Glen Burnie Bancorp and Subsidiaries as of
December 31, 1995 were audited by other auditors whose report dated March 8,
1996 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Glen Burnie Bancorp and subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, the Company
changed its method of accounting for post-retirement health care benefits in
1995.
/s/ Trice & Geary LLC
Salisbury, Maryland
February 4, 1998, except for Note 19
as to which the date is February 11, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and
Stockholders
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland
We have audited the accompanying consolidated balance sheet of Glen
Burnie Bancorp and Subsidiaries as of December 13, 1995 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Glen Burnie Bancorp and Subsidiaries as of December 31, 1995, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, the Company
changed its method of accounting for postretirement health care benefits in
1995.
/s/ ROWLES & COMPANY, LLP
Baltimore, Maryland
March 8, 1996
F-2
<PAGE>
Glen Burnie Bancorp Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 8,127,732 $ 10,665,680 $ 7,992,328
Interest bearing deposits in other financial institutions 1,558,879 1,836,981 1,457,693
Federal funds sold 18,850,000 10,175,000 -
---------------- ---------------- ----------------
Cash and cash equivalents 28,536,611 22,677,661 9,450,021
Investment securities available for sale, at fair value 40,678,867 54,906,836 68,597,172
Investment securities held to maturity (fair value
1997 $41,566,019; 1996 $41,998,402; 1995 $6,092,901) 41,178,804 41,667,057 6,001,675
Ground rents, at cost 262,525 267,974 269,825
Loans, less allowance for credit losses
1997 $4,139,396; 1996 $5,060,592; 1995 $3,698,271 111,545,262 124,672,414 150,471,768
Premises and equipment, at cost, less
accumulated depreciation 4,319,423 4,154,465 4,248,830
Accrued interest receivable 1,556,971 1,937,928 2,154,599
Prepaid income taxes 636,318 1,055,974 3,164,915
Deferred income tax benefits 1,385,395 1,380,966 263,860
Other real estate owned 748,231 602,285 432,926
Other assets 1,051,187 1,001,141 1,109,145
------------------ ------------------ ------------------
Total assets $ 231,899,594 $ 254,324,701 $ 246,164,736
================== ================== ==================
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Non-interest-bearing demand $ 47,651,375 $ 49,412,930 $ 45,147,023
Interest-bearing 159,458,897 183,333,045 175,973,740
------------------ ------------------ ------------------
Total deposits 207,110,272 232,745,975 221,120,763
Short-term borrowings 889,398 547,937 1,757,722
Dividends payable 81,146 44,193 218,208
Accrued interest payable on deposits 177,922 214,977 229,715
Other liabilities 4,676,266 2,185,249 2,300,942
------------------ ------------------ ------------------
Total liabilities 212,935,004 235,738,331 225,627,350
------------------ ------------------ ------------------
Commitments, contingencies, and subsequent events
Stockholders' equity:
Common stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1997 1,092,768 shares;
1996 883,858; 1995 872,838 shares 10,927,688 8,838,588 8,728,383
Surplus 6,575,053 6,192,900 5,917,043
Retained earnings 1,236,917 3,290,077 5,146,724
Net unrealized appreciation on securities
available for sale, net of income taxes 224,932 264,805 745,236
------------------ ------------------ ------------------
Total stockholders' equity 18,964,590 18,586,370 20,537,386
------------------ ------------------ ------------------
Total liabilities and stockholders' equity $ 231,899,594 $ 254,324,701 $ 246,164,736
================== ================== ==================
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
F-3
<PAGE>
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income on
Loans, including fees $ 10,845,819 $ 13,081,364 $ 14,475,876
U.S. Treasury securities 662,237 822,215 987,119
U.S. Government agency securities 4,551,441 2,846,357 1,599,850
State and municipal securities 978,892 1,517,827 1,261,886
Federal funds sold 301,614 261,423 138,678
Other 136,534 116,708 137,296
------------------- ------------------- -------------------
Total interest income 17,476,537 18,645,894 18,600,705
------------------- ------------------- -------------------
Interest expense on
Deposits 6,840,952 7,711,989 7,172,845
Short-term borrowings 68,374 49,652 88,723
------------------- ------------------- -------------------
Total interest expense 6,909,326 7,761,641 7,261,568
------------------- ------------------- -------------------
Net interest income 10,567,211 10,884,253 11,339,137
Provision for credit losses 270,000 6,596,000 7,925,000
------------------- ------------------- -------------------
Net interest income after
provision for credit losses 10,297,211 4,288,253 3,414,137
------------------- ------------------- -------------------
Other income
Service charges on deposit accounts 945,613 1,042,355 948,021
Other fees and commissions 511,292 483,537 449,567
Gains on investment securities 270,909 144,565 506,695
Proceeds from insurance settlement - 560,000 -
------------------- ------------------- -------------------
Total other income 1,727,814 2,230,457 1,904,283
------------------- ------------------- -------------------
Other expenses
Salaries and wages 3,712,206 3,346,927 2,954,742
Employee benefits 1,547,888 1,288,037 1,182,490
Occupancy 482,160 528,528 465,732
Furniture and equipment 781,664 739,115 741,602
Restructuring and litigation charges 996,161 - 1,407,641
Other expenses 4,072,983 3,116,472 1,987,405
------------------- ------------------- -------------------
Total other expenses 11,593,062 9,019,079 8,739,612
------------------- ------------------- -------------------
Income (loss) before income taxes 431,963 (2,500,369) (3,421,192)
Federal and state income tax benefits (315,284) (1,480,192) (1,694,444)
------------------- ------------------- -------------------
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
=================== =================== ===================
Basic earnings (loss) per share of common stock $ 0.68 $ (0.94) $ (1.62)
=================== =================== ===================
Basic weighted-average shares of common stock outstanding 1,092,768 1,089,495 1,064,650
=================== =================== ===================
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
F-4
<PAGE>
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
on
Securities
Common Stock Retained Available
Shares Par Value Surplus Earnings for Sale
------------- -------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 708,083 $ 7,080,834 $ 5,450,852 $ 9,154,546 $ (9,199)
Net loss - - - (1,726,748) -
Stock split effected in form of 20%
stock dividend 145,472 1,454,719 - (1,454,719) -
Shares issued under employee and
director stock purchase plans 8,488 84,880 191,174 - -
Cash dividends, $.78 per share - - - (826,355) -
Dividends reinvested 10,795 107,950 275,017 - -
Net change in unrealized appreciation
on securities available for sale - - - - 754,435
------------- -------------- ------------ ------------ ------------
Balances, December 31, 1995 872,838 8,728,383 5,917,043 5,146,724 745,236
Net loss - - - (1,020,177) -
Shares issued under employee and
director stock purchase plans 200 2,000 3,384 - -
Cash dividends, $.77 per share - - - (836,470) -
Dividends reinvested 10,820 108,205 272,473 - -
Net change in unrealized appreciation
on securities available for sale - - - - (480,431)
------------- -------------- ------------ ------------ ------------
Balances, December 31, 1996 883,858 8,838,588 6,192,900 3,290,077 264,805
------------- -------------- ------------ ------------ ------------
Net income - - - 747,247 -
Shares issued with stock dividends 26,782 267,820 382,153 (649,971) -
Stock split effected in form of 20%
stock dividend 182,128 1,821,280 - (1,821,280) -
Cash dividends, $.30 per share - - - (329,156) -
Net change in unrealized appreciation
on securities available for sale - - - - (39,873)
------------- -------------- ------------ ------------ ------------
Balances, December 31, 1997 1,092,768 $ 10,927,688 $ 6,575,053 $ 1,236,917 $ 224,932
============= ============== ============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
F-5
<PAGE>
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation, amortization, and accretion 664,428 606,650 564,533
Provision for credit losses 270,000 6,596,000 7,925,000
Losses on real estate owned 64,214 13,192 136,800
Deferred income taxes (benefits) 20,659 (814,821) 40,272
Gains on disposal of assets, net (241,183) (144,318) (509,982)
Changes in assets and liabilities:
Decrease in accrued interest receivable 380,957 216,671 82,204
(Increase) decrease in prepaid income taxes and
other assets 251,382 2,108,195 (2,943,020)
Increase (decrease) in accrued interest payable (37,055) (14,738) 42,892
Increase (decrease) in other liabilities (1,031,483) (115,693) 266,301
------------------ --------------- -----------------
Net cash provided by operating activities 1,089,166 7,430,961 3,878,252
------------------ --------------- -----------------
Cash flows from investing activities:
Proceeds from disposals of investment securities:
Maturities of held to maturity investment securities 23,405,000 4,984,661 10,266,038
Maturities of available for sale mortgage-backed securities 1,780,092 451,504 -
Maturities of other available for sale investment securities 7,785,900 8,557,219 500,000
Sales of available for sale mortgage-backed securities - 698,566 -
Sales of other available for sale investment securities 19,095,130 10,103,956 20,109,830
Purchases of held to maturity investment securities (16,314,976) (40,650,194) (493,391)
Purchases of available for sale mortgage-backed securities (16,126,491) - (1,478,140)
Purchases of other available for sale investment securities (1,188,100) (6,711,564) (39,555,213)
(Increase) decrease in loans, net 17,457,529 19,203,353 (4,794,585)
Purchases of loans from other financial institutions (4,779,164) - -
Proceeds from sales of other real estate 420,577 - 588,747
Purchases of other real estate (451,950) (182,551) -
Purchases of premises and equipment (727,320) (449,275) (600,331)
Purchase of intangibles - - (544,652)
------------------ --------------- -----------------
Net cash provided (used) in investing activities 30,356,227 (3,994,325) (16,001,697)
------------------ --------------- -----------------
Cash flows from financing activities:
Increase (decrease) in noninterest-bearing deposits, NOW
accounts, money market accounts, and savings accounts, net (15,436,924) 4,817,350 (7,273,424)
Increase (decrease) in time deposits, net (10,198,779) 6,807,862 19,828,533
Increase (decrease) in short-term borrowings 341,461 (1,209,785) (468,846)
Cash dividends paid (292,201) (1,010,485) (778,134)
Common stock dividends reinvested - 380,678 382,967
Issuance of common stock - 5,384 276,054
------------------ --------------- -----------------
Net cash provided (used) by financing activities (25,586,443) 9,791,004 11,967,150
------------------ --------------- -----------------
Increase (decrease) in cash and cash equivalents 5,858,950 13,227,640 (156,295)
Cash and cash equivalents, beginning of year 22,677,661 9,450,021 9,606,316
------------------ --------------- -----------------
Cash and cash equivalents, end of year $ 28,536,611 $ 22,677,661 $ 9,450,021
================== =============== =================
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6
<PAGE>
Glen Burnie Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplementary Cash Flow Information:
Interest paid $ 6,946,381 $ 7,776,379 $ 7,218,676
Income taxes (refunded) paid (755,597) (1,718,184) 1,152,564
Total increase (decrease) in unrealized appreciation
(depreciation) on securities available for sale (64,961) (782,715) 1,229,122
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
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. The accounting policies of the Bank conform to
generally accepted accounting principles and to general practices
within the banking industry.
Significant accounting policies not disclosed elsewhere in the
consolidated financial statements are as follows:
Principles of Consolidation:
The consolidated financial statements include the accounts of Glen
Burnie Bancorp (the Company) and its subsidiaries, The Bank of Glen
Burnie (the Bank) and GBB Properties, Inc., a company engaged in the
acquisition and disposition of other real estate. Intercompany balances
and transactions have been eliminated. The Parent Only financial
statements of the Company account for the subsidiaries using the equity
method of accounting.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Securities Held to Maturity:
Bonds, notes and debentures for which the Bank has the positive intent
and ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income using the
straight-line method over the period to maturity. Securities
transferred into held to maturity from the available for sale portfolio
are recorded at fair value at time of transfer with unrealized gains or
losses reflected in equity and amortized over the remaining life of the
security.
Securities Available for Sale:
Marketable debt and equity securities not classified as held to
maturity are classified as available for sale. Securities available for
sale may be sold in response to changes in interest rates, loan demand,
changes in prepayment risk and other factors. Securities available for
sale are carried at fair value, with unrealized gains or losses based
on the difference between amortized cost and fair value reported as a
separate component of stockholders' equity, net of deferred tax.
Realized gains and losses, using the specific identification method,
are included as a separate component of non-interest income. Premiums
and discounts are recognized in interest income using the straight-line
method over the period to maturity. Additionally, declines in the fair
value of individual investment securities below their cost that are
other than temporary are reflected as realized losses in the
consolidated statements of income.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (continued)
Loans and Allowance for Credit Losses:
On January 1, 1995, the Bank adopted Statement on Financial Accounting
Standards (SFAS) Statement No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS Statement No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Statement No. 114, as amended, requires that the
measurement of a loan's impairment be based on the present value of the
loan's expected future cash flows or, alternatively, the observable
market price of the loan or the fair value of the collateral. The
effect of adopting Statement No. 114 was not material.
Loans are carried at the amount of unpaid principal, adjusted for
deferred loan fees, which are amortized over the term of the loan using
the interest method. Interest on loans is accrued based on the
principal amounts outstanding. It is the Bank's policy to discontinue
the accrual of interest when a loan is specifically determined to be
impaired or when principal or interest is delinquent for ninety days or
more. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Interest income generally is not recognized on
specific impaired loans unless the likelihood of further loss is
remote. Cash collections on such loans are applied as reductions of the
loan principal balance and no interest income is recognized on those
loans until the principal balance has been collected. Interest income
on other nonaccrual loans is recognized only to the extent of interest
payments received.
The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the
allowance for credit losses when management believes that the
collectibility of the principal is unlikely. The allowance, based on
evaluations of the collectibility of loans and prior loan loss
experience, is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible.
The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and
trends that may affect the borrower's ability to pay.
While management believes it has established the allowance for credit
losses in accordance with generally accepted accounting principles and
has taken into account the views of its regulators and the current
economic environment, there can be no assurance that in the future the
Bank's regulators or its economic environment will not require further
increases in the allowance.
Other Real Estate Owned (OREO):
OREO comprises residential properties acquired in partial or total
satisfaction of problem loans. The properties are recorded at the lower
of cost or fair value (appraised value) at the date acquired. Losses
arising at the time of acquisition of such properties are charged
against the allowance for credit losses. Subsequent write-downs that
may be required and expenses of operation are included in non-interest
expense. Gains and losses realized from the sale of OREO are included
in non-interest income or expense.
Bank Premises and Equipment:
Bank premises and equipment are stated as cost less accumulated
depreciation. The provision for depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the lesser of the terms of
the leases or their estimated useful lives. Expenditures for
improvements which extend the life of an asset are capitalized and
depreciated over the asset's remaining useful life. Gains or losses
realized on the disposition of properties and equipment are reflected
in the consolidated statements of income. Expenditures for repairs and
maintenance are charged to operating expenses as incurred.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (continued)
Intangible Assets:
Cost incurred related to goodwill represents the excess of the cost of
companies acquired over the fair value of their net assets at dates of
acquisition and is being amortized on the straight-line method over 10
years. Computer software is recorded at cost, and amortized over three
to five years.
Income Taxes:
The provision for Federal and State income taxes is based upon the
results of operations, adjusted for tax-exempt income. Deferred income
taxes are provided by applying enacted statutory tax rates to temporary
differences between financial and taxable income.
Temporary differences which give rise to deferred tax assets relate
principally to the allowance for credit losses, unearned income on
loans, other real estate owned, accrued compensation benefits, and
expense and tax credit carryovers.
Temporary differences which give rise to deferred tax liabilities
relate principally to accumulated depreciation, accretion of discount
on investment securities, and prepaid pension expense.
Credit Risk:
The Bank has deposits in other financial institutions in excess of
amounts insured by the Federal Deposit Insurance Corporation. The Bank
had deposits and Federal funds sold of approximately $24,400,000 with
one financial institution as of December 31,1997.
Cash and Cash Equivalents:
The Bank has included cash and due from banks, interest bearing
deposits in other financial institutions, and Federal funds sold as
cash and cash equivalents for the purpose of reporting cash flows.
Net Income Per Share:
The Bank is considered to have a simple capital structure, and net
income per share of common stock has been computed based on the
weighted-average shares of common stock outstanding, giving retroactive
effect to stock splits and stock dividends declared.
Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
Note 2. Restrictions on Cash and Due from Banks
The Federal Reserve Board requires the Bank to maintain
noninterest-bearing cash reserves against certain categories of average
deposit liabilities. Such reserves averaged approximately $2,464,000
and $2,200,000 during the years ended December 31, 1997 and 1996,
respectively.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
----------------- --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 4,081,080 $ 58,197 $ 1,183 $ 4,138,094
U.S. Government agency 12,141,760 66,145 42,385 12,165,520
State and municipal 6,959,106 311,471 2,251 7,268,326
Mortgage-backed 16,194,063 26,140 49,676 16,170,527
--------------- ------------ ------------ ---------------
39,376,009 461,953 95,495 39,742,467
Federal Home Loan Bank stock 936,400 - - 936,400
--------------- ------------ ------------ ---------------
$ 40,312,409 $ 461,953 $ 95,495 $ 40,678,867
=============== ============ ============ ===============
Held to maturity
U.S. Treasury $ 4,986,658 $ 69,633 $ 3,651 $ 5,052,640
U.S. Government agency 35,077,853 277,037 24,452 35,330,438
State and municipal 1,114,293 68,648 - 1,182,941
--------------- ------------ ------------ ---------------
$ 41,178,804 $ 415,318 $ 28,103 $ 41,566,019
=============== ============ ============ ===============
December 31, 1996
-----------------
Available for sale
U.S. Treasury $ 6,575,244 $ 54,518 $ 7,793 $ 6,621,969
U.S. Government agency 20,625,552 43,627 199,626 20,469,553
State and municipal 24,612,517 568,919 26,908 25,154,528
Mortgage-backed 1,913,804 24,355 25,673 1,912,486
--------------- ------------ ------------ ---------------
53,727,117 691,419 260,000 54,158,536
Federal Home Loan Bank stock 748,300 - - 748,300
--------------- ------------ ------------ ---------------
$ 54,475,417 $ 691,419 $ 260,000 $ 54,906,836
=============== ============ ============ ===============
Held to maturity
U.S. Treasury $ 6,485,244 $ 59,711 $ 19,992 $ 6,524,963
U.S. Government agency 34,067,907 270,302 23,166 34,315,043
State and municipal 1,113,906 44,490 - 1,158,396
--------------- ------------ ------------ ---------------
$ 41,667,057 $ 374,503 $ 43,158 $ 41,998,402
=============== ============ ============ ===============
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities (continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 10,067,337 $ 142,506 $ 7,845 $ 10,201,998
U.S. Government agency 26,187,078 287,223 3,601 26,470,700
State and municipal 27,379,975 732,408 29,076 28,083,307
Mortgage-backed 3,049,947 92,520 - 3,142,467
-------------- --------------- -------------- ---------------
66,684,337 1,254,657 40,522 67,898,472
Federal Home Loan Bank stock 698,700 - - 698,700
-------------- --------------- -------------- ---------------
$ 67,383,037 $ 1,254,657 $ 40,522 $ 68,597,172
============== =============== ============== ===============
Held to maturity
U.S. Treasury $ 5,003,789 $ 84,106 $ 3,750 $ 5,084,145
U.S. Government agency 997,886 10,870 - 1,008,756
-------------- --------------- -------------- ---------------
$ 6,001,675 $ 94,976 $ 3,750 $ 6,092,901
============== =============== ============== ===============
</TABLE>
In 1995, the FASB granted a one-time opportunity to reclassify
securities. The Bank reclassified securities with amortized cost
approximating $41.2 million and net unrealized gains approximating $1.2
million from held to maturity to available for sale.
Contractual maturities of investment securities at December 31, 1997,
1996, and 1995 are shown below. Actual maturities may differ from
contractual maturities because debtors may have the right to call or
prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities have no stated maturity and primarily
reflect investments in various Pass-through and Participation
Certificates issued by the Federal National Mortgage Association and
the Government National Mortgage Association. Repayment of
mortgage-backed securities is affected by the contractual repayment
terms of the underlying mortgages collateralizing these obligations and
the current level of interest rates.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1997 Cost Value Cost Value
----------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Due within one year $ 1,615,229 $ 1,617,252 $ 1,000,000 $ 999,060
Due over one to five years 9,164,702 9,335,742 18,176,856 18,333,563
Due over five to ten years 6,735,960 6,946,219 15,888,529 16,046,560
Due over ten years 5,666,062 5,672,733 6,113,419 6,186,836
Mortgage-backed, due in monthly
installments 16,194,056 16,170,521 - -
------------- -------------- ------------- --------------
$ 39,376,009 $ 39,742,467 $ 41,178,804 $ 41,566,019
============= ============== ============= ==============
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities (continued)
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1996 Cost Value Cost Value
----------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Due within one year $ 2,728,910 $ 2,733,114 $ 1,500,791 $ 1,506,090
Due over one to five years 10,870,162 10,969,608 19,969,083 20,087,636
Due over five to ten years 12,578,991 12,838,012 15,113,223 15,265,730
Due over ten years 25,635,252 25,705,658 5,083,960 5,138,946
Mortgage-backed, due in monthly
installments 1,913,802 1,912,144 - -
------------- ------------- ------------- --------------
$ 53,727,117 $ 54,158,536 $ 41,667,057 $ 41,998,402
============= ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1995 Cost Value Cost Value
----------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Due within one year $ 6,239,463 $ 6,272,876 $ - $ -
Due over one to five years 16,130,873 16,449,969 5,258,197 5,328,052
Due over five to ten years 15,308,097 15,747,636 743,478 764,849
Due over ten years 25,955,957 26,285,524 - -
Mortgage-backed, due in monthly
installments 3,049,947 3,142,467 - -
-------------- -------------- -------------- ---------------
$ 66,684,337 $ 67,898,472 $ 6,001,675 $ 6,092,901
============== ============== ============== ===============
</TABLE>
Proceeds from sales of securities available for sale prior to maturity
were $19,095,130, $10,103,956, and $20,109,830 for the years ended
December 31, 1997, 1996 and 1995, respectively. Gains of $297,749 and
losses of $26,840 were realized on those sales for 1997. Gains of
$154,119 and losses of $9,554, were realized on those sales for 1996.
Gains of $563,764 and losses of $72,482 were realized on those sales
for 1995. Income tax expense relating to net gains on sales of
investment securities was $104,570, $55,831, and $189,733 for the years
ended December 31, 1997, 1996, and 1995, respectively.
Securities with amortized costs of approximately $2,997,000,
$4,999,000, and $6,008,000 were pledged as collateral for short-term
borrowings and financial instruments with off-balance sheet risk at
December 31, 1997, 1996 and 1995 respectively.
Investment securities include obligations of the State of Maryland and
its subdivisions with an amortized cost of $8,073,399, $16,982,447, and
$18,839,735 at December 31, 1997, 1996, and 1995, respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans
Major categories of loans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------------
<S> <C> <C> <C>
Mortgage
Residential $ 38,048,174 $ 36,504,904 $ $38,142,356
Commercial 43,275,731 47,757,381 46,888,141
Construction and land development 4,888,634 5,514,565 14,264,761
Lease financing 3,285,439 7,537,563 13,241,832
Demand and time 6,678,218 9,557,470 13,123,542
Installment 20,259,198 23,714,889 29,382,484
--------------- --------------- ---------------
116,435,394 130,586,772 155,043,116
Unearned income on loans (750,736) (853,766) (873,077)
--------------- --------------- ---------------
115,684,658 129,733,006 154,170,039
Allowance for credit losses (4,139,396) (5,060,592) (3,698,271)
--------------- --------------- ---------------
$ 111,545,262 $ 124,672,414 $ 150,471,768
=============== =============== ===============
</TABLE>
In December 1997, the Bank purchased a pool of thirty year fixed rate
residential mortgage loans totaling $4,779,163 from a local financial
institution, with an average yield of 7.78%.
The Bank makes loans to customers located primarily in Anne Arundel
County and surrounding areas of Central Maryland. Although the loan
portfolio is diversified, its performance will be influenced by the
economy of the region.
Executive officers, directors, and their affiliated interests enter
into loan transactions with the Bank in the ordinary course of
business. These loans are made on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with unrelated borrowers. They do not involve more than normal
risk of collectibility or present other unfavorable terms. At December
31, 1997, 1996, and 1995, the amounts of such loans outstanding were
$1,270,382, $2,587,122, and $2,878,742, respectively. During 1997 loan
additions and repayments were $96,048 and $1,412,788, respectively.
The allowance for credit losses is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- -----------------
<S> <C> <C> <C>
Balance, beginning of year $ 5,060,592 $ 3,698,271 $ 2,763,874
Provision for credit losses 270,000 6,596,000 7,925,000
Recoveries 426,604 234,614 70,047
Loans charged off (1,617,800) (5,468,293) (7,060,650)
-------------- ------------- ----------------
Balance, end of year $ 4,139,396 $ 5,060,592 $ $3,698,271
============== ============= ================
</TABLE>
Loans on which the accrual of interest has been discontinued amounted
to $3,481,434, $4,545,581, and $2,374,643 at December 31, 1997, 1996,
and 1995, respectively. Interest that would have been accrued under the
terms of these loans was $307,950, 457,035, and $191,200 for the years
ended December 31, 1997, 1996, and 1995, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans (continued)
Information regarding loans classified by the Bank as impaired are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- -----------------
<S> <C> <C>
Loans classified as impaired $ 3,718,021 $ 5,953,621
Allowance for credit losses on impaired loans 718,787 1,232,366
Average balance of impaired loans 5,251,152 6,563,679
Following is a summary of cash receipts on impaired loans and how they
were applied:
Cash receipts applied to reduce principal balance $ 107,155 $ 194,535
Cash receipts recognized as interest income 97,948 182,795
--------------- -----------------
Total cash receipts $ 205,103 $ 377,330
=============== =================
</TABLE>
The Bank identified impaired loans of $497,597 as of December 31, 1995.
No specific allowance for credit losses related to impaired loans was
provided. These loans were identified as impaired near the end of 1995,
and no payments were received on these loans since they were classified
as impaired.
At December 31, 1997, the total recorded investment in troubled debt
restructurings amounted to $344,061. The average recorded investment in
troubled debt restructurings amounted to $346,540 for the year ended
December 31, 1997. The allowance for loan losses relating to troubled
debt restructurings amounted to $49,112 at December 31, 1997. Interest
income on troubled debt restructurings of $16,408 was recognized for
cash payments received in 1997.
The Bank has no commitments to loan additional funds to the borrowers
of restructured, impaired or non-accrual loans.
Note 5. Premises and Equipment
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
Useful
lives 1997 1996 1995
---------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Land $ 509,803 $ 509,803 $ 509,803
Buildings 5-50 years 3,710,425 3,713,427 3,494,122
Equipment and fixtures 5-30 years 3,865,902 3,640,241 3,430,771
Construction in progress 102,879 46,505 29,019
--------------- -------------- --------------
8,189,009 7,909,976 7,463,715
Accumulated depreciation (3,869,586) (3,755,511) (3,214,885)
--------------- -------------- --------------
$ 4,319,423 $ 4,154,465 $ 4,248,830
=============== ============== ==============
</TABLE>
Depreciation expense was $532,637, $543,393, and $533,197 for the years
ended December 31, 1997, 1996, and 1995, respectively. Amortization of
software and intangible assets was $123,676, $110,602 and $50,332 for
the years ended December 31, 1997, 1996, and 1995, respectively.
The Bank leases its South Crain Highway branch. Minimum obligations
under the lease are $23,460 per year until the lease expires in June
2000. The Bank is also required to pay maintenance costs. Total rent
expense was $32,153, $37,188 and $11,681 for the years ended December
31, 1997, 1996 and 1995, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Short-term borrowings
Short-term borrowings are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Notes payable - U.S. Treasury $ 889,398 $ 547,937 $ 282,722
Federal funds purchased - - 975,000
Securities sold under repurchase agreement - - 500,000
-------------- -------------- ---------------
$ 889,398 $ 547,937 $ 1,757,722
============== ============== ===============
</TABLE>
The Bank owns shares of common stock of the Federal Home Loan Bank of
Atlanta (FHLB). This investment was a condition for obtaining a $26
million credit facility with the FHLB. There were no borrowings
outstanding under this credit arrangement at December 31, 1997, 1996 or
1995. The credit facility is secured by a floating lien on the Bank's
residential mortgage loan portfolio and by investment securities with
amortized cost of $1,000,056 at December 31, 1997.
Notes payable to the U.S. Treasury are Federal treasury tax and loan
deposits accepted by the Bank from its customers to be remitted on
demand to the Federal Reserve Bank. The Bank pays interest on these
balancesat a slight discount to the Federal funds rate. The note
payable is secured by investment securities with an amortized cost of
approximately $997,205 at December 31, 1997.
The Bank also has available $5,000,000 in short-term secured credit and
a $1,000,000 letter of credit facility from another bank for short term
liquidity needs, if necessary. There were no borrowings outstanding at
December 31, 1997, 1996 or 1995 under these credit lines.
Note 7. Deposits
Major classifications of interest-bearing deposits are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
NOW and SuperNOW $ 20,581,703 $ 22,792,376 $ 22,289,849
Money Market 19,876,925 26,210,655 27,602,041
Savings 43,062,001 48,192,967 46,752,665
Certificates of Deposit, $100,000 or more 7,464,313 8,620,096 9,844,841
Other time deposits 68,473,955 77,516,951 69,484,344
---------------- --------------- ----------------
$ 159,458,897 $ 183,333,045 $ 175,973,740
================ =============== ================
</TABLE>
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
NOW and SuperNOW $ 462,395 $ 599,089 $ 639,800
Money Market 622,464 818,240 928,634
Savings 1,233,294 1,475,426 1,546,980
Certificates of Deposit, $100,000 or more 634,467 484,267 394,092
Other time deposits 3,888,332 4,334,967 3,663,339
---------------- --------------- ----------------
$ 6,840,952 $ 7,711,989 $ 7,172,845
================ =============== ================
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Deposits (continued)
At December 31, 1997, the scheduled maturities of time deposits are
approximately as follows:
1997
---------------
1998 $ 46,854,000
1999 13,812,000
2000 9,699,000
2001 3,525,000
2002 and thereafter 2,048,000
---------------
$ 75,938,000
===============
Deposit balances of executive officers and directors and their
affiliated interests totaled approximately $485,000 and $1,067,000 at
December 31, 1997 and 1996, respectively.
The Bank had no brokered deposits as of and for the years ended
December 31, 1997, 1996, and 1995.
Note 8. Income Taxes
The components of income tax benefits for the years ended December 31,
1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Current
Federal $ (242,640) $ (936,608) $ $(1,494,542)
State (335,725) (266,880) (240,172)
------------ ------------ -------------
(578,365) (1,203,488) (1,734,714)
Deferred 263,081 (276,704) 40,270
------------ ------------ -------------
$ (315,284) $ (1,480,192) $ (1,694,444)
Income tax benefits ============ ============ =============
</TABLE>
A reconciliation of income tax benefits computed at the statutory rate
of 34 percent to the actual income tax expense for the years ended
December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Income (loss) before income taxes $ 431,963 $ (2,500,369) $ (3,421,192)
================ =============== ================
Taxes computed at Federal income tax rate $ 146,867 $ (850,125) $ (1,163,205)
Increase (decrease) resulting from
Tax-exempt income (324,360) (541,681) (384,915)
State income taxes, net of Federal income tax benefit (114,147) (90,739) (154,710)
Other (23,644) 2,353 8,386
---------------- --------------- ----------------
Income tax benefits $ (315,284) $ (1,480,192) $ (1,694,444)
================ =============== ================
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Income Taxes (continued)
Sources of deferred income taxes and the tax effects of each for the
years ended December 31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Depreciation $ (23,201) $ (30,990) $ (5,786)
Securities discount accretion 4,280 9,380 (7,465)
Provision for credit losses 295,799 (241,077) 149,670
Unearned income on loans 31,469 106,816 (16,343)
Deferred compensation and benefit plans (61,589) (56,096) (79,806)
Charitable contributions (9,971) (35,987) -
Write-downs on other real estate owned 25,736 (28,192) -
Other 558 (558) -
-------------- -------------- ---------------
Deferred income tax expense (benefits) $ 263,081 $ (276,704) $ 40,270
============== ============== ===============
</TABLE>
The components of the net deferred income tax benefits as of December
31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Deferred income tax benefits:
Allowance for credit losses $ 782,660 $ 1,078,459 $ 837,381
Unearned income on loans - 31,469 138,285
Deferred compensation and benefit plans 179,869 122,116 87,543
Other real estate owned 2,456 28,192 -
Charitable contributions 45,958 35,987 -
Alternative minimum tax credits 780,539 538,117 -
Other - 558 -
-------------- -------------- ---------------
Total deferred income tax benefits 1,791,482 1,834,898 1,063,209
-------------- -------------- ---------------
Deferred income tax liabilities:
Accumulated depreciation 191,010 214,211 245,201
Securities discount accretion 39,030 34,750 25,370
Prepaid pension contributions 34,521 38,357 59,879
Net unrealized appreciation on investment
securities available for sale 141,526 166,614 468,899
-------------- -------------- ---------------
Total deferred income tax liabilities 406,087 453,932 799,349
-------------- -------------- ---------------
Net deferred income tax benefits $ 1,385,395 $ 1,380,966 $ 263,860
============== ============== ===============
</TABLE>
Note 9. Pension and Profit Sharing Plans
The Bank has a defined benefit pension plan covering substantially all
of its employees. Benefits are based on the employee's average rate of
earnings for the five consecutive years before retirement. The Bank's
funding policy is to contribute annually an amount between the minimum
and maximum actuarially determined contribution, using the frozen entry
age actuarial cost method. Assets of the plan are held in a trust fund
principally comprised of growth and income mutual funds managed by
another bank.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Pension and Profit Sharing Plans (continued)
The following table sets forth the financial status of the plan at
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Accumulated benefit obligation
Vested $ 2,671,233 $ 2,244,790 $ 2,183,088
Nonvested 119,829 28,066 63,366
------------- ------------- -------------
$ 2,791,062 $ 2,525,451 $ 2,246,454
============= ============= =============
$ 4,670,182 $ 3,720,145 $ 3,399,653
Plan assets at fair value
Projected benefit obligation (4,124,137) (3,804,330) (3,365,078)
------------- ------------- -------------
Plan assets in excess of (less than)
projected benefit obligation 546,045 (84,185) 34,575
Unrecognized prior service cost 148,730 174,327 199,924
Unrecognized net (gain) loss (556,714) 70,020 (6,440)
Unrecognized net asset from transition (48,674) (60,843) (73,012)
------------- ------------- -------------
$ 89,387 $ 99,319 $ 155,047
Prepaid pension expenses included in other assets ============= ============= =============
Net pension expense includes the following
Service cost $ 218,504 $ 208,566 $ 177,998
Interest cost 311,064 286,590 256,958
Actual return on assets (865,268) (284,900) (577,586)
Net amortization and deferral 568,715 15,472 364,911
------------- ------------- -------------
Net pension expense $ 233,015 $ 225,728 $ 222,281
============= ============= =============
</TABLE>
Assumptions used in the accounting for net pension expense were:
<TABLE>
<S> <C> <C> <C>
Discount rates 8.5% 8.5% 8.5%
Rate of increase in compensation levels 6.5% 6.5% 6.5%
Long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
The Bank also 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 Bank's contributions to the plan are determined
annually by the Board of Directors. The plan covers substantially all
employees. The Bank's contributions to the plan included in expense
were $83,500 and $165,100 for the years ended December 31, 1997 and
1995, respectively. No contributions were made for 1996.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Post-Retirement Health Care Benefits
The Bank provides health care benefits to employees who retire at age
65. The plan is funded only by the Bank's monthly payments of insurance
premiums due. The following table sets forth the financial status of
the plan at December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Accumulated post-retirement benefit obligation
Retirees $ 191,817 $ 229,258 $ 185,057
Other active participants, not fully eligible 482,529 648,414 482,922
-------------- -------------- ---------------
674,346 877,672 667,979
Unrecognized net gain 359,178 23,715 -
Unrecognized transition obligation (567,782) (601,181) (535,126)
-------------- -------------- ---------------
Accrued post-retirement benefit cost $ 465,742 $ 300,206 $ 132,853
============== ============== ===============
</TABLE>
Net post-retirement benefit expense for the years ended December 31,
1997, 1996 and 1995 includes the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Service cost $ 75,736 $ 71,381 $ 55,885
Interest cost 72,930 69,792 56,778
Amortization of unrecognized transition obligation 33,399 33,399 33,399
Amortization of net gain (1,669) - -
------------ ----------- ------------
Net post-retirement benefit expense $ 180,396 $ 174,572 $ 146,062
============ =========== ============
</TABLE>
Assumptions used in the accounting for net post-retirement benefit
expense were:
<TABLE>
<S> <C> <C> <C>
Health care cost trend rate 5.0% 8.0% 8.0%
Discount rate 7.0% 8.5% 8.5%
</TABLE>
Ifthe assumed health care cost trend rate were increased to 6.0% for
1997 and 9.0% for 1996 and 1995, the total of the service and interest
cost components of net periodic post-retirement health care benefit
cost would increase by $38,489, $36,816 and $28,808, for the years
ended December 31, 1997, 1996 and 1995, respectively, and the
accumulated post-retirement benefit obligation would increase by
$218,885, $211,388 and $161,117 as of December 31, 1997, 1996 and 1995,
respectively.
Prior to 1995 the Company recognized post-retirement health care
benefits expense as premiums were paid and did not recognize a
liability for accrued post-retirement benefits.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Other Operating Expenses
Other operating expenses include the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Professional services $ 1,995,049 $ 1,454,449 $ 329,849
Stationery, printing and supplies 275,020 218,397 278,366
Postage and delivery 270,976 271,050 253,253
FDIC assessment 92,456 33,595 237,565
Directors fees and expenses 168,061 196,622 133,202
Marketing 249,958 124,897 118,948
Data processing 135,326 129,449 97,608
Correspondent bank services 119,479 115,864 78,631
Telephone 69,873 59,808 49,021
Liability insurance 89,146 71,015 45,075
Losses and expenses on real estate owned (OREO) 143,045 45,445 23,733
Other 464,594 395,881 342,154
-------------- -------------- ---------------
$ 4,072,983 $ 3,116,472 $ 1,987,405
============== ============== ===============
</TABLE>
Note 12. Litigation and Restructuring Charges
In 1997, the Company incurred losses of $996,161 relating to two claims
involving fraudulent check endorsement issues. These nonrecurring
charges are included in operating expenses for 1997.
In 1995, two opposing groups ran for election to the Board of
Directors. The Company incurred legal expenses and entered into a
severance agreement with a former executive officer in connection with
this restructuring at costs totaling $687,841. The Company also
incurred losses of $719,800 to settle the claim of a borrower who
asserted damages for discrimination. These nonrecurring charges are
also included in operating expenses for 1995.
Note 13. Commitments and contingencies
Financial instruments:
The Bank is a party to financial instruments in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of
credit, which involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated financial statements.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Commitments and contingencies (continued)
Outstanding loan commitments, unused lines of credit and letters of
credit are as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Loan commitments
Construction and land development $ 150,000 $ 1,865,000 $ 3,145,000
Other mortgage loans 330,500 185,000 703,000
Lease financing - - 395,000
-------------- -------------- ---------------
$ 480,500 $ 2,050,000 $ 4,243,000
============== ============== ===============
Unused lines of credit
Home-equity lines 2,629,589 2,944,867 2,678,990
Commercial lines 7,524,017 8,030,635 13,430,907
Unsecured consumer lines 799,826 3,434,501 2,419,052
-------------- -------------- ---------------
$ 10,953,432 $ 14,410,003 $ 18,528,949
============== ============== ===============
Letters of credit $ 2,221,173 $ 3,132,661 $ 4,297,760
============== ============== ===============
</TABLE>
Loan commitments and lines of credit are agreements to lend to
customers as long as there is no violation of any conditions of the
contracts. Loan commitments generally have interest rates fixed at
current market amounts, fixed expiration dates, and may require payment
of a fee. Lines of credit generally have variable interest rates. Many
of the loan commitments and lines of credit are expected to expire
without being drawn upon; accordingly, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral or other security obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation.
Collateral held varies but may include deposits held in financial
institutions, U.S. Treasury securities, other marketable securities,
accounts receivable, inventory, property and equipment, personal
residences, income-producing commercial properties, and land under
development. Personal guarantees are also obtained to provide added
security for certain commitments.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to guarantee the installation of real
property improvements and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds
collateral and obtains personal guarantees supporting those commitments
for which collateral or other securities is deemed necessary.
The Bank's exposure to credit loss in the event of nonperformance by
the customer is the contractual amount of the commitment. Loan
commitments, lines of credit and letters of credit are made on the same
terms, including collateral, as outstanding loans. As of December
31,1997, 1996 and 1995, $70,168, $139,382 and $108,000, respectively,
have been provided as an allowance for credit losses related to these
financial instruments with off-balance sheet risk, which is reflected
as a reduction of loans.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Commitments and contingencies (continued)
Legal proceedings:
The Bank is a defendant in certain claims and legal actions arising in
the course of business. The Bank is being sued for a total of
approximately $1,700,000 in four separate cases for allegedly honoring
checks with invalid endorsements. The Bank is also being sued for
alleged fraud by a customer in bankruptcy seeking approximately
$1,700,000 in compensatory damages. Legal counsel has advised the Bank
that this plaintiff has failed to produce any evidence to support these
claims and that the Bank has excellent defenses. In the opinion of
management, after consultation with legal council, the ultimate
disposition of these matters is not known at this time.
Note 14. Stockholders' Equity
Restrictions on dividends:
The Bank is subject to certain restrictions on the amount of dividends
that it may pay without regulatory approval. The Bank's payment of
dividends is currently restricted by a Memorandum of Understanding (see
Note 16) which requires prior approval of the FDIC and the State
Banking Commissioner of the State of Maryland for the payment of
dividends by the Bank in excess of 50% of its net operating income or
if the Bank's Tier 1 capital ratio would be reduced below 6%.
Employee and directors benefit plans:
At December 31, 1997, the Company had two types of stock-based
compensation plans, which are described below. The Bank applies
Accounting Principles Board Opinion ("APB") No. 25 and related
Interpretations in accounting for these plans. No compensation cost has
been recognized in the accompanying Consolidated Financial Statements
for those plans. If compensation cost for the Company's two types of
stock-based compensation plans had been determined based on the fair
value at the grant dates for awards under those plans consistent with
the methods outlined in SFAS No. 123 Accounting for Stock-Based
Compensation, there would be no material change in reported net income.
Employees who have completed one year of service are eligible to
participate in the employee stock purchase plan. The plan allows
employees to buy stock at 85 percent of the fair market value on the
date the option is granted. The director stock purchase plan allows
directors to buy stock at the fair market value on the date the option
is granted. Activity under these plans is as follows:
<TABLE>
<CAPTION>
Employees Directors
Shares Prices Shares Prices
------ ------ ------ ------
<S> <C> <C> <C> <C>
December 31,1994 7,967 $ 19.48 927 $ 22.92
Granted 8,009 21.77 4,080 25.62
Expired (2,203) (185)
Exercised (8,143) (4,451)
---------- ----------
December 31, 1995 5,630 21.77 371 25.62
Expired (5,384) (371)
Exercised (246) -
---------- ----------
- -
December 31, 1996 and 1997 ========== ==========
Shares reserved for issuance under the plans:
December 31, 1997 25,000 21,884
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Stockholders Equity (continued)
The number of shares and prices per share have been retroactively
adjusted for the stock splits and dividends declared in 1995 and 1997.
Purchase options granted on July 1, 1994 and 1995 expired on October 1,
1995 and 1996, respectively.
The Board of Directors may suspend or discontinue any of the plans at
its discretion.
Dividend reinvestment and stock purchase plan:
The Company's dividend reinvestment and stock purchase plan allows
participating stockholders the opportunity to receive additional shares
of common stock in lieu of cash dividends at 95 percent of the fair
market value on the dividend payment date. During 1996 and 1995, 10,820
and 10,795 shares of common stock, respectively, were purchased under
the plan. No purchases were made in 1997. At December 31, 1997, there
were 116,675 shares of common stock reserved for issuance under the
plan.
In October 1996, Glen Burnie Bancorp suspended participation in the
dividend reinvestment and stock purchase plan until the Company
completed additional filings with the Securities and Exchange
Commission in January 1998.
The Board of Directors may suspend or discontinue the plan at its
discretion.
Stockholder purchase plan:
The Company's stockholder purchase plan allows participating
stockholders an option to purchase newly issued shares of common stock.
The number of shares that may be purchased pursuant to options shall be
determined by the Board of Directors. Each option will entitle the
stockholder to purchase one share of common stock, and will be granted
in proportion to stockholder share holdings. Options will expire no
later than three months after the date of the grant. At December 31,
1997, there were 123,636 shares of common stock reserved for issuance
under the plan.
The Board of Directors may suspend or discontinue the plan at its
discretion.
Regulatory capital requirements:
The Company and Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies.
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 the
Company's financial statements. The Company and Bank must meet specific
capital guidelines that involve quantitative measures of the Company's
and Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting principles. The Company's and
Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum amounts and
ratios (as defined in the regulations) of total and Tier I capital to
risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 1997, 1996, and 1995, that the
Company and Bank meet all capital adequacy requirements to which it is
subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the
Bank must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios. There are no conditions or events since that
notification that management believes have changed the institution's
category.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Stockholders' Equity (continued)
A comparison of the Bank's capital as of December 31, 1997, 1996, and
1995 with its minimum requirements is approximately as follows:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------- ------- ------------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk Weighted Assets)
Company $19,359,000 16.0% $ 9,656,000 8.0% N/A
Bank 18,908,000 15.7% 9,649,000 8.0% $ 12,061,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 17,818,000 14.8% 4,828,000 4.0% N/A
Bank 17,368,000 14.4% 4,824,000 4.0% 7,237,000 6.0%
Tier I Capital
(to Average Assets)
Company 17,818,000 7.6% 14,107,000 6.0% N/A
Bank 17,368,000 7.4% 14,089,000 6.0% 11,741,000 5.0%
As of December 31, 1996
Total Capital
(to Risk Weighted Assets)
Company 19,614,000 14.0% 11,221,000 8.0% N/A
Bank 19,215,000 13.3% 11,590,000 8.0% 14,487,200 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 17,845,000 12.7% 5,610,000 4.0% N/A
Bank 17,367,000 12.0% 5,789,000 4.0% 8,683,500 6.0%
Tier I Capital
(to Average Assets)
Company 17,845,000 7.2% 14,949,000 6.0% N/A
Bank 17,367,000 7.0% 14,886,000 6.0% 12,405,000 5.0%
As of December 31, 1995
Total Capital
(to Risk Weighted Assets)
Company 21,226,000 13.7% 12,399,000 8.0% N/A
Bank 21,168,000 13.6% 12,437,000 8.0% 15,564,700 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 19,261,000 12.4% 6,199,000 4.0% N/A
Bank 19,203,000 12.4% 6,218,000 4.0% 9,292,000 6.0%
Tier I Capital
(to Average Assets)
Company 19,261,000 8.2% 9,396,000 4.0% N/A
Bank 19,203,000 8.2% 9,367,000 4.0% 11,709,000 5.0%
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Regulatory Matters
In June 1996, the Bank entered into a Memorandum of Understanding
(M.O.U.) with the Federal Deposit Insurance Corporation and the State
Bank Commissioner of the State of Maryland to accomplish corrective
actions regarding matters including violations of law, loan collection
and delinquencies, loan administration, methodology for allowance for
credit loss calculations, management reporting, strategic planning, and
maintenance of capital.
In July 1997, the Bank entered into a revised M.O.U., which stipulated
certain dividend restrictions (see Note 14) and corrective actions
regarding management, asset quality, earnings, capital, sensitivity to
market risk, and risk management.
Management believes that it is currently in substantial compliance with
the terms of the revised M.O.U. at December 31, 1997.
Note 16. Fair Values of Financial Instruments
In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 107, the estimated fair value and
the related carrying values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 8,127,732 $ 8,127,732 $ 10,665,680 $ 10,665,680
Interest-bearing deposits in
other financial institutions 1,558,879 1,558,879 1,836,981 1,836,981
Federal funds sold 18,850,000 18,850,000 10,175,000 10,175,000
Investment securities available
for sale 40,678,867 40,678,867 54,906,836 54,906,836
Investment securities held
to maturity 41,178,804 41,566,019 41,667,057 41,993,324
Loans, less allowance for
credit losses 111,545,262 109,301,000 124,672,414 120,992,000
Ground rents 262,525 262,525 267,974 267,974
Accrued interest receivable 1,556,971 1,556,971 1,937,928 1,937,928
Financial liabilities:
Deposits 207,110,272 207,622,000 232,745,975 232,702,000
Short-term borrowings 889,398 889,398 547,937 547,937
Dividends payable 81,146 81,146 44,193 44,193
Accrued interest payable 177,922 177,922 214,977 214,977
Unrecognized financial instruments:
Commitments to extend credit 11,433,932 11,433,932 16,460,003 16,460,003
Standby letters of credit 2,221,173 2,221,173 3,132,661 3,132,661
</TABLE>
For purposes of the disclosures of estimated fair value, the following
assumptions were used.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Fair Values of Financial Instruments (continued)
Loans:
The estimated fair value for loans is determined by discounting future
cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Investment securities:
Estimated fair values are based on quoted market prices.
Deposits:
The estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, NOW accounts and money
market accounts, is equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair value of
certificates of deposit is based on the rates currently offered for
deposits of similar maturities. The fair value estimates do not include
the benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of borrowing funds in the
market.
Other assets and liabilities:
The estimated fair values for cash and due from banks, interest-bearing
deposits in other financial institutions, Federal funds sold, accrued
interest receivable and payable, and short-term borrowings are
considered to approximate cost because of their short-term nature.
Other assets and liabilities of the Bank that are not defined as
financial instruments are not included in the above disclosures, such
as property and equipment. Also, non-financial instruments typically
not recognized in the financial statements nevertheless may have value
but are not included in the above disclosures. These include, among
other items, the estimated earnings power of core deposit accounts, the
trained work force, customer goodwill, and similar items.
The estimated fair values of the Company's financial instruments for
1995 are as follows:
<TABLE>
<CAPTION>
December 31,1995
Carrying Fair
Amount Value
-------------- --------------
<S> <C> <C>
Financial assets
Cash and due from banks $ 9,450,021 $ 9,450,021
Investment securities 74,598,847 74,690,073
Variable rate loans 35,148,040 35,148,040
Accrued interest receivable 2,154,599 2,154,599
Financial liabilities
Noninterest-bearing deposits 45,147,023 45,147,023
Variable rate deposits 96,664,555 96,644,555
Short-term borrowings 1,757,722 1,757,722
Interest and dividends payable 447,923 447,923
</TABLE>
The fair values of investment securities were estimated using a matrix
that considers yield to maturity, credit quality, and marketability.
This method of valuation is permitted by the FASB, but may not be
indicative of net realizable or liquidation values.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Fair Values of Financial Instruments (continued)
It was not practicable to estimate the fair value of loans with fixed
maturities, deposit liabilities with fixed maturities, or outstanding
credit commitments. The Company did not have available resources to
estimate fair values based on quoted prices or discounted cash flows
for individual accounts or groups of accounts.
Maturities and weighted-average interest rates on loans and deposits
with fixed maturities were as follows:
<TABLE>
<CAPTION>
December 31, 1995
Amount Rate
--------------- --------
<S> <C> <C>
Loans
Maturing within one year $ 21,326,466 8.7%
Maturing over one to five years 48,258,718 9.0%
Maturing over five years 50,309,892 9.1%
---------------
$ 119,895,076
===============
Deposits
Maturing within three months $ 17,035,145 5.7%
Maturing over three to six months 16,598,147 5.8%
Maturing over six months to one year 13,014,695 5.7%
Maturing over one to five years 32,681,198 6.5%
---------------
$ 79,329,185
===============
</TABLE>
Note 17. Adoption of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS No. 121), requires that certain long-lived assets be
reviewed for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. An impairment
loss is recognized if the sum of expected future cash flows is less
than the carrying amount of the asset and its face value. An impairment
loss is measured based on the difference between the carrying amount of
the asset and its fair value. The Bank adopted this pronouncement in
1996, and there are no other asset impairment adjustments reflected in
the 1997 and 1996 consolidated financial statements, except those
assets classified as Other Real Estate Owned (OREO).
Statement of Financial Accounting Standards No. 122, Accounting for
Mortgage Servicing Rights (SFAS No. 122), requires that rights to
serviced mortgage loans be recognized as an intangible asset when the
underlying loans are sold and the servicing rights related to these
loans are retained. The standard also requires that capitalized
mortgage servicing rights be assessed for impairment based on the fair
value of such rights. The Bank adopted this pronouncement in 1996, and
there were no loans sold for which it had maintained servicing rights.
Accordingly, adoption of this pronouncement has no effect on the 1997
and 1996 consolidated financial statements.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Adoption of Recently Issued Accounting Pronouncements (continue)
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130), establishes additional standards
for reporting and display of "comprehensive income" and its components
on the Company's financial statements. Adoption of this pronouncement
will be effective for 1998 and the Company would be reporting its net
change in unrealized appreciation on securities available for sale as
other comprehensive income and total net unrealized appreciation on
securities available for sale reflected in stockholders' equity as
accumulated other comprehensive income.
Comprehensive income, as determined under SFAS No. 130 for 1997, 1996,
and 1995 would be as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------------
<S> <C> <C> <C>
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
Net change in unrealized appreciation on
available for sale securities (39,873) (480,431) 754,435
---------------- ---------------- -----------------
Comprehensive income (loss) $ 707,374 $ (1,500,608) $ (972,313)
================ ================ =================
</TABLE>
Note 18. Public Filings
Per filings with the Securities and Exchange Commissions in January
1998, a competing financial institution has contracted to acquire
approximately 19% ownership in the Company from two stockholders. This
financial institution has indicated in the filings that it would
ultimately like to merge and take control of the Company.
Note 19. Litigation Settlement
In February 1998 the Bank received $1,125,000 in a settlement claim
with a former insurance provider.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Parent Company Financial Information
The Balance Sheets, Statements of Income, and Statements of Cash Flows
for Glen Burnie Bancorp (Parent Only) are presented below:
<TABLE>
<CAPTION>
Balance Sheets
----------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash $ 166,195 $ 122,167 $ 264,757
Investment in The Bank of Glen Burnie 18,514,844 18,109,107 20,478,884
Investment in GBB Properties, Inc. 365,341 373,357 -
Other assets 1,259 25,932 27,142
---------------- --------------- ---------------
Total assets $ 19,047,639 $ 18,630,563 $20,770,783
================ =============== ===============
Liabilities and Stockholders' Equity
Dividend payable $ 81,146 $ 44,193 $ 218,208
Due to affiliates 1,903 - 15,189
---------------- --------------- ---------------
Total liabilities 83,049 44,193 233,397
---------------- --------------- ---------------
Stockholders' equity
Common stock 10,927,688 8,838,588 8,728,383
Surplus 6,575,053 6,192,900 5,917,043
Retained earnings 1,236,917 3,290,077 5,146,724
Net unrealized appreciation on securities
available for sale, net of income taxes 224,932 264,805 745,236
---------------- --------------- ---------------
Total stockholders' equity 18,964,590 18,586,370 20,537,386
---------------- --------------- ---------------
Total liabilities and stockholders' equity $ 19,047,639 $ 18,630,563 $ 20,770,783
================ =============== ===============
<CAPTION>
Statements of Income
----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries $ 312,097 $ 885,000 $ 315,000
Expenses 3,704 6,632 61,775
---------------- --------------- ---------------
Income before income taxes and equity
in undistributed net income
of subsidiaries 308,393 878,368 253,225
Income tax benefit 1,259 2,255 21,056
Equity in undistributed net income (losses)
of subsidiaries 437,595 (1,900,800) (2,001,029)
---------------- --------------- ---------------
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
================ =============== ===============
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Parent Company Financial Information (Continued)
<TABLE>
<CAPTION>
Statements of Cash Flows
----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 747,247 $ (1,020,177) $ (1,726,748)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
(Increase) decrease in other assets 24,674 1,210 (10,560)
(Decrease) increase in due to subsidiaries 1,903 (10,000) (264,551)
Equity in net (income) losses of subsidiaries (437,595) 1,900,800 2,001,029
---------------- --------------- ---------------
Net cash provided (used) by operating
activities 336,229 871,833 (830)
---------------- --------------- ---------------
Cash flows from investing activities:
Disposal of land - - 384,700
Capital contributed to subsidiary - (390,000) -
---------------- --------------- ---------------
Net cash provided (used) by investing
activities - (390,000) 384,700
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from dividend reinvestment plan - 380,678 382,967
Proceeds from sales of common stock - 5,384 276,054
Dividends paid (292,201) (1,010,485) (778,134)
---------------- --------------- ---------------
Net cash used in financing activities (292,201) (624,423) (119,113)
---------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents 44,028 (142,590) 264,757
Cash and cash equivalents, beginning of year 122,167 264,757 -
---------------- --------------- ---------------
Cash and cash equivalents, end of year $ 166,195 $ 122,167 $ 264,757
================ =============== ===============
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21. Quarterly Results of Operations (Unaudited)
The following is a summary of the Company's unaudited quarterly results
of operations:
<TABLE>
<CAPTION>
1997 Three months ended
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,131 $4,290 $4,468 $4,587
Interest expense 1,621 1,697 1,755 1,836
Net interest income 2,510 2,593 2,713 2,751
Provision for credit losses - - - 270
Net securities gains 44 223 1 3
Income (loss) before income taxes 184 140 (256) 364
Net income 168 193 11 375
Net income per share $ 0.15 $0.18 $ 0.01 $ 0.34
<CAPTION>
1996 Three months ended
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,567 $4,789 $4,466 $4,824
Interest expense 1,925 1,947 1,917 1,973
Net interest income 2,642 2,842 2,549 2,851
Provision for credit losses 3,771 375 2,075 375
Net securities gains 50 6 2 87
Income (loss) before income taxes (2,599) 585 (1,342) 856
Net income (loss) (1,436) 450 (671) 637
Net income (loss) per share $(1.33) $ .41 $ (.61) $ .59
<CAPTION>
1995 Three months ended
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,667 $4,739 $4,661 $4,534
Interest expense 1,973 1,874 1,768 1,647
Net interest income 2,694 2,865 2,893 2,887
Provision for credit losses 7,275 150 225 275
Net securities gains 377 16 106 8
Income (loss) before income taxes (6,987) 1,262 1,214 1,090
Net income (loss) (4,185) 855 847 756
Net income (loss) per share $(3.93) $ .80 $ .80 $ .71
</TABLE>
F-32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 27, 1998 By: /s/ F. William Kuethe, Jr.
--------------------------
F. William Kuethe, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ F. William Kuethe, Jr. March 27, 1998
---------------------------------------
F. William Kuethe, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ John E. Porter March 27, 1998
---------------------------------------
John E. Porter
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Beatrice S. McQuarrie March 27, 1998
-------------------------------------
Beatrice S. McQuarrie
Assistant Treasurer of the Bank
(Principal Accounting Officer)
By: /s/ John E. Demyan March 27, 1998
-------------------------------------
John E. Demyan
Chairman of the Board
By: /s/ Theodore L. Bertier, Jr. March 27, 1998
-------------------------------------
Theodore L. Bertier, Jr.
Director
By: /s/ Shirley E. Boyer March 27, 1998
-------------------------------------
Shirley E. Boyer
Director
By: /s/ Thomas Clocker March 27, 1998
-------------------------------------
Thomas Clocker
Director
By: /s/ Alan E. Hahn March 27, 1998
-------------------------------------
Alan E. Hahn
Director
<PAGE>
By: /s/ Charles L. Hein March 27, 1998
-------------------------------------
Charles L. Hein
Director
By: /s/ F. W. Kuethe, III March 27, 1998
-------------------------------------
F. W. Kuethe, III
Director
By:
-------------------------------------
Eugene P. Nepa
Director
By: /s/ William N. Scherer March 27, 1998
-------------------------------------
William N. Scherer
Director
By: /s/ Karen B. Thorwarth March 27, 1998
-------------------------------------
Karen B. Thorwarth
Director
By: /s/ Mary Lou Wilcox March 27, 1998
-------------------------------------
Mary Lou Wilcox
Director
Exhibit 10.6
--------------------------
Employment Agreement with
Michael P. Gavin
--------------------------
THIS AGREEMENT entered into and effective this 30th day of December, 1997,
by and between The Bank of Glen Burnie (the "Bank"), Glen Burnie Bancorp (the
"Company"), and Michael P. Gavin (the "Employee").
WHEREAS, the Employee has been hired by the Bank and the Company to serve
as the Chief Operating Officer; and
WHEREAS, the Boards of Directors of the Bank and the Company have
determined that it is in the best interests of the Bank to enter into this
Agreement with the Employee to secure his services, to assure continuity of
management and to encourage his commitment and dedication to the performance of
assigned duties; and
WHEREAS, the parties hereto desire by this writing to set forth the
employment relationship between the Bank, the Company, and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
When used anywhere in this Agreement, the following terms shall have the
meaning set forth herein.
(a) "Boards" shall mean the Boards of Directors of the Bank and the
Company.
(b) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
Bank's or the Company's voting stock, (ii) the acquisition of the ability to
control the election or appointment of a majority of the Bank's or the Company's
directors, (iii) the acquisition of a controlling influence over the management
or policies of the Bank or the Company by any person or by persons acting as a
"group" (within the meaning of Section 13(d) of the Securities Exchange Act of
1934), or (iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constituted the
Board of Directors of the Bank or the Company (the "Existing Board") cease for
any reason to constitute at least two-thirds thereof, provided that any
individual whose election or nomination for election as a member of the Existing
Board was approved by a vote of at least two-thirds of the Continuing Directors
then in office shall be considered a Continuing Director. Notwithstanding the
foregoing, in the case of (i), (ii) and
1
<PAGE>
(iii) hereof, ownership or control of the Bank by the Company itself shall not
constitute a Change in Control for purposes of this Agreement. For purposes of
this paragraph only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(c) "Company" shall mean Glen Burnie Bancorp or any company that may
hereafter be formed solely as a holding company for 100% of the Bank's common
stock.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
(e) "Code ss.280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code ss.280G(b)(3).
(f) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's long-term disability plan or, if the Bank
has no such plan in effect, a physical or mental infirmity which impairs the
Employee's ability to substantially perform his duties under this Agreement for
a period of 180 consecutive days.
(g) "Effective Date" shall mean the date of the Employee's
commencement of employment under the provisions of this Agreement.
(h) "Good Reason" shall mean any of the following events, which have
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation under this
Agreement as the same may be increased from time to time; (iii) the failure by
the Bank or the Company to continue to provide the Employee with compensation
and benefits provided under this Agreement as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the initiation of any action by the Bank or the
Company which would directly or indirectly reduce any of such benefits or
deprive the Employee of any material benefit enjoyed by him under this
Agreement; (iv) the assignment to the Employee of duties and responsibilities
materially different from those normally associated with his position; (v) a
failure to reelect the Employee to the Board of Directors of the Bank or the
Company, if the Employee has served on such Board at any time during the term of
the Agreement; (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank or the Company; or (vii) a material
reduction in secretarial or other administrative support of the Employee.
2
<PAGE>
(i) "Just Cause" shall mean, in the good faith determination of the
Boards, the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order or
material breach of any provision of this Agreement. The Employee shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Employee shall have the right to receive any vested
compensation or benefits for any period prior to termination for Just Cause. No
act, or failure to act, on the Employee's part shall be considered "willful"
unless he has acted, or failed to act, with an absence of good faith and without
a reasonable belief that his action or failure to act was in the best interest
of the Bank and the Company.
(j) "Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
(k) "Trust" shall mean a grantor trust that is designed and
implemented in accordance with Revenue Procedure 92-64 and has a trustee
independent of the Bank and the Company.
2. Employment. The Employee is employed as the Chief Operating Officer of
the Bank and the Company. In such position, the Employee shall manage and direct
the day-to-day operations, including the supervision of all Management-level
officers and designated staff personnel to achieve the Bank's primary business
objectives, including increased profitability, return-on-capital and enhancement
of franchise and shareholder values. The Employee shall be responsible for
overall implementation and management of Bank's objectives, policies and
strategic plans. The Employee shall render such other administrative and
management services for the Bank and the Company as the Boards may from time to
time reasonably direct, including normal duties as an officer of the Bank and
the Company.
3. Joint and Several Liability. In lieu of paying the Employee a base
salary or benefits during the term of this Agreement, the Company hereby agrees
that, to the extent permitted by law, it shall be jointly and severally liable
with the Bank for the payment of all amounts due under this Agreement.
Nevertheless, the Board of Directors of the Company may in its discretion at any
time during the term of this Agreement agree to pay the Employee a base salary
for the remaining term of this Agreement. If the Board of Directors of the
Company agrees to pay such salary, the Board shall thereafter review, not less
often than annually, the rate of the Employee's salary and in its sole
discretion may decide to increase his salary.
4. Base Compensation. The Bank agrees to pay the Employee during the term
of this Agreement a salary at the rate of $95,000 per annum, payable in cash not
less frequently than monthly. The Bank's Board of Directors shall review the
Employee's salary, not less often than annually, and in its sole discretion may
increase his salary.
3
<PAGE>
5. Discretionary Bonuses. The Employee shall participate in an equitable
manner with all other senior management employees in discretionary bonuses that
the Boards may award from time to time to similarly-situated senior management
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Employee's right to participate in such discretionary
bonuses.
6. (a) Participation in Retirement, Medical and Other Plans. During the
term of this Agreement, the Employee shall be eligible to participate in any
benefit plans maintained by the Bank or the Company, including group
hospitalization, disability, health, dental, sick leave, life insurance, travel
and/or accident insurance, auto allowance/auto lease, retirement and pension
plans generally which benefits, taken as a whole, must be at least as favorable
as those in effect on the Effective Date.
(b) Employee Benefits. The Employee shall also be eligible to
participate in any benefits which are or may become available to the Bank's or
the Company's senior management employees, including for example: any stock
option or incentive compensation plans and any other benefits in the form of
qualified or nonqualified plans which are commensurate with the responsibilities
and duties performed by the Employee under this Agreement.
(c) Reimbursement for Business Expenses. The Employee shall be
reimbursed for all reasonable out-of-pocket business expenses which he may incur
in connection with his services under this Agreement upon substantiation of such
expenses in accordance with the policies of the Bank.
7. Term. The Bank and the Company hereby employ the Employee, and the
Employee hereby accepts such employment under this Agreement, for the period
commencing on the Effective Date and ending 36 months thereafter (or such
earlier date as is determined in accordance with Section 11 or 13 hereof).
Additionally, on each annual anniversary date from the Effective Date, the
Employee's term of employment shall be extended for an additional one-year
period beyond the then effective expiration date provided the Boards determine
by duly adopted resolutions that the performance of the Employee has met the
Boards' requirements and standards, and that this Agreement shall be extended.
Only those members of the Boards who have no personal interest in this
Employment Agreement shall consider and vote upon this Agreement or the approval
of any extension thereof.
8. Loyalty; Noncompetition.
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Company or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violate any
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applicable statute or regulation. "Full business time" is hereby defined as that
amount of time usually devoted to like companies by similarly situated executive
officers. During the term of his employment under this Agreement, the Employee
shall not engage in any business or activity contrary to the business affairs or
interests of the Company or the Bank, or be gainfully employed in any other
position or job other than as provided above.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the stock or other securities of any
business dissimilar from that of the Bank, or, solely as a passive or minority
investor, in any business.
(c) For a period beginning with the Effective Date and ending on the
date that is 12 months after the Employee's termination of employment for any
reason, the Employee shall not engage in any activities, business, or enterprise
which competes directly with the business of the Bank or the Company or any of
their subsidiaries or affiliates in any county in which the Bank or the Company
maintains a business facility, nor during such period will Employee make use of
any confidential information related to the Bank or the Company, its operations
or its customer base gained during the course of Employee's employment in a
subsequent activity, business, or enterprise. The Employee recognizes that any
breach of the restrictions set forth in this Section 8 (c) will result in
irreparable injury to the Bank and the Company for which there is not an
adequate monetary remedy at law, and therefore agrees that the Bank and the
Company shall be entitled to injunctive relief in order to enforce the
provisions hereof. In the event this Section 8 (c) shall be determined by any
court of competent jurisdiction to be unenforceable in part by reason of its
term or scope being too great or its coverage being too great a geographical
area, it shall be in full force and effect as to that scope, period of time, or
geographical area as are determined to be reasonable by the court.
9. Standards. The Employee shall perform his duties under this Agreement in
accordance with such reasonable standards as the Boards may establish from time
to time. The Bank will provide Employee with the working facilities and staff
customary for similar executives and necessary for him to perform his duties.
10. Vacation and Sick Leave. At such reasonable times as the Bank's Board
shall in its discretion permit, the Employee shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of his employment under
this Agreement, all such voluntary absences to count as vacation time, provided
that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from the
Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
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(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board.
11. Termination and Termination Pay. Subject to Section 13 hereof, the
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. (1) The Bank may terminate the Employee's employment
after having established the Employee's Disability, in which event the Employee
shall be entitled to the compensation and benefits provided for under this
Agreement for (i) any period during the term of this Agreement and prior to the
establishment of the Employee's Disability during which the Employee is unable
to work due to the physical or mental infirmity, or (ii) any period of
Disability which is prior to the Employee's termination of employment pursuant
to this Section 11 (b); provided that any benefits paid pursuant to the Bank's
long term disability plan will continue as provided in such plan without
reduction for payments made pursuant to this Agreement.
(2) During any period that the Employee shall receive disability benefits
and to the extent that the Employee shall be physically and mentally able to do
so, he shall furnish such advice, information and assistance so as to assist in
the continued ongoing business of the Bank and, if able, shall make himself
available to the Bank to undertake reasonable assignments consistent with his
prior position and his physical and mental health. The Bank shall pay all
reasonable expenses incident to the performance of any assignment given to the
Employee during the disability period.
(c) Just Cause. The Boards may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
(d) Without Just Cause; Constructive Discharge. The Boards may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than his Disability or Just Cause, in which event the
Employee shall be entitled to receive the following compensation and benefits
(unless such termination occurs during the Protected Period in which event the
benefits and compensation provided for in Section 13 shall apply): (i) the
salary provided pursuant to Section 4 hereof, up to the expiration date of this
Agreement, including any renewal
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term (the "Expiration Date"), plus said salary for an additional 12-month
period, provided that such salary shall not exceed 2.99 x of then existing
salary and (ii) at the Employee's election either (A) cash in an amount equal to
the cost to the Employee of obtaining all health, life, disability and other
benefits which the Employee would have been eligible to participate in through
the Expiration Date based upon the benefit levels substantially equal to those
that the Bank provided for the Employee at the date of termination of employment
or (B) continued participation under such Bank and Company benefit plans through
the Expiration Date, but only to the extent the Employee continues to qualify
for participation therein. All amounts payable to the Employee shall be paid, at
the option of the Employee, either (I) in periodic payments through the
Expiration Date, or (II) in one lump sum within ten days of such termination.
(e) Good Reason. The Employee shall be entitled to receive the
compensation and benefits payable under Section 11(d) hereof in the event that
the Employee voluntarily terminates employment within 90 days of an event that
constitutes Good Reason, (unless such voluntary termination occurs during the
Protected Period, in which event the benefits and compensation provided for in
Section 13 shall apply).
(f) Voluntary Termination by Employee. Subject to Section 13 hereof,
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 90 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination (unless
such termination occurs pursuant to Section 11(e) hereof or within the Protected
Period in Section 13(a) hereof, in which event the benefits and compensation
provided for in Sections 11(d) or 13, as applicable, shall apply).
12. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
13. Change in Control.
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Section 13(b) hereof in the event that either
(i) the Employee voluntarily terminates employment either for any reason within
the 30-day period beginning on the date of a Change in Control, (ii) the
Employee voluntarily terminates employment within 90 days of an event that both
occurs during the Protected Period and constitutes Good Reason, or (iii) the
Bank or the Company or their successor(s) in interest terminate the Employee's
employment without his written consent and for any reason other than Just Cause
during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 13(a) hereof, the Bank shall:
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(i) pay the Employee a severance benefit equal to the difference
between the Code ss.280G Maximum and the sum of any other "parachute
payments" as defined under Code ss.280G(b)(2) that the Employee
receives on account of the Change in Control, and
(ii) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
The amount payable under this Section 13(b) shall be paid either (i) in one
lump sum within ten days of the later of the date of the Change in Control and
the Employee's last day of employment with the Bank or the Company, or (ii) if
prior to the date which is 90 days before the date on which a Change in Control
occurs, the Employee filed a duly executed irrevocable written election in the
form attached hereto as Exhibit "A", payment of such amount shall be made
according to the elected schedule. Deferred amounts shall bear interest from the
date on which they would otherwise be payable until the date paid at a rate
equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Code Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code ss.280G Maximum,
the parties may agree in writing that such excess shall be treated as a loan ab
initio which the Employee shall repay to the Bank, on terms and conditions
mutually agreeable to the parties, together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
(c) Funding of Grantor Trust upon Change in Control. Not later than ten
business days after a Change in Control, the Bank shall (i) deposit in a Trust
an amount equal to the Code ss.280G Maximum, unless the Employee has previously
provided a written release of any claims under this Agreement, and (ii) provide
the trustee of the Trust with a written direction to hold said amount and any
investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust. Upon the later of the Trust's final
payment of all amounts due under the following paragraph or the date 27 months
after the Change in Control, the trustee of the Trust shall pay to the Bank the
entire balance remaining in the segregated account maintained for the benefit of
the Employee. The Employee shall thereafter have no further interest in the
Trust.
During the 27-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the
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<PAGE>
latter event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this Agreement, and the costs of such arbitration shall be paid by the Bank.
The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within 3 days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.
14. Indemnification. The Bank and the Company agree that their respective
Bylaws shall continue to provide for indemnification of directors, officers,
employees and agents of the Bank and the Company, including the Employee during
the full term of this Agreement, and to at all times provide adequate insurance
for such purposes.
15. Reimbursement of Employee for Enforcement Proceedings. In the event
that any dispute arises between the Employee and the Bank or the Company as to
the terms or interpretation of this Agreement, whether instituted by formal
legal proceedings or otherwise, including any action that the Employee takes to
defend against any action taken by the Bank or the Company, the Employee shall
be reimbursed for all costs and expenses, including reasonable attorneys' fees,
arising from such dispute, proceedings or actions, provided that the Employee
obtains either a written settlement or a final judgement by a court of competent
jurisdiction substantially in his favor. Such reimbursement shall be paid within
ten days of Employee's furnishing to the Bank written evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Employee.
16. Federal Income Tax Withholding. The Bank and the Company may withhold
all federal and state income or other taxes from any benefit payable under this
Agreement as shall be required pursuant to any law or government regulation or
ruling.
17. Successors and Assigns.
(a) Bank and Company. This Agreement shall not be assignable by the
Bank and the Company, provided that this Agreement shall inure to the benefit of
and be binding upon any corporate or other successor of the Bank or the Company
which shall acquire, directly or indirectly, by merger, consolidation, purchase
or otherwise, all or substantially all of the assets or stock of the Company or
the Bank, as the case may be.
(b) Employee. Since the Bank and the Company are contracting for the
unique and personal skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Bank and the Company; provided, however, that nothing
in this paragraph shall preclude (i) the Employee from designating a beneficiary
to receive any benefit payable hereunder upon his death, or (ii) the executors,
administrators, or other legal representatives of the Employee or his estate
from assigning any rights hereunder to the person or persons entitled thereunto.
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<PAGE>
(c) Attachment. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
18. Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
19. Applicable Law. Except to the extent preempted by Federal law, the laws
of the State of Maryland shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.
20. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
21. Entire Agreement. This Agreement, together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: THE BANK OF GLEN BURNIE
/s/ Dorothy A. Abel By /s/ John E. Demyan,
- ------------------------- --------------------------------------
Secretary John E. Demyan, Chairman of the Board
By /s/ F. William Kuethe, Jr.
--------------------------------------
F. William Kuethe, Jr., President
ATTEST: GLEN BURNIE BANCORP
/s/ Dorothy A. Abel By /s/ John E. Demyan
- ------------------------- --------------------------------------
Secretary John E. Demyan, Chairman of the Board
By /s/ F. William Kuethe, Jr.
--------------------------------------
F. William Kuethe, Jr., President
WITNESS: EMPLOYEE
/s/ Dorothy A. Abel /s/ Michael P. Gavin
- ------------------------- ---------------------------------------
Michael P. Gavin
10
Exhibit 10.7
THE BANK OF GLEN BURNIE
CHANGE-IN-CONTROL SEVERANCE PLAN
The Board of Directors of The Bank of Glen Burnie and Glen Burnie Bancorp
have adopted this Plan in order to provide severance benefits upon a Change in
Control for their employees who are not otherwise covered by an existing
employment agreement or change-in-control severance agreement.
ARTICLE I
Definitions
The following words and phrases, when used in the Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise.
1.1 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Sections 424(e) and
(f), respectively, of the Code.
1.2 "Bank" shall mean The Bank of Glen Burnie, and any successor to its
interest.
1.3 "Base Pay" shall be determined on the date of a Change in Control, and
shall mean:
(a) with respect to Employees paid on a salaried basis: the regular
rate of salary payable monthly to Executive Officers, and payable
weekly to all other Officers or Employees; and
(b) with respect to each Employee paid on an hourly basis: an amount
equal to the product of (i) the Employee's straight time hourly wage
rate, exclusive of overtime, and (ii) the number of hours that the
Employee is regularly scheduled to work for the Bank per week.
1.4 "Board" shall mean the Board of Directors of the Bank.
1.5 "Change in Control" shall mean any one of the following events: (i) the
acquisition of ownership, holding or power to vote more than 25% of the Bank's
or the Company's voting stock, (ii) the acquisition of the ability to control
the election of a majority of the Bank's or the Company's directors, (iii) the
acquisition of a controlling influence over the management or policies of the
Bank or the Company by any person or by persons acting as a "group" (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during
any period of two consecutive years, individuals (the "Continuing Directors")
who at the beginning of such period constitute the Board of Directors of the
Bank or the Company (the "Existing Board") cease for any reason to constitute at
least two-thirds thereof, provided that any individual whose election or
nomination for election as a member of the Existing Board was approved by a vote
of at least two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director.
<PAGE>
Notwithstanding the foregoing, in the case of (i), (ii) and (iii) hereof,
ownership or control of the Bank by the Company itself shall not constitute a
Change in Control. For purposes of this paragraph only, the term "person" refers
to an individual or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein. The decision of the
Board as to whether or not a Change in Control has occurred shall be conclusive
and binding on all parties.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and as interpreted through applicable rulings and regulations in
effect from time to time.
1.7 "Company" shall mean Glen Burnie Bancorp, and any successor to its
interest.
1.8 "Continuous Service" shall mean the period of an Employee's employment
as an active employee of the Bank, the Company, or an Affiliate. Continuous
Service shall not be considered interrupted by (i) sick leave, military leave,
or any other leave of absence approved by the Bank or the Company, or (ii)
transfers between payroll locations of the Company, the Bank, an Affiliate, or a
successor.
1.9 "Effective Date" shall mean February 12, 1998.
1.10 "Employee" shall mean any person (including an Officer or Executive
Officer) who is employed by the Company, the Bank, or an Affiliate.
1.11 "Executive Officer" shall mean Officers Michael Livingston and John E.
Porter, as well as any other Employee whom the Board may by written resolution
specifically identify as an Executive Officer for purposes of this Plan.
1.12 "Good Reason" shall mean any of the following events, which has not
been consented to in advance by the Participant in writing: (i) the requirement
that the Participant perform his or her principal functions more than thirty
(30) miles from his or her primary office as of the date of the Change in
Control; (ii) a material reduction in the Participant's base compensation as in
effect on the date of the Change in Control or as the same may be increased from
time to time; (iii) the failure by the Bank or the Company to continue to
provide the Participant with compensation and benefits provided for on the date
of the Change in Control, as the same may be increased from time to time, or
with benefits substantially similar to those provided under any of the employee
benefit plans in which the Participant now or hereafter becomes a participant,
or the taking of any action by the Bank or the Company which would directly or
indirectly reduce any of such benefits or deprive the Participant of any
material fringe benefit enjoyed at the time of the Change in Control; (iv) the
assignment to the Participant of duties and responsibilities materially
different from those normally associated with his or her position; (v) a
material diminution or reduction in the Participant's responsibilities or
authority (including reporting responsibilities) in connection with his or her
employment with the Bank or the Company.
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1.13 "Just Cause" shall mean, in the good faith determination of the Board,
the Participant's willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order. No act, or failure to act, on the
Participant's part shall be considered "willful" unless he or she has acted, or
failed to act, with an absence of good faith and without a reasonable belief
that such action or failure to act was in the best interest of the Bank and the
Company.
1.14 "Officer" shall mean any Employee (other than an Executive Officer)
who has been designated as an officer prior to a Change in Control.
1.15 "Participant" shall mean any Employee who qualifies for participation
in the Plan pursuant to the requirements of Article II hereof.
1.16 "Plan" means The Bank of Glen Burnie Change-in-Control
Severance Plan.
1.17 "Protected Period" shall mean the period that begins on the date of a
Change in Control and ends on the first annual anniversary date of the Change in
Control.
1.18 "Trust" shall mean a grantor trust designed in accordance with Revenue
Procedure 92-64 and having a trustee independent of the Bank and the Company.
1.19 "Years of Service" means an Employee's full 12-month periods of
Continuous Service (including full 12-month periods that may have occurred prior
to any interruption in Continuous Service).
ARTICLE II
Participation
Participation in the Plan shall be limited to those Employees who, on the
date of a Change in Control, are not parties to an employment agreement or
change in control severance agreement with the Bank, the Company, or an
Affiliate.
ARTICLE III
Conditions for Payment of Severance Benefits;
Amount of Severance Benefits
3.1 Conditions for Payment of Severance Benefits. A Participant shall be
entitled to collect the severance benefits set forth in Section 3.2 of the Plan
in the event that (i) the Participant voluntarily terminates employment within
90 days of an event that both occurs during the Protected Period and constitutes
Good Reason, or (ii) the Bank or the Company or their successor(s) in interest
terminate the Participant's employment for any reason other than Just Cause
during the Protected Period.
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3.2 Amount of Severance Benefits. If a Participant becomes entitled to
collect severance benefits pursuant to Section 3.1 hereof, the Bank shall
provide the Participant with severance benefits determined as follows:
(1) Executive Officers shall receive (a) a lump sum payment, in cash,
equal to six months of Base Pay plus one month of Base Pay for each
Year of Service, and (b) employer-paid health care benefits for the
same number of months factored into the calculation of severance
payments, on the same basis as active Employees of the Company or an
Affiliate or its successors; and thereafter COBRA benefits, at the
Executive Officer's expense, for an additional period of time
determined as though each Executive Officer terminates employment upon
expiration of the period covered by said continued period of health
benefits.
(2) Officers shall receive a lump sum payment, in cash, equal to four
weeks of Base Pay plus two weeks of Base Pay for each Year of Service,
up to a maximum of 52 weeks pay.
(3) All other Employees shall receive a lump sum payment, in cash, equal
to two weeks of Base Pay plus two weeks of Base Pay for each Year of
Service, with a minimum of four weeks and a maximum of 52 weeks of
Base Pay used to calculate their lump sum payment amount.
All amounts payable under this Section 3.2 shall be paid within ten days of
the later of the date of the Change in Control and the Participant's last day of
employment with the Company, the Bank, an Affiliate, or a successor to their
interest.
ARTICLE IV
Joint and Several Liability of the Company
The Company shall be jointly and severally liable with the Bank for the
payment of all amounts due under this Plan.
ARTICLE V
Source of Benefits
5.1 General Rule. All amounts payable under this Plan shall constitute an
unfunded, unsecured promise by the Bank and the Company to make such payments in
the future, as and to the extent such benefits become payable. Benefits shall be
paid from the general assets of the Bank and the Company, and no person shall by
virtue of this Plan have any interest in such assets (other than as an unsecured
creditor of the Bank and the Company).
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5.2 Trust Funding on Change in Control. In the event of a Change in
Control, the Bank shall establish the Trust if one is not then in existence, and
shall contribute to the Trust an amount sufficient to provide the Trust with
assets having an overall value equivalent to the cash value of the aggregate
severance benefits that could become payable pursuant to Section 3.2 under the
Plan.
ARTICLE VI
Assignment
A Participant may not commute, sell, assign, transfer, encumber and pledge
or otherwise convey the right to receive any benefits under this Plan.
ARTICLE VII
Employment or Other Rights
Neither the Plan nor any action taken by the Board in connection with the
Plan shall create any right, either express or implied, on the part of any
Participant to continue in the employment of the Company or any Affiliate
thereof.
ARTICLE VIII
Reorganization
The Bank and the Company agree that they will not merge or consolidate with
any other corporation or organization, or permit their business activities to be
taken over by any other organization, unless and until the succeeding or
continuing corporation or other organization shall expressly assume the rights
and obligations of the Bank and the Company herein set forth. The Bank and the
Company further agree that they will not cease their business activities or
terminate their existence, other than as heretofore set forth in this Article
VIII, without having made adequate provision for the fulfillment of their
obligation hereunder.
ARTICLE IX
Amendment and Termination
The Board may amend or terminate the Plan at any time prior to a Change in
Control. On or after a Change in Control, the Board may amend or terminate the
Plan subject to receiving the written consent of each Participant who is or may
be adversely affected by such amendment or termination.
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ARTICLE X
Applicable Law
Except to the extent preempted by Federal law, the laws of the State of
Maryland shall govern this Plan in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
ARTICLE XI
Headings; Gender
Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan. This Plan shall be
construed, where required, so that the masculine gender includes the feminine.
ARTICLE XII
Interpretation of the Plan
The Board shall have sole and absolute discretion to administer, construe,
and interpret the Plan and the decisions of the Board shall be conclusive and
binding on all affected parties (unless such decisions are arbitrary and
capricious).
ARTICLE XIII
Expense Reimbursement
In the event that any dispute arises on or after a Change in Control
between a Participant and the Bank or the Company as to the terms or
interpretation of this Plan, whether instituted by formal legal proceedings or
otherwise, including any action that the Participant takes to enforce the terms
of this Plan or to defend against any action taken by the Bank or the Company,
the Participant shall be reimbursed for all costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
provided that the Participant shall obtain a final judgement in favor of the
Participant in a court of competent jurisdiction or in binding arbitration under
the rules of the American Arbitration Association. Such reimbursement shall be
paid within ten (10) days of Participant's furnishing to the Bank and the
Company written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Participant.
ARTICLE XIV
Severability
The provisions of this Plan shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
6
EXHIBIT 23.1
[TRICE & GEARY LLC LETTERHEAD]
Board of Directors
Glen Burnie Bancorp
We hereby consent to the incorporation of our report, dated February 4, 1998,
included or incorporated by reference in this annual report on Form 10K, into
the Company's Registration Statements on Forms S-8 and S-3 (SEC File Nos.
333-46943, 33-62280 and 33-62278).
/s/ TRICE & GEARY, LLC
TRICE & GEARY LLC
March 27, 1998
EXHIBIT 23.2
[ROWLES & COMPANY, LLP LETTERHEAD]
Board of Directors
Glen Burnie Bancorp
We hereby consent to the incorporation by reference of our report on
the consolidated financial statements of Glen Burnie Bancorp as of December 31,
1995 and for the year then ended into the Company's Registration Statements on
Form S-8 and S-3 (SEC File Nos. 333-46943, 33-62280 and 33-62278).
/s/ ROWLES & COMPANY, LLP
Baltimore, Maryland
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000890066
<NAME> Glen Burnie Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 8,129
<INT-BEARING-DEPOSITS> 1,559
<FED-FUNDS-SOLD> 18,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,679
<INVESTMENTS-CARRYING> 41,179
<INVESTMENTS-MARKET> 41,566
<LOANS> 115,685
<ALLOWANCE> 4,139
<TOTAL-ASSETS> 231,900
<DEPOSITS> 207,110
<SHORT-TERM> 889
<LIABILITIES-OTHER> 4,935
<LONG-TERM> 0
0
0
<COMMON> 10,928
<OTHER-SE> 8,037
<TOTAL-LIABILITIES-AND-EQUITY> 231,900
<INTEREST-LOAN> 10,846
<INTEREST-INVEST> 6,494
<INTEREST-OTHER> 136
<INTEREST-TOTAL> 17,476
<INTEREST-DEPOSIT> 6,841
<INTEREST-EXPENSE> 6,909
<INTEREST-INCOME-NET> 10,567
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 271
<EXPENSE-OTHER> 11,593
<INCOME-PRETAX> 432
<INCOME-PRE-EXTRAORDINARY> 747
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 747
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 5.09
<LOANS-NON> 3,481
<LOANS-PAST> 5
<LOANS-TROUBLED> 200
<LOANS-PROBLEM> 3,718
<ALLOWANCE-OPEN> 5,061
<CHARGE-OFFS> 1,618
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<ALLOWANCE-CLOSE> 4,139
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 981
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the 1996
Audited Consolidated Financial Statements of Glen Burnie Bancorp and its
subsidiaries. Such information is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,666
<INT-BEARING-DEPOSITS> 183,333
<FED-FUNDS-SOLD> 10,175
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,907
<INVESTMENTS-CARRYING> 41,667
<INVESTMENTS-MARKET> 41,993
<LOANS> 124,672
<ALLOWANCE> 5,061
<TOTAL-ASSETS> 254,325
<DEPOSITS> 232,746
<SHORT-TERM> 548
<LIABILITIES-OTHER> 2,444
<LONG-TERM> 0
0
0
<COMMON> 8,839
<OTHER-SE> 9,748
<TOTAL-LIABILITIES-AND-EQUITY> 254,325
<INTEREST-LOAN> 13,081
<INTEREST-INVEST> 5,565
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,646
<INTEREST-DEPOSIT> 7,712
<INTEREST-EXPENSE> 7,762
<INTEREST-INCOME-NET> 10,884
<LOAN-LOSSES> 6,595
<SECURITIES-GAINS> 145
<EXPENSE-OTHER> 9,019
<INCOME-PRETAX> (2,500)
<INCOME-PRE-EXTRAORDINARY> (1,020)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,020)
<EPS-PRIMARY> (0.94)<F1>
<EPS-DILUTED> (0.94)<F1>
<YIELD-ACTUAL> 8.91
<LOANS-NON> 4,546
<LOANS-PAST> 87
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,954
<ALLOWANCE-OPEN> 3,698
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<ALLOWANCE-CLOSE> 5,061
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Restated for adoption of SFAS 128 ad six-for-five stock split effected
through stock dividend paid January 10, 1998.
</FN>
</TABLE>
