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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 0-24047
GLEN BURNIE BANCORP
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(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:
COMMON STOCK, PAR VALUE $1.00
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(Title of Class)
COMMON STOCK PURCHASE RIGHTS
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(Title of Class)
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. [ ]
As of March 23, 2000, the aggregate market value of the registrant's voting
stock held by non-affiliates was approximately $13.7 million based on the most
recent sales price of $19.25 per share of the registrant's Common Stock as of
such date as reported on the OTC Bulletin Board (R). For purposes of this
calculation only, it is assumed that directors, executive officers and
beneficial owners of more than 5% of the registrant's outstanding voting stock
are affiliates.
Number of shares of Common Stock outstanding as of March 23, 2000: 1,096,885
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Proxy Statement for 2000 Annual Meeting of Stockholders.
(Part III)
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<PAGE>
PART I
ITEM 1. BUSINESS
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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 northern Anne Arundel County and surrounding areas from its main office
in Glen Burnie, Maryland and branch offices in Odenton, Riviera Beach,
Crownsville, Severn, Ferndale and Severna Park, Maryland. The Bank also
maintains three remote Automated Teller Machine ("ATM") locations in Gambrills,
Jessup and Pasadena, Maryland. The Bank maintains a website at
www.thebankofglenburnie.com. The Bank is the oldest independent commercial bank
in Anne Arundel County. The Bank is engaged in the commercial and retail banking
business as authorized by the banking statutes of the State of Maryland,
including the acceptance of demand and time deposits, and the origination of
loans to individuals, associations, partnerships and corporations. The Bank's
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. During the past several years, the
Bank has been a very active originator of automobile loans which it originates
through arrangements with local automobile dealers. 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 which consists of
those portions of the county north of U.S. Route 50. Northern Anne Arundel
County includes mature suburbs of the City of Baltimore which in recent years
have experienced modest population growth and are 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.
FINANCIAL MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed legislation which could
have a far-reaching impact on the financial services industry. The
Gramm-Leach-Bliley ("G-L-B") Act authorizes affiliations between banking,
securities and insurance firms and authorizes bank holding companies and
national banks to engage in a variety of new financial activities. Under the
G-L-B Act, any bank holding company whose depository institution subsidiaries
have satisfactory Community Reinvestment Act ("CRA") records may elect to become
a financial holding company if it certifies to the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") that all of its depository
institution subsidiaries are well-capitalized and well-managed. Financial
holding companies may engage in any activity that the Federal Reserve Board,
after consultation with the Secretary of the Treasury, determines to be
financial in nature or incidental to a financial activity. Financial holding
companies may also engage in activities that are complementary to financial
activities and do not pose a substantial risk to the safety and soundness of
their depository institution subsidiaries or the financial system generally. The
G-L-B Act specifies that activities that are financial in nature include lending
and investing activities, insurance and annuity underwriting and brokerage,
financial, investment and economic advice, selling interests in pooled
investment vehicles, securities underwriting, engaging in activities currently
permitted to bank holding companies (including activities in which bank holding
companies may currently engage outside the United States) and merchant banking
through a securities or insurance underwriting affiliate. The Federal Reserve
Board, in consultation with the Department of Treasury, may approve additional
financial activities.
2
<PAGE>
The G-L-B Act permits well capitalized and well managed national banks
with satisfactory CRA records to invest in financial subsidiaries that engage in
activities that are financial in nature (or incidental thereto) on an agency
basis. National banks that are among the 50 largest insured banks and have at
least one issue of investment grade debt outstanding may invest in financial
subsidiaries that engage in activities as principal other than insurance
underwriting, real estate development or merchant banking. All national banks
are given the authority to underwrite municipal revenue bonds. The aggregate
total consolidated assets of a national bank's financial subsidiaries may not
exceed the lesser of 45% of the bank's total consolidated assets or $50 billion.
A national bank would be required to deduct its investments in financial
subsidiaries from its regulatory capital. National banks must also adopt
procedures for protecting the bank against risks associated with the financial
subsidiary and to preserve the separate corporate identity of the financial
subsidiary. Financial subsidiaries of state and national banks (which include
any subsidiary engaged in an activity not permitted to a national bank directly)
would be treated as affiliates for purposes of the limitations on aggregate
transactions with affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the anti-tying restrictions of the Bank Holding Company
Act. State-chartered banks would be prohibited from investing in financial
subsidiaries unless they would be well capitalized after deducting the amount of
their investment from capital and observe the other safeguards applicable to
national banks.
The G-L-B Act imposes functional regulation on bank securities and
insurance activities. Banks will only be exempt from SEC regulation as
securities brokers if they limit their activities to those described in the
G-L-B Act. Banks that advise mutual funds will be subject to the same SEC
regulation as other investment advisors. Bank common trust funds will be
regulated as mutual funds if they are advertised or offered for sale to the
general public. National banks and their subsidiaries will be prohibited from
underwriting insurance products other than those which they were lawfully
underwriting as of January 1, 1999 and are prohibited from underwriting title
insurance or tax-free annuities. National banks may only sell title insurance in
states in which state-chartered banks are authorized to sell title insurance.
The G-L-B Act directs the federal banking agencies to promulgate regulations
governing sales practices in connection with permissible bank sales of
insurance.
The G-L-B Act imposes new requirements on financial institutions with
respect to customer privacy. The G-L-B Act generally prohibits disclosure of
customer information to non-affiliated third parties unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their privacy policies
to customers annually. Financial institutions, however, will be required to
comply with state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies, the National
Credit Union Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after consultation with
the National Association of Insurance Commissioners, to promulgate implementing
regulations within six months of enactment. The privacy provisions will become
effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal Home Loan
Bank System. The G-L-B Act imposes new capital requirements on the Federal Home
Loan Banks and authorizes them to issue two classes of stock with differing
dividend rates and redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute $300 million to
pay interest on certain government obligations in favor of a 20% of net earnings
formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small
agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank
system voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first been provided
notice of the imposition and amount of the fee. The G-L-B Act reduces the
frequency of CRA examinations for smaller institutions and imposes certain
reporting requirements on depository institutions that make payments to
non-governmental entities in connection with the CRA.
3
<PAGE>
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
including indirect automobile 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 consumer
lending currently consists primarily of automobile loans originated through
local dealers. The Bank has expanded its indirect automobile loans by entering
into arrangements with individual automobile dealers. The Bank's lease financing
portfolio consists of loans purchased from third party originators.
After several years of portfolio run-off, the Company's loan portfolio
increased during the past two fiscal years, as the result of the introduction of
an indirect automobile lending program in 1998. The Bank's loan portfolio had
decreased in size in prior years 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 reflected the significant
increase in such lending in fiscal year 1994 which was not sustained in
subsequent years. The run-off in the commercial portfolio reflected 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 reflected in part the substantial charge-offs which the Bank
took during fiscal years 1996 and 1995.
The following table provides information on the composition of the loan
portfolio at the indicated dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
$ % $ % $ % $ % $ %
------- ------- --------- ------- -------- ------- -------- ------- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage:
Residential............ $ 34,099 22.03% $33,931 26.28% $38,048 32.68% $36,505 27.95% $38,142 24.60%
Commercial............. 42,342 27.36 43,915 34.02 43,276 37.17 47,757 36.57 46,888 30.24
Construction and land
development........ 6,095 3.94 2,383 1.85 4,888 4.20 5,515 4.22 14,265 9.20
Consumer:
Installment........... 16,203 10.47 17,119 13.26 18,862 16.20 22,281 17.06 27,898 17.99
Credit card........... 1,348 0.88 1,398 1.08 1,397 1.20 1,434 1.10 1,484 0.96
Indirect automobile... 50,967 32.93 24,630 19.08 -- -- -- -- -- --
Commercial............... 3,701 2.39 5,714 4.43 9,964 8.56 17,095 13.09 26,366 17.01
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans......... 154,755 100.00% 129,090 100.00% 116,435 100.00% 130,587 100.00% 155,043 100.00%
====== ====== ====== ====== ======
Unearned income on loans. (727) (748) (751) (854) (873)
-------- ------- ------- ------- -------
Gross loans net of
unearned income.. 154,028 128,342 115,684 129,733 154,170
Allowance for credit
losses................... (2,922) (2,841) (4,139) (5,061) (3,698)
-------- ------- ------- ------- -------
Loans, net .............. $151,106 $125,501 $111,545 $124,672 $150,472
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
The following table sets forth the maturities for various categories of
the loan portfolio at December 31, 1999. Demand loans and loans which have no
stated maturity are treated as due in one year or less. At December 31, 1999,
the Bank had $7,903,000 in loans due after one year with variable rates and
$133,766,000 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
-------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate -- mortgage:
Residential......................... $ 2,094 $ 1,840 $ 30,165 $ 34,099
Commercial.......................... 3,196 8,219 30,927 42,342
Real estate -- construction........... 1,416 733 3,946 6,095
Installment........................... 1,772 12,193 2,238 16,203
Credit Card........................... 1,348 -- -- 1,348
Indirect automobile................... 28 49,531 1,408 50,967
Commercial............................ 3,232 305 164 3,701
--------- ----------- -------- ----------
$ 13,086 $ 72,821 $ 68,848 $ 154,755
========= =========== ======== ==========
</TABLE>
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 northern 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. The Bank, however, will make loans secured by owner-occupied
residential real estate with loan-to-value ratios up to 95% provided the
borrower obtains private mortgage insurance for the portion of the loan in
excess of 80%. 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.
Because of the difficulties encountered in monitoring the financial condition of
borrowers on purchased leases, the Bank is no longer purchasing equipment leases
and is allowing this portfolio to run off.
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
5
<PAGE>
other credit repayable in installments. As of December 31, 1999, approximately
11.5% of the installment loans in the Bank's portfolio had been originated for
commercial purposes and 88.5% had been originated for consumer purposes.
INDIRECT AUTOMOBILE LENDING. The Bank commenced its indirect automobile
lending program in January 1998. The Bank finances new and used automobiles for
terms of up to 60 months. Used vehicles must be no more than five years old and
the maximum loan term is reduced for higher mileage vehicles. The Bank does not
lend more than the invoice price on new vehicles and on used vehicles will not
lend more than the fair market value as published in a nationally recognized
used vehicle pricing guide. The Bank requires all borrowers to obtain vendor's
single interest coverage protecting the Bank against loss. The Bank originates
indirect loans through a network of 14 dealers which are primarily new car
dealers located in Anne Arundel County. Participating dealers take loan
applications from their customers and transmit them to the Bank for approval. If
the loan is approved, the Bank will immediately fund the principal of the loan
and credit the dealer's reserve account for the premium due to the dealer. Funds
are disbursed from the dealer reserve account on a monthly basis net of any
unpaid interest resulting from borrower prepayments or defaults on other loans
purchased from the dealer. The Bank does not offer dealer floor plan financing.
CREDIT CARD AND RELATED LOANS. Credit card and related loans consist of
outstanding balances on credit cards and overdraft lines of credit. The Bank
offered no annual fee VISA(R) and MasterCard(R) credit cards to qualified
customers. Credit card billing and payment processing was done for the Bank by
an unaffiliated third party which received a fee for such services. In February,
2000, however, the Bank sold its portfolio of credit card loans. 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, including indirect automobile 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. Because the Bank deals with borrowers
through an intermediary on indirect automobile loans, this form of lending
potentially carries greater risks of defects in the application process for
which claims may be made against the Bank. Indirect automobile lending may also
involve the Bank in consumer disputes under state "lemon" or other laws. The
Bank seeks to control these risks by following strict underwriting and
documentation guidelines and by only dealing with well-established dealerships
who are contractually obligated to indemnify the Bank for such losses.
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 in accordance with the Bank's loan review policy. 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.
6
<PAGE>
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 $1.65 million to any one borrower at December 31, 1999. By interpretive
ruling of the Commissioner of Financial Regulation, 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 $2.5 million to any one borrower at
December 31, 1999. It is currently the Bank's policy to limit its exposure to
any one borrower to no more than $1.3 million in the aggregate unless the loan
is approved by a 75% vote of the Board of Directors with respect to new
borrowings. At December 31, 1999, the largest amount outstanding to any one
borrower and their related interests was $2,482,000 which was within the Bank's
lending limit at the time when made.
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.
The Bank seeks to control delinquencies through diligent collection
procedures. For consumer loans, the Bank sends out payment reminders on the
seventh and twelfth days after a payment is due. If a consumer loan becomes 15
days past due, the account is transferred to the Bank's collections department
which will contact the borrower by telephone and letter before the account
becomes 30 days past due. If a consumer loan becomes more than 30 days past due,
the Bank will continue its collection efforts and will move to repossession or
foreclosure by the 45th day if the Bank has reason to believe that the
collateral may be in jeopardy or the borrower has failed to respond to prior
communications. The Bank will move to repossess or foreclose in all instances in
which a consumer loan becomes more than 60 days delinquent. After repossession
of a motor vehicle, the borrower has a 15-day statutory right to redeem the
vehicle and is entitled to 10 days' notice before the sale of a repossessed
vehicle. The Bank sells the vehicle as promptly as feasible after the expiration
of these periods. If the amount realized from the sale of the vehicle is less
than the loan amount, the Bank will seek a deficiency judgment against the
borrower. The Bank follows similar collection procedures with respect to
commercial loans.
7
<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,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restructured loans........................... $ 243 $ 137 $ 344 $ -- $ --
======== ======== ========= ========= ==========
Non-accrual loans:
Real estate -- mortgage:
Residential............................... $ 237 $ 336 $ 1,078 $ 2,065 $ 812
Commercial................................ 135 505 761 1,935 274
Real estate -- construction............... 280 316 608 0 0
Installment............................... 315 463 665 168 165
Credit card & related .................... 0 0 0 0 4
Commercial................................ 45 105 369 378 1,120
-------- --------- --------- --------- ----------
Total non-accrual loans............... 1,012 1,725 3,481 4,546 2,375
-------- --------- --------- --------- ----------
Accruing loans past due 90 days or more:
Real estate -- mortgage:
Residential............................... 43 0 5 87 1,467
Commercial................................ 0 0 0 0 1,500
Real estate -- construction............... 0 0 0 0 0
Installment............................... 0 0 0 0 300
Credit card & related .................... 0 18 0 0 28
Commercial................................ 0 0 0 0 610
-------- --------- --------- --------- ----------
Total accruing loans past due 90 days
or more............................. 43 18 5 87 3,905
-------- --------- --------- --------- ----------
Total non-accrual and past due loans.. $ 1,055 $ 1,743 $ 3,486 $ 4,633 $ 6,280
======== ========= ========= ========= ==========
Non-accrual and past due loans to
gross loans......................... 0.68% 1.36% 2.99% 3.55% 4.05%
======== ========= ========= ========= ==========
Allowance for credit losses to
non-accrual and past due loans...... 276.97% 162.99% 118.73% 109.24% 58.89%
======== ========= ========= ========= ==========
</TABLE>
For the year ended December 31, 1999, interest of approximately
$169,000, 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. During the year ended December 31,
1999, the Bank would have recorded $24,300 in interest on restructured loans if
such loans were performing in accordance with their original terms. During 1999,
the Bank recognized $17,660 in interest income on restructured loans.
Approximately $891,000, or 88.09%, of the Bank's non-accrual loans at
December 31, 1999 were attributable to five borrowers. Charge-offs of $566,213
have previously been taken on these loans. Three of these borrowers with loans
totaling $448,071 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 current active balance of the Bank's loan.
At December 31, 1999, there were no 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.
8
<PAGE>
At December 31, 1999, the Company had $558,827 in real estate acquired
in partial or total satisfaction of debt compared to $1,099,326 and $748,231 in
such properties at December 31, 1998 and 1997, 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, 1999, see
"Item 2. -- Properties."
- ------------------------
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 borrower's 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,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance........................... $ 2,841 $ 4,139 $ 5,061 $ 3,698 $ 2,764
--------- --------- --------- --------- ---------
Loans charged off
Real estate -- mortgage:
Residential............................ 0 51 270 250 1,044
Commercial............................. 50 0 0 797 497
Real estate -- construction.............. (27) 189 435 0 0
Installment.............................. 477 473 171 786 270
Credit card & related ................... 92 0 45 182 194
Commercial............................... 81 382 697 3,453 5,056
--------- --------- --------- --------- ---------
Total............................. 673 1,095 1,618 5,468 7,061
--------- --------- --------- --------- ---------
Recoveries
Real estate -- mortgage:
Residential............................ 32 51 25 22 23
Commercial............................. 16 26 17 81 10
Real estate -- construction.............. 36 1 0 0 0
Installment.............................. 259 116 89 57 11
Credit card & related ................... 4 4 5 2 0
Commercial............................... 107 99 290 73 26
--------- --------- --------- --------- ---------
Total.............................. 454 297 426 235 70
--------- --------- --------- --------- ---------
Net charge-offs............................. 219 798 1,192 5,233 6,991
Provisions charged to operations............ 300 (500) 270 6,596 7,925
--------- ---------- --------- --------- ---------
Ending balance.............................. $ 2,922 $ 2,841 $ 4,139 $ 5,061 $ 3,698
========= ========= ========= ========= =========
Average loans............................... $ 142,077 $ 118,372 $ 119,161 $ 146,922 $ 156,219
Net charge-offs to average loans ........... 0.15% 0.67% 1.00% 3.56% 4.48%
</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
9
<PAGE>
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.
The following table shows the allowance for credit losses broken down
by loan category as of December 31, 1999, 1998, 1997 and 1996. Such information
for 1995 is not available.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
--------------- ------------
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
- --------- -------- -------------- -------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate -- mortgage:
Residential................. $ 200 22.03% $ 273 26.28%
Commercial.................. 613 27.36 311 34.02
Real estate -- construction... 296 3.94 335 1.85
Installment................... 177 10.47 143 13.26
Credit Card.................. 92 0.88 60 1.08
Indirect automobile........... 793 32.93 312 19.08
Commercial................... 526 2.39 966 4.43
Unallocated................... 225 -- 441 --
-------- ------ -------- ------
Total..................... $ 2,922 100.00% $ 2,841 100.00%
======== ====== ======== ======
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1997 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
- --------- -------- -------------- -------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate -- mortgage:
Residential................. $ 389 32.68% $ 432 27.95%
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 --
-------- ------ -------- ------
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 formerly maintained a substantial portfolio in obligations
of certain states and their political subdivisions. This portfolio has been
eliminated because the Company was no longer able to use the full tax advantages
of this portfolio.
10
<PAGE>
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,
------------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities .......................... $ 2,739 $ 5,082 $ 9,068
U.S. Government agencies and
mortgage-backed securities....................... 40,833 59,008 63,414
Obligations of states and political subdivisions... -- -- 8,073
Other securities and stock......................... 652 936 936
--------- --------- ---------
Total investment securities........................ $ 44,224 $ 65,026 $ 81,491
========= ========= =========
</TABLE>
The following table sets forth the scheduled maturities, book values
and weighted average yields for the Company's investment securities portfolio at
December 31, 1999.
<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS TOTAL
------------------ -------------------- ----------------- -------------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ........ $ 500 5.50% $ 2,239 5.93% $ -- --% $ -- --% $ 2,739 5.85%
U.S. Government agencies and
mortgage-backed securities..... -- -- 6,898 5.83 8,996 6.39 24,939 6.35 40,833 6.49
Other securities and stock....... 652 8.54 -- -- -- -- -- -- 652 8.54
------ ---- -------- ---- -------- ---- ------- ---- ------- -----
Total investment securities. $1,152 7.22% $ 9,137 5.85% $ 8,996 6.39% $24,939 6.35% $44,224 6.48%
====== ==== ======== ==== ======== ==== ======= ==== ======= =====
</TABLE>
At December 31, 1999, 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.
DEPOSITS AND OTHER SOURCES OF FUNDS
The funds needed by the Bank to make loans are primarily generated by
deposit accounts solicited from the communities surrounding its main office and
seven branches in northern Anne Arundel County. Consolidated total deposits were
$194,089,995 as of December 31, 1999. The Bank uses borrowings from the Federal
Home Loan Bank ("FHLB") of Atlanta to supplement funding from deposits. The Bank
was permitted to borrow up to $25.5 million under a line of credit from the FHLB
of Atlanta as of December 31, 1999.
DEPOSITS. The Bank's deposit products include regular savings accounts
(statements), money market deposit accounts, demand deposit accounts, NOW
checking accounts, IRA and SEP accounts, Christmas Club accounts and
certificates of deposit. 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, ATMs,
telephone banking, and a customer call center. The Bank is a member of the
Cirrus(R) and Star(R) ATM networks.
The Bank obtains deposits principally through its network of eight
offices. The Bank does not solicit brokered deposits. At December 31, 1999, the
Bank had approximately $10.7 million in certificates of deposit and other time
11
<PAGE>
deposits of $100,000 or more including IRA accounts. The following table
provides information as to the maturity of all time deposits of $100,000 or more
at December 31, 1999.
AMOUNT
(IN THOUSANDS)
--------------
Three months or less.................................. $ 4,451
Over three through six months......................... 1,319
Over six through 12 months............................ 1,217
Over 12 months........................................ 3,742
----------
Total............................................. $ 10,729
==========
BORROWINGS. In addition to deposits, the Bank from time to time obtains
advances from the FHLB of Atlanta of which it is a member. FHLB of Atlanta
advances may be used to provide funds for residential housing finance and for
small business lending. The Bank may draw on a $25.5 million line of credit from
the FHLB of Atlanta. As of December 31, 1999, an advance of $2.0 million was
outstanding on this line. The Bank's advance matures in 2000 and bears a 4.55%
rate of interest. The FHLB advance is secured by a floating lien on the Bank's
residential first mortgage loans and various federal government and agency
securities. The Bank also has a secured line of credit in the amount of $5.0
million from another commercial bank but has not drawn on this line.
COMPETITION
The Bank faces competition from other community banks and financial
institutions and larger intra- and inter- state banks and financial institutions
which compete vigorously (currently, sixteen FDIC-insured depository
institutions operate within two miles of the Bank's headquarters). Former
directors of the Bank, including a former Chief Executive Officer, have
established a new bank with a main office in Glen Burnie close to the Bank's
headquarters which has solicited business from many Bank customers. With respect
to indirect lending, the Bank faces competition from other banks and the
financing arms of automobile manufacturers. The Bank competes in this area by
offering competitive rates and responsive service to dealers.
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 seventh largest deposit
holder in Anne Arundel County, Maryland, with an estimated 4.84% market share as
of June 30, 1999 (the latest date for which relevant data is available from the
FDIC), 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.
EMPLOYEES
At December 31, 1999, the Bank had 131 full-time equivalent employees.
Neither the Company nor GBB currently has any employees.
12
<PAGE>
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
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 Riegle-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 Riegle-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 Riegle-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 of Financial Regulation.
Additionally, 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 Riegle-Neal Act by adopting a law after the date of enactment
of the Riegle-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
13
<PAGE>
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.
Effective with the enactment of the G-L-B Act on November 12, 1999,
bank holding companies whose financial institution subsidiaries are well
capitalized and well managed and have satisfactory Community Reinvestment Act
records can elect to become "financial holding companies" which will be
permitted to engage in a broader range of financial activities than are
currently permitted to bank holding companies. Financial holding companies are
authorized to engage in, directly or indirectly, financial activities. A
financial activity is an activity that is: (i) financial in nature; (ii)
incidental to an activity that is financial in nature; or (iii) complementary to
a financial activity and that does not pose a safety and soundness risk. The
G-L-B Act includes a list of activities that are deemed to be financial in
nature. Other activities also may be decided by the Federal Reserve Board to be
financial in nature or incidental thereto if they meet specified criteria. A
financial holding company that intends to engage in a new activity to acquire a
company to engage in such an activity is required to give prior notice to the
Federal Reserve Board. If the activity is not either specified in the G-L-B Act
as being a financial activity or one that the Federal Reserve Board has
determined by rule or regulation to be financial in nature, the prior approval
of the Federal Reserve Board is required.
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 of Financial
Regulation 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."
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.
14
<PAGE>
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 of Financial
Regulation 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 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 in the case of 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
15
<PAGE>
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,
1999, 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 Riegle-Neal Act
authorizes the FDIC to approve interstate branching de novo by state banks, only
in states which specifically allow for such branching. The Riegle-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.
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
16
<PAGE>
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, will be required to begin paying an assessment to the FDIC in an amount
equal to 2.12 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 or is under common
control with the state non-member bank and, for purposes of the aggregate limit
on transactions with affiliates, any subsidiary that would be deemed a financial
subsidiary of a national bank. In a holding company context, the parent holding
company of a state non-member bank (such as the Company) and any companies which
are controlled by such parent holding company are affiliates of the state
non-member 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 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.
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information about the Company's executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
F. William Kuethe, Jr. 67 President and Chief Executive Officer
John I. Young 62 Executive Vice President and Chief Operating Officer
Michael G. Livingston 45 Senior Vice President and Chief Lending Officer
John E. Porter 45 Senior Vice President and Chief Financial Officer
</TABLE>
F. WILLIAM KUETHE, JR. has been President and Chief Executive Officer
of the Company and the Bank since 1995. He also was director of the Bank from
1963 through 1989. He was President of Glen Burnie Mutual Savings Bank from 1960
through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker
with banking experience from 1960 to present, at all levels. He is the father of
Frederick W. Kuethe, III, a director of the Company.
JOHN I. YOUNG was appointed Executive Vice President and Chief
Operating Officer of the Bank in December 1999 after joining the Bank as Senior
Vice President in March 1999. Prior to joining the Bank, he had been president
of Young-Harris, Inc., a financial industry consulting company since 1980. Mr.
Young was president of American Bank Services Corp. from January 1977 to 1980
and was Senior Vice President of Operations of Equitable Trust Bank from 1958
until December 1976. Mr. Young is a member of the Independent Bankers
Association of America, the Maryland Bankers Association and an associate member
of the Robert Morris Association. He is also the incoming President of the St.
Andrew's Society of Baltimore.
MICHAEL G. LIVINGSTON was appointed Senior Vice President in January
1998 and has been Chief Lending Officer of the Bank since 1996. He was Regional
Vice President and commercial loan officer with Citizens Bank from March 1993
until April 1996. He was Comptroller with Land Services Group from April 1992
through January 1993.
JOHN E. PORTER was appointed Senior Vice President in January 1998. He
has been Treasurer and Chief Financial Officer of the Company since 1995 and
Vice President, Treasurer and Chief Financial Officer of the Bank since 1990. He
has been Secretary/Treasurer of GBB since 1995.
ITEM 2. PROPERTIES
- -------------------
The following table sets forth certain information with respect to the
Bank's offices:
<TABLE>
<CAPTION>
YEAR OWNED/ APPROXIMATE
OPENED LEASED BOOK VALUE SQUARE FOOTAGE DEPOSITS
------ ------ ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
MAIN OFFICE:
101 Crain Highway, S.E. 1953 Owned $ 1,080,729 10,000 $69,547,835
Glen Burnie, MD 21061
BRANCHES:
Odenton
1405 Annapolis Road 1969 Owned 160,258 6,000 30,894,193
Odenton, MD 21113
Riviera Beach
8707 Ft. Smallwood Road 1973 Owned 165,934 2,500 23,935,585
Pasadena, MD 21122
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEAR OWNED/ APPROXIMATE
OPENED LEASED BOOK VALUE SQUARE FOOTAGE DEPOSITS
------ ------ ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
Crownsville
1221 Generals Highway 1979 Owned $ 398,819 3,000 $33,655,679
Crownsville, MD 21032
Severn
811 Reece Road 1984 Owned 324,340 2,500 19,043,535
Severn, MD 21144
South Crain
7984 Crain Highway 1995 Leased 132,065 2,600 13,893,352
Glen Burnie, MD 21061
Ferndale
7173 Balt. &
Annapolis Blvd 1998 Leased 300,130 2,100 2,730,055
Glen Burnie, MD 21061
Severna Park
790 Ritchie Highway 1999 Leased 138,399 1,250 389,761
Severna Park, MD 21146
OPERATIONS CENTER:
106 Padfield Court 1991 Owned 1,169,877 16,200 n/a
Glen Burnie, MD 21061
</TABLE>
At December 31, 1999, 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. GBB
has also purchased land for a future branch site with a book value of $82,774.
At December 31, 1999, the Bank owned two foreclosed real estate properties
having a book value of $415,827, which consisted of a building lot and
commercial property which the Bank is holding for sale.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
From time to time, the Company and the Bank is involved in various
legal actions relating to its business activities. At December 31, 1999, there
were no actions to which the Company or the Bank was a party which involved
claims for money damages exceeding 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.
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, 1999.
19
<PAGE>
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(R) under the symbol "GLBZ." There is not currently an
active trading market for the Common Stock. As of December 31, 1999, the number
of record holders of the Common Stock was 491. The following table sets forth
the high and low sales prices for the Common Stock for each full quarterly
period during 1999 and 1998, based on trades reported on the OTC Bulletin Board
(R) or by Legg Mason Wood Walker, Inc., the principal market maker for the
Company's stock. Also shown are dividends declared per share for these periods.
Data has been adjusted to give retroactive effect to a six-for-five stock split
effected through a stock dividend paid on January 11, 2000.
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ----------------------------
QUARTER ENDED HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------------- ----- --- --------- ----- --- ---------
<S> <C> <C> <C> <C> <C> <C>
March 31, $21.146 $18.542 $ 0.083 $20.625 $19.583 $ 0.083
June 30, 19.375 19.167 0.083 21.35 20.933 0.083
September 30, 19.167 17.917 0.125 21.667 20.833 0.083
December 31, 19.167 16.771 0.125 23.333 16.667 0.167
</TABLE>
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 Company does not believe that those restrictions will
materially limit its ability to pay dividends.
20
<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,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net Interest Income......................... $ 9,925 $ 9,794 $ 10,567 $ 10,884 $ 11,339
Provision for Credit Losses................. 300 (500) 270 6,596 7,925
Other Income................................ 2,828 3,122 1,728 2,230 1,904
Other Expense............................... 9,822 11,776 11,593 9,019 8,740
Net Income (Loss)........................... 1,445 833 747 (1,020) (1,727)
SHARE DATA:
Basic Net Income (Loss) Per Share........... $ 1.15 $ 0.66 $ 0.59 $ (0.80) $ (1.39)
Diluted Net Income (Loss) Per Share......... 1.15 0.66 0.59 (0.80) (1.39)
Cash Dividends Declared
Per Common Share.......................... 0.42 0.42 0.25 0.64 0.65
Weighted Average Common
Shares Outstanding:
Basic............................... 1,261,166 1,253,275 1,275,017 1,271,744 1,246,899
Diluted............................. 1,261,166 1,253,637 1,275,017 1,271,744 1,246,899
FINANCIAL CONDITION DATA:
Total Assets................................ $ 213,439 $ 217,571 $ 231,900 $ 254,325 $ 246,165
Loans Receivable, Net....................... 151,107 125,501 111,545 124,672 150,472
Total Deposits.............................. 194,090 199,611 207,110 232,746 221,121
Total Stockholders' Equity.................. 15,102 14,169 18,965 18,586 20,537
PERFORMANCE RATIOS:
Return on Average Assets.................... 0.66% 0.38% 0.32% (0.41)% (0.73)%
Return on Average Equity.................... 9.97 4.54 3.95 (5.29) (7.42)
Net Interest Margin(1)...................... 4.96 4.94 5.09 5.04 5.42
Dividend Payout Ratio....................... 43.48 75.75 50.85 * *
CAPITAL RATIOS:
Average Equity to Average
Assets.................................... 6.67% 8.40% 8.01% 7.82% 9.89%
Leverage Ratio.............................. 6.87 5.96 7.60 7.20 8.20
Total Risk-Based Capital
Ratio.................................... 10.80 10.50 16.00 14.00 13.70
ASSET QUALITY RATIOS:
Allowance for Credit Losses to
Gross Loans............................... 1.89% 2.21% 3.55% 3.88% 2.39%
Non-accrual and Past Due Loans to
Gross Loans............................... 0.68 1.36 2.99 3.55 4.05
Allowance for Credit Losses to
Non-accrual and Past Due Loans............ 276.97 162.99 118.73 109.24 58.89
Net Loan Charge-offs to
Average Loans............................. 0.15 0.67 1.00 3.56 4.48
</TABLE>
- ---------------
* Not meaningful
1 Presented on a tax-equivalent basis.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
OVERVIEW
1999 marked the Company's third straight year of higher earnings as
many favorable operating trends continued. Most notably, 1999 saw a significant
reduction in non-interest expense as the Company resolved the litigation which
had required the Company to incur high expenses from professional fees and
litigation charges in prior years. The Bank's net interest income improved due
to a combination of continued loan growth and a moderation in deposit costs.
Loan portfolio growth was due primarily to the Bank's indirect automobile
lending which was begun in 1998 and has grown to a $51.0 million portfolio by
the end of 1999. Asset quality continued to improve as non-performing loans
declined both in dollar terms and as a percentage of the portfolio. Loan
charge-offs were reduced significantly as a result of the Bank's improved
collections procedures. Earnings for 1999 also benefitted from a one-time gain
of approximately $483,000 (after applicable income and excise taxes and net of a
25% safe harbor contribution) resulting from the curtailment of the Bank's
defined benefit pension plan.
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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998
AND 1997
GENERAL. For the year ended December 31, 1999, the Company reported
consolidated net income of $1,445,350 ($1.15 basic and diluted earnings per
share) compared to a consolidated net profit of $833,192 ($0.66 basic and
diluted earnings per share) for the year ended December 31, 1998 and a
consolidated net profit of $747,247 ($0.59 basic and diluted earnings per share)
for the year ended December 31, 1997. The increase in net income during the 1999
period was principally attributable to a $1,954,790 reduction in other expenses
due mainly to the absence of litigation charges and a reduction in professional
fees. During the 1998 period, the Company incurred $1,225,003 in litigation
charges. The reduced level of other expenses during 1999 was partially offset by
an $800,000 increase in the provision for loan losses from a net recapture into
income of $500,000 in 1998 to a provision of $300,000 in 1999. Other income also
declined by $294,488 from $3,122,369 in 1998 to $2,827,881 in 1999 due mainly to
net losses of $63,968 on sales of investment securities in 1999 as compared to
net gains of $527,320 in 1998. Other income for 1999 included a one-time
curtailment gain of $1,311,997 on the termination of the Bank's pension plan. In
connection with the curtailment of the pension plan, the Bank accrued a 25% safe
harbor contribution of $328,000 included in employee benefit expense and federal
and state excise and income taxes of approximately $304,000, resulting in a net
curtailment gain of approximately $483,000. The increase in net income during
the 1998 period as compared to 1997 was principally attributable to the receipt
of $1,126,077 in proceeds from insurance settlements during the year and the
recapture into income of $500,000 in allowances for credit losses. These
increases in income offset a decrease in net interest income and an increase in
non-interest expense which included amounts paid in settlement of various
litigation.
22
<PAGE>
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 paid on the 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, 1999
was $9,925,203 compared to $9,793,550 for the year ended December 31, 1998 and
$10,567,211 for the year ended December 31, 1997. The $131,653 increase in net
interest income for the most recent year was due to a reduction of $545,200 in
interest expense on deposit accounts from $6,048,828 in 1998 to $5,503,628 in
1999 due to a decrease in deposit balances, partially offset by a reduction in
interest income of $340,464. The overall decline in interest income was
attributable to a decrease in the average volume of the Company's securities
portfolio during the period and, to a lesser extent, to a declining yield in the
loan portfolio. Interest income from loans actually increased by $1,225,706 from
$10,590,864 in 1998 to $11,816,570 in 1999 due to a $23,705,000, or 20.0%,
increase in the average balance of loans outstanding during 1999. During 1998,
the Bank instituted an automobile indirect lending program which accounted for
the bulk of the increase in loans.
The decrease in net interest income for fiscal year 1998 as compared to
fiscal year 1997 was primarily attributable to a significant decline in interest
income which fell $1,587,696 (9.1%). The decline in interest income was
attributable primarily to a reduced average volume of earning assets and
secondarily to a declining yield on assets. The most significant reductions in
earning assets involved the investment securities portfolio. The Company used
the proceeds from maturing and called investment securities to cover deposit
outflows. The Company also experienced a 66 basis point decline in the yield on
the investment securities portfolio as the Company shifted its investment
securities portfolio into repricable GNMA securities from state, county and
municipal obligations. Interest expense declined $814,035, or 11.8%, for the
year ended December 31, 1998. Net interest margin for the year ended December
31, 1999 was 4.96% compared to 4.94% and 5.09% for the years ended December 31,
1998 and 1997, respectively.
23
<PAGE>
The following table allocates changes in income and expense
attributable to the Company'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,
------------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
----------------------------------- --------------------------------
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..................... $ (146) $ (22) $ (124) $ (40) $ 30 $ (70)
--------- -------- ------- --------- -------- ---------
Interest-bearing deposits.............. (251) 4 (255) 204 (7) 211
--------- -------- ------- --------- -------- ---------
Investment securities:
U.S. Treasury securities, obligations of
U.S. government agencies and
mortgage-backed securities........ (945) (42) (903) (727) (370) (357)
Obligations of states and
political subdivisions(1)......... (326) -- (326) (1,177) 31 (1,208)
All other investment securities...... (14) 1 (15) 7 2 5
--------- -------- ------- -------- -------- ---------
Total investment securities....... (1,285) (41) (1,244) (1,897) (337) (1,560)
--------- -------- ------- -------- -------- ---------
Loans, net of unearned income:
Demand, time and lease .............. (360) (23) (337) (509) 11 (520)
Mortgage and construction............ (284) (248) (36) (360) (122) (238)
Installment and credit card.......... 1,868 (509) 2,377 609 (32) 641
--------- -------- ------- -------- -------- ---------
Total gross loans(2).............. 1,224 (780) 2,004 (260) (143) (117)
--------- -------- ------- -------- -------- ---------
Allowance for credit losses.......... -- -- -- -- -- --
--------- -------- ------- -------- -------- ---------
Total net loans................... 1,224 (780) 2,004 (260) (143) --
--------- -------- ------- -------- -------- ---------
Total interest-earning assets............. $ (458) $ (839) $ 381 $ (1,993) $ (457) $ (1,536)
========= ======== ======= ========= ========= =========
LIABILITIES
Interest-bearing deposits:
Savings and NOW........................ $ (279) $ (280) $ 1 $ (248) $ (86) $ (162)
Money market........................... (19) (19) 0 (76) (5) (71)
Other time deposits.................... (248) (221) (27) (468) (12) (456)
--------- -------- ------- --------- --------- ---------
Total interest-bearing deposits...... (546) (520) (26) (792) (103) (689)
Non-interest-bearing deposits............. -- -- -- -- -- --
Borrowed funds............................ 72 1 71 (21) 3 (24)
--------- -------- ------- -------- -------- ---------
Total interest-bearing liabilities........ $ (474) $ (519) $ 45 $ (813) $ (100) $ (713)
========= ======== ======= ========= ========= =========
</TABLE>
- ---------------
1 Tax equivalent basis.
2 Non-accrual loans included in average balances.
24
<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,
-------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ --------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------ ------- -------- ------ ------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold................ $ 2,330 $ 116 4.97% $ 4,414 $ 262 5.94% $ 5,755 $ 302 5.25%
Interest-bearing deposits......... 440 26 5.91 5,433 277 5.10 1,397 73 5.23
--------- --------- ------ --------- --------- ------ --------- --------- ----
Investment securities:
U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities................... 57,347 3,542 6.18 71,774 4,487 6.25 77,045 5,214 6.77
Obligations of States and
political subdivisions(1).... -- -- -- 3,550 326 9.18 18,114 1,503 8.30
All other investment securities 737 56 7.60 936 270 7.48 871 63 7.23
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total investment securities. 58,084 3,598 6.19 76,260 4,883 6.40 96,030 6,780 7.06
--------- --------- ------ --------- --------- ------ --------- --------- ----
Loans, net of unearned income:
Demand, time and lease......... 4,353 391 8.98 7,909 751 9.50 13,459 1,260 9.36
Mortgage and construction...... 80,814 7,041 8.71 81,212 7,325 9.02 83,805 7,685 9.17
Installment and credit card.... 56,910 4,385 7.71 29,251 2,517 8.60 21,897 1,908 8.71
--------- --------- ------ --------- --------- ----- --------- --------- ----
Total gross loans(2)........ 142,077 11,817 8.32 118,372 10,593 8.95 119,161 10,853 9.11
Allowance for credit losses. 2,800 3,668 4,460
--------- --------- ---------
Total net loans.............. 139,277 11,817 8.48 114,704 10,593 9.24 114,701 10,853 9.46
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total interest-earning assets 200,131 15,557 7.77 200,811 16,015 7.98 217,883 18,008 8.26
--------- ------ --------- ------ --------- ----
Cash and due from banks.............. 7,288 6,406 7,125
Other assets......................... 9,890 11,207 11,170
--------- --------- ---------
Total assets................ $ 217,309 $ 218,424 $ 236,178
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
Savings and NOW.................... $ 61,902 $ 1,169 1.89% $ 61,752 $ 1,448 2.34% $ 68,269 $ 1,696 2.48%
Money market....................... 19,581 527 2.69 19,575 546 2.79 22,116 622 2.81
Other time deposits................ 72,320 3,807 5.26 72,834 4,055 5.57 81,006 4,523 5.58
--------- --------- ------ --------- --------- ------ --------- --------- ----
Total interest-bearing deposits.. 153,803 5,503 3.58 154,161 6,049 3.92 171,391 6,841 3.99
Borrowed funds....................... 2,043 119 5.82 811 47 5.80 1,261 68 5.39
--------- --------- ------ --------- --------- ----- --------- --------- ----
Total interest-bearing liabilities 155,846 5,622 3.61 154,972 6,096 3.93 172,652 6,909 4.00
--------- --------- --------- --------- --------- ---------
Non-interest-bearing deposits........ 44,270 42,095 43,543
Other liabilities.................... 2,695 3,014 1,056
Stockholders' equity................. 14,498 18,343 18,927
--------- --------- ---------
Total liabilities and equity......... $ 217,309 $ 218,424 $ 236,178
========= ========= =========
Net interest income.................. $ 9,935 $ 9,919 $ 11,099
========= ========= =========
Net interest spread.................. 4.16% 4.04 % 4.26%
====== ======= ====
Net interest margin.................. 4.96% 4.94 % 5.09%
====== ======= ====
</TABLE>
- ---------------------
1 Tax equivalent basis. The incremental tax rate applied was 38.62% for 1998 and
37.42% for 1997.
2 Non-accrual loans included in average balance.
PROVISION FOR CREDIT LOSSES. During the year ended December 31, 1999,
the Company made a provision for credit losses of $300,000 compared to
$(500,000) and $270,000 in provisions during the years ended December 31, 1998
and 1997, respectively. The level of the provision for 1999 reflects the loan
growth during the year. The recapture
25
<PAGE>
of loss reserves during 1998 reflects improved asset quality and lower
charge-off activity during 1998. At December 31, 1999, the allowance for loan
losses equaled 276.97% of non-accrual and past due loans compared to 179.5% and
118.7% at December 31, 1998 and 1997, respectively. During the year ended
December 31, 1999, the Company recorded net charge-offs of $219,429 compared to
$798,336 and $1,191,196 in net charge-offs during the years ended December 31,
1998 and 1997. The higher provision during fiscal year 1997 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 that year.
OTHER INCOME. Other income decreased $294,488 (9.43%) during the year
ended December 31, 1999 compared to the prior year period. The decrease in other
income was attributable primarily to net losses of $63,968 on sales of
investment securities during 1999 as compared to net gains of $527,320 in 1998.
This decline was partially offset by a non-recurring curtailment gain of
$1,311,997 upon termination of the Bank's pension plan. The 1998 period had
included a large nonrecurring gain of $1,126,077 upon the settlement of certain
insurance matters. Other income increased $1,394,555 (81%) during the year ended
December 31, 1998 compared to the year ended December 31, 1997. The bulk of the
increase in other income during 1998 was attributable to $1,126,077 in proceeds
from insurance settlements received during the year. Included in this figure was
$1,125,000 received from the Bank's fidelity bond company in settlement of
claims related to the activities of a former employee. Other income during 1998
also benefitted from a $256,000, or 95%, increase in gains on sales and calls of
investment securities. In order to improve its interest rate sensitivity for
fiscal 1998, the Bank sold $16.0 million in long-term, fixed-rate state, county
and municipal securities and invested the proceeds in adjustable-rate,
mortgage-backed securities issued by the Government National Mortgage
Association ("GNMA").
OTHER EXPENSES. Other expenses decreased by $1,954,790 or 16.60% for
the year ended December 31, 1999 as compared to a net increase of $183,418 or
1.6% for the year ended December 31, 1998 over the year ended December 31, 1997.
The decrease in other expenses was mainly due to the absence of any litigation
charges during 1999. During 1998 the Company incurred $1,225,003 in litigation
charges. Other noninterest expenses also decreased significantly from $4,112,919
in 1998 to $2,850,745 in 1999 due to a $1,448,519 or 66.95% reduction in
professional fees, offset by increases in other expense items. Included in other
expenses for 1998 were $1,225,003 in litigation charges, a $228,842, or 23%,
increase over 1997. These charges related to the settlement of claims against
the Bank in connection with payment of checks over fraudulent endorsements. Also
included in other expenses for 1998 are $2,163,448 in professional service fees
relating primarily to the litigation in which the Company was involved during
the year.
INCOME TAXES. During the year ended December 31, 1999, the Company
recorded an income tax expense of $1,186,044 compared to tax expense of $806,247
during the year ended December 31, 1998 and a tax benefit of $315,284 during the
year ended December 31, 1997. The increased tax level was due to the higher
level of pre-tax income in 1999. Due primarily to its holdings of tax-exempt
state, county and municipal securities, the Company recorded tax losses during
the 1997 year. These net operating losses were applied to prior years' earnings
resulting in tax benefits for the 1997 period. During 1998, however, the Company
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 had taxable income
during 1998 and was required to provide for federal income taxes. The Company's
income tax expense for 1998 also included $351,738 in disallowed claims for
refunds of prior years' state taxes.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999, 1998 AND 1997
The Company's total assets decreased to $213,439,456 at December 31,
1999 after declining to $217,571,063 at December 31, 1998 from $231,899,594 at
December 31, 1997. The decrease in assets during the year ended December 31,
1999 is a result primarily of a reduction in cash and cash equivalents along
with a reduction from deposit balances. The reduction also reflects a reduction
in the investment securities portfolio as the Company used cash flows from sales
and maturities of investment securities to fund its indirect lending program.
26
<PAGE>
During 1999, the Company's loan portfolio grew to $151,106,560 at
December 31, 1999 compared to $125,501,252 at December 31, 1998 and $111,545,262
at December 31, 1997. The growth in the loan portfolio was attributable almost
entirely to the Bank's indirect automobile lending program which was introduced
in January 1998 and grew to $50,967,000 at December 31, 1999. Construction and
land development loans also increased from $2,382,657 at December 31, 1998 to
$6,094,894 at December 31, 1999. The Bank's other loan portfolios held steady or
declined during the year.
The Company's total investment securities portfolio (including both
investment securities available for sale and investment securities held to
maturity) totaled $43,974,495 at December 31, 1999, a $21,511,332 or 32.85%
decrease from $65,485,827 at December 31, 1998. During the year ended December
31, 1999, investment securities totaling $32,524,280 either matured or were sold
with the funds primarily reinvested in loans rather than additional investment
securities. Proceeds were also used to fund, in part, net deposit outflows of
$5,521,120. During fiscal year 1998, total investment securities portfolio
(including both investment securities available for sale and investment
securities held to maturity) totaled $65,485,827 at December 31, 1998, a
$16,371,844 or 20.0%, decrease from $81,857,671 at December 31, 1997. The
Company used the proceeds from maturing and called securities to fund deposit
outflows during the period.
Deposits as of December 31, 1999 totaled $194,089,995, a decrease of
$5,521,120 (2.77%) for the year. Demand deposits as of December 31, 1999 totaled
$45,144,293, a $216,483 (0.48%) decrease from $45,360,776 at December 31, 1998.
NOW and Super NOW accounts as of December 31, 1999 declined by $2,037,973 or
9.89% to $18,562,778. Money market accounts decreased by $2,421,012 (12.08%) for
the year to total $17,628,665 on December 31, 1999. Savings deposits increased
by $150,833, or 0.37%. Time deposits over $100,000 totaled $6,345,179 on
December 31, 1999, an increase of $586,910 (10.19%) from December 31, 1998.
Other time deposits (made up of certificates of deposit less than $100,000 and
individual retirement accounts) totaled $65,292,304 on December 31, 1999, a
$1,583,395 (2.37%) decrease from December 31, 1998.
The Company experienced a $933,776, or 6.59% increase in total
stockholders' equity for the year ended December 31, 1999. The increase in
stockholders' equity was attributable to the retention of earnings from the
period less cash dividends paid and additional share issuances pursuant to the
employee stock purchase plan, the stockholder purchase plan and the dividend
reinvestment plan, partially offset by an other comprehensive loss of $435,823
resulting from unrealized losses on securities classified as available for sale.
The Company experienced a $4,795,917, or 25.3% decrease in total stockholders'
equity for the year ended December 31, 1998. The decrease in stockholders'
equity was attributable to the repurchase of 213,168 shares of common stock from
First Mariner Bancorp for an aggregate purchase price of $5,580,764 in November
1998.
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 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.
27
<PAGE>
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, 1999.
<TABLE>
<CAPTION>
OVER 1
OVER 3 TO THROUGH OVER
0-3 MONTHS 12 MONTHS 5 YEARS 5 YEARS TOTAL
---------- --------- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks.......... $ -- $ -- $ -- $ -- $ 8,317
Federal funds and overnight
deposits...................... 566 -- -- -- 566
Securities....................... 5,651 10,641 12,700 15,236 44,228
Loans............................ 13,470 11,035 63,328 64,587 154,028
Fixed assets..................... -- -- -- -- 4,253
Other assets..................... -- -- -- -- 2,047
------------- -------------- ------------ ------------- ------------
Total assets.................. $ 19,687 $ 21,676 $ 76,028 $ 79,823 $ 213,439
============= ============== ============ ============= ============
Liabilities:
Demand deposit accounts.......... $ -- $ -- $ -- $ -- $ 45,144
NOW accounts..................... 18,563 -- -- -- 18,563
Money market deposit accounts.... 17,629 -- -- -- 17,629
Savings accounts................. 41,117 -- -- -- 41,117
IRA accounts..................... 4,727 5,769 8,173 1,291 19,960
Certificates of deposit.......... 14,479 19,685 17,002 511 51,677
Other liabilities................ -- -- -- -- 4,247
Stockholders' equity.......... -- -- -- -- 15,102
------------- -------------- ------------ ------------- ------------
Total liabilities and
stockholders' equity........ $ 96,515 $ 25,454 $ 25,175 $ 1,802 $ 213,439
============= ============== ============ ============= ============
GAP................................. $ (76,828) $ (3,778) $ 50,853 $ 78,021
Cumulative GAP...................... (76,828) (80,606) (29,753) 48,268
Cumulative GAP as a % of
total assets...................... (36.0)% (37.8)% (13.9)% 22.6%
</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.
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.
28
<PAGE>
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 the primary source of funds supporting the Bank's lending and
investment activities. The Bank also uses borrowings from the FHLB of Atlanta to
supplement deposits. FHLB advances may only be used for residential and small
business lending.
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, 1999, totaled $8,883,322, a decrease of $7,135,994 (44.55%) from
the December 31, 1998 total of $16,019,316. Most of this decrease was in
interest bearing deposits at other financial institutions which totaled $10,245
at December 31, 1999 compared to $4,958,337 at the end of 1998.
As of December 31, 1999, the Bank was permitted to draw on a
$25,560,000 line of credit from the FHLB of Atlanta. Borrowings under the line
are secured by a floating lien on the Bank's residential mortgage loans and its
portfolio of U.S. Government and Agency Securities. As of December 31, 1999,
$2.0 million was outstanding under this line. In addition the Bank has a secured
line of credit in the amount of $5.0 million from another commercial bank on
which it has not drawn.
Federal banking regulations require the Company and the Bank to
maintain specified levels of capital. At December 31, 1999, the Company was in
compliance with these requirements with a leverage ratio of 6.8%, a Tier 1
risk-based capital ratio of 9.5% and total risk-based capital ratio of 10.8%. At
December 31, 1999, the Bank met the criteria for designation as a well
capitalized depository institution under FDIC regulations.
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 mature. 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
--------------------
Not applicable.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
For information concerning the Board of Directors and executive
officers of the Company, the information contained under the section captioned
"Proposal I -- Election of Directors" in the Company's definitive proxy
statement for the Company's 2000 Annual Meeting of Stockholders (the "Proxy
Statement") which will be filed with the Commission on or before April 29, 2000
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information contained under the sections captioned "Director
Compensation" and "Executive Compensation and Other Benefits" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(B) SECURITY OWNERSHIP OF MANAGEMENT
Information required by this item is incorporated herein by
reference to the sections captioned "Securities Ownership of
Management" in the Proxy Statement.
(C) CHANGES IN CONTROL
Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Transactions" in the Proxy
Statement.
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.
<TABLE>
<CAPTION>
Page
------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997 F-2
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997 F-3
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-4
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C>
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
(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 *
3.2 By-Laws **
3.3 Articles Supplementary, dated November 16, 1999 ***
4.1 Rights Agreement, dated as of February 13, 1998, between Glen
Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as
amended and restated as of December 27, 1999 *
10.1 + Glen Burnie Bancorp Director Stock Purchase Plan ****
10.2 The Bank of Glen Burnie Employee Stock Purchase Plan *****
10.3 + Change-in-Control Severance Plan ******
10.4 + The Bank of Glen Burnie Executive and Director Deferred
Compensation Plan
21 Subsidiaries of the registrant *******
23 Consent of Trice Geary & Myers LLC
27 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.
* Incorporated herein by reference to Amendment No. 1 to the Registrant's
Form 8-A filed December 27, 1999.
** Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1998.
*** Incorporated herein by reference to the Registrant's Current Report on
Form 8-K filed December 8, 1999.
**** Incorporated herein by reference to Post-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-8 (Commission File No.
33-62280).
***** Incorporated herein by reference to Post-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-8 (Commission File No.
333-46943).
****** Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1997.
******* Incorporated herein by reference from the similarly numbered exhibit to
Registrant's Registration Statement on Form S-1 (Commission File No.
333-37073).
(B) REPORTS ON FORM 8-K. On December 8, 1999, the Company filed a
Current Report on Form 8-K reporting under Item 5 that the Company had elected
to become subject to Sections 3-804 and 3-805 of Subtitle 8 of Title 3 of the
Maryland General Corporation Law ("MGCL").
On December 10, 1999, the Company filed a Current Report on Form 8-K
reporting under Item 5 that the Board of Directors of the Company had approved a
First Amendment, dated December 9, 1999 (the "First Amendment") to its Rights
Agreement dated as of February 13, 1998 by and between the Company and The Bank
of Glen Burnie, as Rights Agent (the "Rights Agreement"). The purpose of the
First Amendment was to exempt from the definition of Acquiring Person any person
who inadvertently acquires the beneficial ownership of 10% or more of the
outstanding Common Stock (but not more than 10 1/4%) and divests sufficient
shares such that he or she is no longer the beneficial
31
<PAGE>
owner of 10% or more of the outstanding Common Stock within five business days
after being requested to do so by the Company.
On December 27, 1999, the Company filed a Current Report on Form 8-K
reporting under Item 5 that the Company had amended its Articles of
Incorporation to reduce the par value of its common stock from $10 per share to
$1 per share and to increase its authorized shares of common stock from
5,000,0000 to 15,000,000 and also amended the Stockholders Rights Plan to
reflect the change in par value, to eliminate certain unnecessary exemptions
from the definition of Acquiring Person and to make certain other changes.
(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.
32
<PAGE>
[LETTERHEAD OF TRICE GEARY & MYERS LLC]
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, 1999, 1998, and 1997, and the
related consolidated statements of income, comprehensive 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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
financial statement presentation. We believe that our audits provide 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, 1999, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Trice Geary & Myers LLC
- ---------------------------
Salisbury, Maryland
February 9, 2000, except for Note 21
as to which the date is February 15, 2000
F-1
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 8,317,450 $ 8,197,344 $ 8,127,732
Interest bearing deposits in other financial institutions 10,245 4,958,337 1,558,879
Federal funds sold 555,627 2,863,635 18,850,000
------------- ------------- -------------
Cash and cash equivalents 8,883,322 16,019,316 28,536,611
Investment securities available for sale, at fair value 15,317,253 32,924,539 40,678,867
Investment securities held to maturity (fair value
1999 $27,041,751; 1998 $32,539,731; 1997 $41,566,019) 28,657,242 32,561,288 41,178,804
Ground rents, at cost 254,025 257,025 262,525
Loans, less allowance for credit losses
1999 $2,921,631; 1998 $2,841,060; 1997 $4,139,396 151,106,560 125,501,252 111,545,262
Premises and equipment, at cost, less
accumulated depreciation 4,253,324 4,420,382 4,319,423
Accrued interest receivable 1,279,067 1,401,660 1,556,971
Prepaid income taxes - - 636,318
Deferred income tax benefits 49,137 892,912 1,385,395
Other real estate owned 558,827 1,099,326 748,231
Other assets 3,080,699 2,493,363 1,051,187
------------- ------------- -------------
TOTAL ASSETS $ 213,439,456 $ 217,571,063 $ 231,899,594
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 45,144,293 $ 45,360,776 $ 47,651,375
Interest-bearing 148,945,702 154,250,339 159,458,897
------------- ------------- -------------
Total deposits 194,089,995 199,611,115 207,110,272
Short-term borrowings 2,464,936 1,143,904 889,398
Dividends payable 136,666 123,039 81,146
Accrued interest payable on deposits 152,555 160,597 177,922
Other liabilities 1,492,855 2,363,735 4,676,266
------------- ------------- -------------
TOTAL LIABILITIEs 198,337,007 203,402,390 212,935,004
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding 1999 1,093,496 shares;
1998 894,938; 1997 1,092,768 shares 1,093,496 894,938 1,092,768
Surplus 10,149,247 9,788,889 14,770,821
Retained earnings 4,013,171 3,202,488 2,876,069
Accumulated other comprehensive income (loss) (153,465) 282,358 224,932
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,102,449 14,168,673 18,964,590
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,439,456 $ 217,571,063 $ 231,899,594
============= ============= =============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-2
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME ON:
Loans, including fees $ 11,816,570 $ 10,590,864 $ 10,845,819
U.S. Treasury securities 279,412 461,808 662,237
U.S. Government agency securities 3,254,811 4,024,712 4,551,441
State and municipal securities - 202,052 978,892
Federal funds sold 115,613 261,880 301,614
Other 81,971 347,525 136,534
------------ ------------ ------------
Total interest income 15,548,377 15,888,841 17,476,537
------------ ------------ ------------
INTEREST EXPENSE ON:
Deposits 5,503,628 6,048,828 6,840,952
Short-term borrowings 119,546 46,463 68,374
------------ ------------ ------------
Total interest expense 5,623,174 6,095,291 6,909,326
------------ ------------ ------------
NET INTEREST INCOME 9,925,203 9,793,550 10,567,211
PROVISION FOR CREDIT LOSSES 300,000 (500,000) 270,000
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 9,625,203 10,293,550 10,297,211
------------ ------------ ------------
OTHER INCOME:
Service charges on deposit accounts 891,913 908,733 945,613
Other fees and commissions 687,939 560,239 511,292
(Losses) gains on investment securities (63,968) 527,320 270,909
Curtailment gain on pension plan termination 1,311,997 - -
Proceeds from insurance settlements - 1,126,077 -
------------ ------------ ------------
Total other income 2,827,881 3,122,369 1,727,814
------------ ------------ ------------
OTHER EXPENSES:
Salaries and wages 3,925,075 3,742,152 3,712,206
Employee benefits 1,596,044 1,309,591 1,547,888
Occupancy 573,052 502,216 482,160
Furniture and equipment 876,774 884,599 781,664
Litigation charges - 1,225,003 996,161
Other expenses 2,850,745 4,112,919 4,072,983
------------ ------------ ------------
Total other expenses 9,821,690 11,776,480 11,593,062
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,631,394 1,639,439 431,963
FEDERAL AND STATE INCOME TAX EXPENSE (BENEFITS) 1,186,044 806,247 (315,284)
------------ ------------ ------------
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.15 $ 0.66 $ 0.59
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-3
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Reclassification relating to adoption
of SFAS No. 133 at October 1, 1998 - 270,038 -
Unrealized holding gains (losses) arising during the
period (net of deferred taxes (benefits) 1999 ($296,905);
1998 ($6,043); 1997 $64,325) (472,279) (9,644) 102,320
Reclassification adjustment for (gains) losses included in net
income (net of deferred taxes (benefits) 1999 ($22,919);
1998 $127,598; 1997 $89,391) 36,456 (202,968) (142,193)
----------- ----------- -----------
Total other comprehensive income (loss) (435,823) 57,426 (39,873)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,009,527 $ 890,618 $ 707,374
=========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-4
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Retained Comprehensive Stockholders'
Shares Par Value Surplus Earnings Income (Loss) Equity
------------ ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 883,858 $ 883,858 $ 14,147,630 $ 3,290,077 $ 264,805 $ 18,586,370
Net income - - - 747,247 - 747,247
Shares issued with stock dividends 26,782 26,782 623,191 (649,973) - -
Stock split effected in form of 20%
stock dividend 182,128 182,128 - (182,128) - -
Cash dividends, $.25 per share - - - (329,154) - (329,154)
Other comprehensive loss, net of tax - - - - (39,873) (39,873)
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1997 1,092,768 1,092,768 14,770,821 2,876,069 224,932 18,964,590
Net income - - - 833,192 - 833,192
Shares issued under employee
stock purchase plan 935 935 18,934 - - 19,869
Shares issued under stockholder
stock purchase plan 7,388 7,388 185,623 - - 193,011
Shares repurchased and retired (213,168) (213,168) (5,367,596) - - (5,580,764)
Cash dividends, $.42 per share - - - (506,773) - (506,773)
Dividends reinvested under dividend
reinvestment plan 7,015 7,015 159,500 - - 166,515
Vested stock options - - 21,607 - - 21,607
Other comprehensive income, net
of tax - - - - 57,426 57,426
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1998 894,938 894,938 9,788,889 3,202,488 282,358 14,168,673
------------ ------------ ------------ ------------ ------------ ------------
Net income - - - 1,445,350 - 1,445,350
Shares issued under employee
stock purchase plan 2,015 2,015 39,351 - - 41,366
Shares issued under stockholder
stock purchase plan 9,470 9,470 219,730 - - 229,200
Shares repurchased and retired (8) (8) (130) - - (138)
Cash dividends, $.42 per share - - - (452,418) - (452,418)
Dividends reinvested under dividend
reinvestment plan 4,832 4,832 101,317 - - 106,149
Stock split effected in form of 20%
stock dividend 182,249 182,249 - (182,249) - -
Expired stock options - - (14,201) - - (14,201)
Vested stock options - - 14,291 - - 14,291
Other comprehensive loss, net
of tax - - - - (435,823) (435,823)
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 1,093,496 $ 1,093,496 $ 10,149,247 $ 4,013,171 $ (153,465) $ 15,102,449
============ ============ ============ ============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-5
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,445,350 $ 833,192 $ 747,247
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization, and accretion 831,034 953,579 664,428
Compensation expense from vested stock options, net 90 21,607 -
Provision for credit losses 300,000 (500,000) 270,000
Losses on real estate owned - 6,000 64,214
Deferred income taxes 1,117,994 456,350 20,659
(Gains) losses on disposals of assets, net 43,273 (478,839) (241,183)
Changes in assets and liabilities:
Decrease in accrued interest receivable 122,593 155,311 380,957
(Increase) decrease in prepaid income taxes and
other assets (741,174) (732,269) 251,382
Decrease in accrued interest payable (8,042) (17,325) (37,055)
Increase (decrease) in other liabilities (870,880) 1,209,969 (1,031,483)
------------ ------------ ------------
Net cash provided by operating activities 2,240,238 1,907,575 1,089,166
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held to maturity mortgage-backed securities 2,490,926 674,870 -
Maturities of other held to maturity investment securities 7,754,438 20,485,350 23,405,000
Maturities of available for sale mortgage-backed securities 5,018,593 6,749,884 1,780,092
Maturities of other available for sale investment securities 1,991,087 1,525,000 7,785,900
Sales of debt securities 14,985,136 25,899,152 19,095,130
Purchases of held to maturity investment securities (6,357,408) (27,992,219) (16,314,976)
Purchases of held to maturity mortgage-backed securities - (9,521,417) -
Purchases of available for sale mortgage-backed securities - - (16,126,491)
Purchases of other available for sale investment securities (5,498,437) (4,527,891) (1,188,100)
Redemption of FHLB stock 284,100 - -
(Increase) decrease in loans, net (25,729,005) (13,453,506) 17,457,529
Purchases of loans from other financial institutions - - (4,779,164)
Proceeds from sales of other real estate 402,693 - 420,577
Purchases of other real estate (59,523) (359,579) (451,950)
Proceeds from sales of premises and equipment 42,920 - -
Purchases of premises and equipment (439,450) (993,614) (727,320)
------------ ------------ ------------
Net cash provided (used) by investing activities (5,113,930) (1,513,970) 30,356,227
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in noninterest-bearing deposits, NOW
accounts, money market accounts, and savings accounts, net (4,524,635) (4,194,857) (15,436,924)
Decrease in time deposits, net (996,485) (3,304,300) (10,198,779)
Increase in short-term borrowings 1,321,032 254,506 341,461
Cash dividends paid (438,791) (464,880) (292,201)
Common stock dividends reinvested 106,149 166,515 -
Repurchase and retirement of common stock (138) (5,580,764) -
Issuance of common stock 270,566 212,880 -
------------ ------------ ------------
Net cash used by financing activities (4,262,302) (12,910,900) (25,586,443)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,135,994) (12,517,295) 5,858,950
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,019,316 28,536,611 22,677,661
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,883,322 $ 16,019,316 $ 28,536,611
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-6
<PAGE>
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 5,631,216 $ 6,112,616 $ 6,946,381
Income taxes refunded - - (755,597)
Total increase (decrease) in unrealized appreciation
(depreciation) on securities available for sale (710,042) 93,559 (64,961)
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank of Glen Burnie (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 of Maryland (the "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 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
(see Note 19) 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
effective interest rate 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. Changes in unrealized
appreciation (depreciation) on securities available for sale are
reported in other comprehensive income. Realized gains (losses) on
securities available for sale are included in other income (expense)
and, when applicable, are reported as a reclassification adjustment,
net of tax, in other comprehensive income. The gains and losses on
securities sold are determined by the specific identification method.
Premiums and discounts are recognized in interest income using the
effective interest rate 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.
Federal Home Loan Bank ("FHLB") stock is an equity interest in the
FHLB, which does not have a readily determinable fair value for
purposes of Statement of Financial Accounting Statements ("SFAS") No
115, Accounting for Certain Investments in Debt and Equity Securities,
because its ownership is restricted and it lacks a market. FHLB stock
can be sold back only at its par value of $100 per share and only to
the FHLBs or another member institution.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loans and Allowance for Credit Losses:
Loans are generally carried at the amount of unpaid principal, adjusted
for deferred loan fees, which are amortized over the term of the loan
using the effective interest rate 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 carrying value of
impaired loans is 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 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 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 other income or
expenses. Gains and losses realized from the sale of OREO are included
in other expenses. Loans converted to OREO through foreclosure
proceedings totaled $59,523, $359,579, and $610,557 for the years ended
December 31, 1999, 1998, and 1997, respectively. Sales of OREO that
were financed by the Bank totaled $178,787 for 1997. No sales of OREO
were financed by the Bank for 1999 or 1998.
Bank Premises and Equipment:
Bank premises and equipment are stated at 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 premises and equipment are reflected in
the consolidated statements of income. Expenditures for repairs and
maintenance are charged to other expenses as incurred. Computer
software is recorded at cost and amortized over three to five years.
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
a branch acquired over the fair value of the net assets at date of
acquisition. Goodwill of $544,652 is being amortized on the straight-
line method over 10 years. Accumulated amortization was $231,477,
$177,012, and $122,547 at December 31, 1999, 1998, and 1997,
respectively. Amortization expense totaled $54,465 for the years ended
December 1999, 1998, and 1997.
Long-Lived Assets:
The carrying value of long-lived assets and certain identifiable
intangibles, including goodwill, is reviewed by the Bank for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
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 bases.
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 and pension
benefits, unused expense deductions, operating losses, 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 ("FDIC").
The Bank had deposits and Federal funds sold of approximately
$3,048,000 with one financial institution as of December 31, 1999.
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.
Earnings per share:
Basic earnings per common share are determined by dividing net income
by the weighted average number of shares of common stock outstanding.
Diluted earnings per share is calculated including the average dilutive
common stock equivalents outstanding during the period. Dilutive common
equivalent shares consist of stock options, calculated using the
treasury stock method.
Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Federal Reserve requires the Bank to maintain noninterest-bearing
cash reserves against certain categories of average deposit
liabilities. Such reserves averaged approximately $2,477,000,
$2,094,000 and $2,464,000 during the years ended December 31, 1999,
1998 and 1997, respectively.
NOTE 3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- ----------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury $ 991,895 $ - $ 9,378 $ 982,517
U.S. Government agency 5,491,665 - 209,145 5,282,520
Mortgage-backed 8,431,417 24,870 56,371 8,399,916
----------- ----------- ----------- -----------
14,914,977 24,870 274,894 14,664,953
Federal Home Loan Bank stock 652,300 - - 652,300
----------- ----------- ----------- -----------
$15,567,277 $ 24,870 $ 274,894 $15,317,253
=========== =========== =========== ===========
Held to maturity:
U.S. Treasury $ 1,747,488 $ 4,241 $ 5,081 $ 1,746,648
U.S. Government agency 16,851,527 - 1,139,994 15,711,533
Mortgage-backed 10,058,227 - 474,657 9,583,570
----------- ----------- ----------- -----------
$28,657,242 $ 4,241 $ 1,619,732 $27,041,751
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury $ 2,584,565 $ 129,844 $ - $ 2,714,409
U.S. Government agency 16,430,674 249,927 8,340 16,672,261
Mortgage-backed 12,512,882 90,225 1,638 12,601,469
----------- ----------- ----------- -----------
31,528,121 469,996 9,978 31,988,139
Federal Home Loan Bank stock 936,400 - - 936,400
----------- ----------- ----------- -----------
$32,464,521 $ 469,996 $ 9,978 $32,924,539
=========== =========== =========== ===========
Held to maturity:
U.S. Treasury $ 2,497,627 $ 54,164 $ - $ 2,551,791
U.S. Government agency 15,486,672 41,176 92,043 15,435,805
Mortgage-backed 14,576,989 19,248 44,102 14,552,135
----------- ----------- ----------- -----------
$32,561,288 $ 114,588 $ 136,145 $32,539,731
=========== =========== =========== ==========
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENT SECURITIES (continued)
<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
=========== =========== =========== ===========
</TABLE>
Effective October 1, 1998, the Bank adopted the provisions of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,
which provides for a special opportunity to reclassify held to maturity
securities to available for sale. In connection therewith, the Bank
reclassified held to maturity securities with amortized cost
approximating $20,300,000 as available for sale, resulting in an
increase in accumulated other comprehensive income of approximately
$270,000, net of deferred taxes of approximately $170,000.
Contractual maturities of investment securities at December 31, 1999,
1998, and 1997 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, 1999 Cost Value Cost Value
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 500,047 $ 500,134
Due over one to five years 5,483,560 5,310,974 3,653,770 3,577,422
Due over five to ten years 1,000,000 954,063 6,990,185 6,635,625
Due over ten years - - 7,455,013 6,745,000
Mortgage-backed, due in monthly
installments 8,431,417 8,399,916 10,058,227 9,583,570
----------- ----------- ----------- -----------
$14,914,977 $14,664,953 $28,657,242 $27,041,751
=========== =========== =========== ===========
</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, 1998 Cost Value Cost Value
- ----------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Due within one year $ 1,499,909 $ 1,509,844 $ 1,250,357 $ 1,259,844
Due over one to five years 13,445,861 13,690,797 1,247,271 1,291,953
Due over five to ten years 4,069,469 4,186,029 7,489,009 7,517,969
Due over ten years - - 7,997,662 7,917,830
Mortgage-backed, due in monthly
installments 12,512,882 12,601,469 14,576,989 14,552,135
------------- ------------- ------------- --------------
$ 31,528,121 $ 31,988,139 $ 32,561,288 $ 32,539,731
============= ============= ============= ==============
</TABLE>
<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 5,666,055 5,672,727 6,113,419 6,186,836
Mortgage-backed, due in monthly
installments 16,194,063 16,170,527 - -
------------- ------------- ------------- -------------
$ 39,376,009 $ 39,742,467 $ 41,178,804 $ 41,566,019
============= ============= ============= =============
</TABLE>
Proceeds from sales of securities prior to maturity were $14,985,138,
$25,889,152 and $19,095,130 for the years ended December 31, 1999,
1998, and 1997, respectively. Gains of $59,647 and losses of $123,614
were realized on those sales for 1999. Gains of $418,519 and losses of
$5,011 were realized on those sales for 1998. Gains of $251,535 and
losses of $26,840 were realized on those sales for 1997. Realized gains
and losses were calculated based on the amortized cost of the
securities at the date of trade. Income tax benefit (expense) relating
to net gains/losses on sales of investment securities was $24,704,
($159,697), and ($86,732) for the years ended December 31, 1999, 1998,
and 1997, respectively.
Securities with amortized costs of approximately $1,742,000,
$2,994,000, and $2,997,000 were pledged as collateral for short-term
borrowings and financial instruments with off-balance sheet risk at
December 31, 1999, 1998, and 1997, respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS
Major categories of loans are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Mortgage:
Residential $ 34,098,848 $ 33,931,494 $ 38,048,174
Commercial 42,342,103 43,915,342 43,275,731
Construction and land development 6,094,894 2,382,657 4,888,634
Lease financing 341,277 1,059,382 3,285,439
Demand and time 3,359,785 4,654,006 6,678,218
Installment 68,518,095 43,147,377 20,259,198
------------ ------------ ------------
154,755,002 129,090,258 116,435,394
Unearned income on loans (726,811) (747,946) (750,736)
------------ ------------ ------------
154,028,191 128,342,312 115,684,658
Allowance for credit losses (2,921,631) (2,841,060) (4,139,396)
------------ ------------ ------------
$151,106,560 $125,501,252 $111,545,262
============ ============ ============
</TABLE>
During 1998 the Bank instituted an automotive indirect lending program,
where vehicle collateralized loans made by dealers to consumers are
acquired by the Bank. The Bank's installment loan portfolio included
approximately $50,967,000 and $24,630,000 of such loans at December 31,
1999 and 1998, respectively.
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, 1999, 1998, and 1997, the amounts of such loans outstanding were
$1,417,716, $1,495,082, and $1,270,382, respectively. During 1999, loan
additions and repayments were $55,695 and $133,061, respectively.
The allowance for credit losses is as follows:
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $2,841,060 $ 4,139,396 $ 5,060,592
Provision for credit losses 300,000 (500,000) 270,000
Recoveries 454,277 296,617 426,604
Loans charged off (673,706) (1,094,953) (1,617,800)
---------- ----------- -----------
Balance, end of year $2,921,631 $ 2,841,060 $ 4,139,396
========== =========== ===========
Loans on which the accrual of interest has been discontinued amounted
to $1,011,826, $1,724,782, and $3,481,434 at December 31, 1999, 1998,
and 1997, respectively. Interest that would have been accrued under the
terms of these loans was $168,644, $269,112, and $307,950 for the years
ended December 31, 1999, 1998, and 1997, 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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Loans classified as impaired $1,043,944 $2,528,851 $3,718,021
Allowance for credit losses on impaired loans 217,907 423,571 718,787
Average balance of impaired loans 1,842,757 2,417,615 5,251,152
</TABLE>
Following is a summary of cash receipts on impaired loans and how they
were applied:
<TABLE>
<S> <C> <C> <C>
Cash receipts applied to reduce principal balance $ 83,828 $ 62,811 $ 107,155
Cash receipts recognized as interest income - 7,313 97,948
---------- ---------- ----------
Total cash receipts $ 83,828 $ 70,124 $ 205,103
========== ========== ==========
</TABLE>
At December 31, 1999, the total recorded investment in troubled debt
restructurings amounted to $243,137. The average recorded investment in
troubled debt restructurings amounted to $252,477 for the year ended
December 31, 1999. The allowance for credit losses relating to troubled
debt restructurings was $73,635 at December 31, 1999. Interest income
on troubled debt restructurings of $17,660 was recognized for cash
payments received in 1999. All investments in troubled debt were
performing under the terms of the modified agreements.
At December 31, 1998, the total recorded investment in troubled debt
restructurings amounted to $136,874. The average recorded investment in
troubled debt restructurings amounted to $134,625 for the year ended
December 31, 1998. The allowance for credit losses relating to troubled
debt restructurings was $70,000 at December 31, 1998. Interest income
on troubled debt restructurings of $10,670 was recognized for cash
payments received in 1998. All investments in troubled debt were
performing under the terms of the modified agreements, with the
exception of one loan classified as impaired in the amount of $156,947
as of December 31, 1998.
At December 31, 1997, the total recorded investment in troubled debt
restructurings amounted to $334,061. The average recorded investment in
troubled debt restructurings amounted to $346,540 for the year ended
December 31, 1997. The allowance for credit losses relating to troubled
debt restructurings was $49,112 at December 31, 1997. Interest income
on troubled debt restructurings of $16,408 was recognized for cash
payments received in 1997. All investments in troubled debt were
performing under the terms of the modified agreements.
The Bank has no commitments to loan additional funds to the borrowers
of restructured, impaired or non-accrual loans.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
Useful
lives 1999 1998 1997
--------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Land $ 591,377 $ 509,803 $ 509,803
Buildings 5-50 years 4,004,737 3,900,421 3,710,425
Equipment and fixtures 5-30 years 4,385,699 4,125,205 3,865,902
Construction in progress 10,333 21,675 102,879
------------- -------------- -------------
8,992,146 8,584,104 8,189,009
Accumulated depreciation (4,738,822) (4,163,722) (3,869,586)
------------- -------------- -------------
$ 4,253,324 $ 4,420,382 $ 4,319,423
============= ============== =============
</TABLE>
Depreciation expense was $575,100, $596,716, and $532,637 for the years
ended December 31, 1999, 1998, and 1997, respectively. Amortization of
software and intangible assets was $187,046, $179,369, and $123,676 for
the years ended December 31, 1999, 1998, and 1997, respectively.
The Bank leases its South Crain Highway, Ferndale Shopping Center and
Severna Park branches. Minimum lease obligations under the South Crain
Highway branch is $71,800 per year through September 2004, adjusted
annually by the CPI. Minimum lease obligations under the Ferndale
Shopping Center branch is $30,000 per year through May 2003. Minimum
lease obligations under the Severna Park branch is $36,650 per year
through May 2003, adjusted annually by the CPI. The Bank is also
required to pay all maintenance costs under all these leasing
arrangements. Total rent expense was $85,980, $53,591, and $32,153 for
the years ended December 31, 1999, 1998, and 1997, respectively.
During 1999, GBB Properties, Inc. purchased land for $82,774 to be used
for the future development of a branch site.
NOTE 6. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
1999 1998 1997
----------- ----------- ---------
Notes payable - U.S. Treasury $ 464,936 $ 143,904 $ 889,398
FHLB advances 2,000,000 1,000,000 -
----------- ----------- ---------
$ 2,464,936 $ 1,143,904 $ 889,398
=========== =========== =========
The Bank owned 6,523 shares of common stock of the FHLB at December 31,
1999. The Bank is required to maintain an investment of .3% of total
assets, adjusted annually. This investment was a condition for
obtaining a variable rate credit facility with the FHLB. The credit
available under this facility is determined at 12% of the Bank's total
assets, adjusted quarterly based on call reports, or approximately
$25,560,000 at December 31, 1999. At December 31, 1999 and 1998, the
Bank had outstanding advances of $2,000,000 and $1,000,000, bearing
interest at 4.55% and 5.15%, respectively, and maturing within the next
year. There were no borrowings outstanding under this credit
arrangement at December 31, 1997. 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 approximately $750,000 and
$1,000,000 at December 31, 1999 and 1998, respectively. Average
borrowings were approximately $1,506,000 and $256,000 during 1999 and
1998, respectively.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. SHORT-TERM BORROWINGS (continued)
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
balances at a slight discount to the Federal funds rate. The note
payable is secured by investment securities with an amortized cost of
approximately $995,000 and $1,494,000 at December 31, 1999 and 1998,
respectively.
The Bank also has available $5,000,000 in short-term credit facility,
secured by Federal funds sold, from another bank for short term
liquidity needs, if necessary. There were no borrowings outstanding
under this credit arrangement at December 31, 1999, 1998, and 1997.
NOTE 7. DEPOSITS
Major classifications of interest-bearing deposits are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
NOW and SuperNOW $ 18,562,778 $ 20,600,751 $ 20,581,703
Money Market 17,628,665 20,049,677 19,876,925
Savings 41,116,776 40,965,943 43,062,001
Certificates of Deposit, $100,000 or more 6,345,179 5,758,269 5,260,809
Other time deposits 65,292,304 66,875,699 70,677,459
-------------- -------------- --------------
$ 148,945,702 $ 154,250,339 $ 159,458,897
============== ============== ==============
</TABLE>
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
NOW and SuperNOW $ 230,708 $ 377,632 $ 462,395
Money Market 527,466 546,382 622,464
Savings 938,117 1,069,853 1,233,294
Certificates of Deposit, $100,000 or more 435,885 443,489 466,360
Other time deposits 3,371,452 3,611,472 4,056,439
-------------- -------------- --------------
$ 5,503,628 $ 6,048,828 $ 6,840,952
============== ============== ==============
</TABLE>
At December 31, 1999, the scheduled maturities of time deposits are
approximately as follows:
1999
--------------
2000 $ 43,897,000
2001 17,794,000
2002 4,661,000
2003 1,786,000
2004 and thereafter 3,499,000
--------------
$ 71,637,000
==============
Deposit balances of executive officers and directors and their
affiliated interests totaled approximately $369,000, $356,000, and
$485,000 at December 31, 1999, 1998, and 1997, respectively.
The Bank had no brokered deposits at December 31, 1999, 1998, and 1997.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES
The components of income tax expense (benefits) for the years ended
December 31, 1999, 1998, and 1997 are as follows:
1999 1998 1997
---------- ---------- ----------
Current
Federal $ 68,050 $ (1,841) $ (218)
State - 351,738 (335,725)
---------- ---------- ----------
Total current 68,050 349,897 (335,943)
---------- ---------- ----------
Deferred income taxes (benefits)
Federal 989,815 352,880 (27,040)
State 128,179 103,470 47,699
---------- ---------- ----------
Total deferred 1,117,994 456,350 20,659
---------- ---------- ----------
Income tax expense (benefits) $1,186,044 $ 806,247 $ (315,284)
========== ========== ==========
The 1998 current State provision consists of disallowed prior years'
refund claims.
A reconciliation of income tax expense (benefits) computed at the
statutory rate of 34 percent to the actual income tax expense
(benefits) for the years ended December 31, 1999, 1998, and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Income before income taxes $2,631,394 $1,639,439 $ 431,963
========== ========== =========
Taxes computed at Federal income tax rate $ 894,674 $ 557,409 $ 146,867
Federal excise tax on pension plan termination 196,800 - -
Increase (decrease) resulting from
Tax-exempt income - (61,361) (296,323)
State income taxes, net of Federal income tax benefit 84,598 300,437 (221,579)
Other 9,972 9,762 55,751
---------- ---------- ---------
Income tax expense (benefits) $1,186,044 $ 806,247 $(315,284)
========== ========== =========
</TABLE>
Sources of deferred income taxes and the tax effects of each for the
years ended December 31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Depreciation $ (11,998) $ 13,318 $ (23,201)
Securities discount accretion 2,858 (19,471) 4,280
Provision for credit losses 139,705 658,694 295,799
Unearned income on loans - - 31,469
Deferred compensation and pension benefit plans 739,075 (76,205) (61,589)
Charitable contributions 32,430 (15,844) (9,971)
Write-downs on other real estate owned 4,773 (2,317) 25,736
AMT credits 126,090 (16,764) (242,422)
Net operating loss carryover 85,061 (85,061) -
Other - - 558
----------- ----------- -----------
Deferred income tax expense $ 1,117,994 $ 456,350 $ 20,659
=========== =========== ===========
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES (continued)
The components of the net deferred income tax benefits as of December
31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Deferred income tax benefits:
Allowance for credit losses $ - $ 123,966 $ 782,660
Deferred compensation and benefit plans 79,534 728,247 179,869
Other real estate owned - 4,773 2,456
Charitable contributions 29,372 61,802 45,958
Alternative minimum tax credits 671,213 797,303 780,539
Net operating loss carryover - 85,061 -
Net unrealized depreciation on investment
securities available for sale 96,560 - -
------------- -------------- -------------
Total deferred income tax benefits 876,679 1,801,152 1,791,482
------------- -------------- -------------
Deferred income tax liabilities:
Accumulated depreciation 192,330 204,328 191,010
Allowance for credit losses 15,739 - -
Securities discount accretion 22,417 19,559 39,030
Prepaid pension plan contributions 597,056 506,694 34,521
Net unrealized appreciation on investment
securities available for sale - 177,659 141,526
------------- -------------- -------------
Total deferred income tax liabilities 827,542 908,240 406,087
------------- -------------- -------------
Net deferred income tax benefits $ 49,137 $ 892,912 $ 1,385,395
============= ============== =============
</TABLE>
Management has determined that no valuation allowance is required as it
is more likely than not that the net deferred income tax benefits will
be fully realizable in future years.
NOTE 9. PENSION AND PROFIT SHARING PLANS
Through 1998, the Bank had 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.
The Bank officially terminated the plan on December 27, 1999 and
received IRS approval for plan termination in February 2000. The Bank
plans to settle all accrued benefits under the plan in the second
quarter of 2000. The Bank has established a defined contribution plan
as a replacement plan. Upon termination of the pension plan all
participants became 100% vested. All accrued benefits under the
terminated pension plan will be provided to participants through the
purchase of annuities, or, in the case of actively employed
participants, at their option, in the form of a lump sum rollover to
the new defined contribution plan.
As a result of the termination of the defined benefit plan in 1999, the
Bank has recognized a curtailment gain of $1,311,997, included in other
income. The Bank has also accrued a 25% safe harbor contribution of
$328,000, included in employee benefit expense, and excise taxes of
$196,800, payable on curtailment gains recognized, included in Federal
and state income tax expense.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. PENSION AND PROFIT SHARING PLANS (continued)
The following table sets forth the financial status of the pension plan
at December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Projected benefit obligation at January 1, $ 4,423,566 $ 4,124,137 $ 3,804,330
Service cost - 208,699 218,504
Interest 261,367 346,128 317,295
Actual benefit payments (144,739) (189,504) (138,314)
Interest on distributions (7,223) (6,850) (9,232)
Decrease from curtailment (1,435,130) - -
Increase from change in discount rate 1,607,050 -
Other adjustments 86,473 (59,044) (68,446)
------------- -------------- -------------
Projected benefit obligation at December 31, $ 4,791,364 $ 4,423,566 $ 4,124,137
============= ============== =============
Accumulated benefit obligation:
Vested $ 4,791,364 $ 4,315,501 $ 2,671,233
Nonvested - 108,065 119,829
------------- -------------- -------------
$ 4,791,364 $ 4,423,566 $ 2,791,062
============= ============== =============
Plan assets at January 1, $ 5,699,073 $ 4,670,182 $ 3,720,145
Actual contributions - - 223,083
Actual distributions (144,739) (189,504) (138,314)
Actual returns 1,491,587 1,218,395 865,268
------------- -------------- -------------
Plan assets at December 31, $ 7,045,921 $ 5,699,073 $ 4,670,182
============= ============== =============
Plan assets at fair value $ 7,045,921 $ 5,699,073 $ 4,670,182
Projected benefit obligation (4,791,364) (4,423,566) (4,124,137)
------------- -------------- -------------
Plan assets in excess of
projected benefit obligation 2,254,557 1,275,507 546,045
Unrecognized prior service cost - 123,133 148,730
Unrecognized net gain (684,244) (1,425,979) (556,714)
Unrecognized net asset from transition (24,336) (36,505) (48,674)
------------- -------------- -------------
Prepaid (accrued) pension expense included in other assets $ 1,545,977 $ (63,844) $ 89,387
============= ============== =============
Net pension expense includes the following:
Service cost $ - $ 201,699 $ 218,504
Interest cost 254,144 339,278 311,064
Actual return on assets (1,491,587) (1,218,395) (865,268)
Net amortization and deferral 939,619 830,649 568,715
------------- -------------- -------------
Net pension expense (benefit) $ (297,824) $ 153,231 $ 233,015
============= ============== =============
Assumptions used in the accounting for net pension
expense were:
Discount rates 5.5% 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>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. PENSION AND PROFIT SHARING PLANS (continued)
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 employee
benefit expense were $187,704, $102,757 and $83,500 for the years ended
December 31, 1999, 1998 and 1997, respectively. Effective January 1,
1999, the plan was amended to provide for discretionary employer
matching contributions to be determined annually by the Board of
Directors.
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, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 308,960 $ 239,773 $ 191,817
Other active participants, fully eligible - 27,741 -
Other active participants, not fully eligible 786,293 493,449 482,529
------------- -------------- -------------
1,095,253 760,963 674,346
Unrecognized net gain 11,504 347,097 359,178
Unrecognized transition obligation (500,984) (534,383) (567,782)
Unrecognized past service cost 109,746 - -
------------- -------------- -------------
Accrued post-retirement benefit cost $ 715,519 $ 573,677 $ 465,742
============= ============== =============
</TABLE>
Net post-retirement benefit expense for the years
ended December 31, 1999, 1998, and 1997 includes
the following:
<TABLE>
<S> <C> <C> <C>
Service cost $ 71,739 $ 56,771 $ 75,736
Interest cost 67,844 48,979 72,930
Amortization of unrecognized transition obligation 33,399 33,399 33,399
Amortization of net gain - (13,052) (1,669)
Amortization of past service cost (6,924) - -
------------- -------------- -------------
Net post-retirement benefit expense $ 166,058 $ 126,097 $ 180,396
============= ============== =============
Assumptions used in the accounting for net
post-retirement benefit expense were:
Health care cost trend rate 5.0% 5.0% 5.0%
Discount rate 6.5% 6.8% 7.0%
</TABLE>
If the assumed health care cost trend rate were increased to 6% for
1999, 1998 and 1997, the total of the service and interest cost
components of net periodic post-retirement health care benefit cost
would increase by $37,610, $28,471, and $36,820, for the years ended
December 31, 1999, 1998, and 1997, respectively, and the accumulated
post-retirement benefit obligation would increase to $203,668,
$154,568, and $217,216 as of December 31, 1999, 1998, and 1997,
respectively.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. OTHER BENEFIT PLANS (see also Note 14)
In March 1998, the Bank established and funded a grantor trust for
$1,500,000 as part of a change in control severance plan covering
substantially all employees. Participants in the plan are entitled to
cash severance benefits upon termination of employment, for any reason
other than just cause, should a "change in control" of the Company
occur.
In March 1998, the Company and Bank also established and the Bank
funded a grantor trust for $2,000,000 for indemnification of the
officers and directors of the Bank and/or Company for any litigation
expenses incurred in connection with any "change of control" of the
Company.
Subsequent to the repurchase of the Company's common stock under a
"Redemption Agreement" and entering into a standstill agreement (see
Note 14), and effective as of December 31, 1998, all assets held by
these trusts were returned to the Bank. The severance trust continues
to exist on an unfunded status, while the litigation trust was
terminated on December 31, 1998.
In March 1998, the Bank established and funded a grantor trust for
$285,000 as part of an employment agreement with the Chief Operating
Officer of the Bank. The agreement provides for the payment of benefits
upon termination of employment, for a reason other than just cause,
after a "change in control" of the Company.
In January 2000, the Bank officially terminated the grantor trust
referred to above, due to the resignation of the Chief Operating
Officer of the Bank during 1999. Balances held in the trust of
approximately $307,000 at time of termination, which are included in
other assets at December 31, 1999, were subsequently returned to the
Bank.
NOTE 12. OTHER OPERATING EXPENSES
Other operating expenses include the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Professional services $ 714,929 $ 2,163,448 $ 1,995,049
Stationery, printing and supplies 251,388 241,029 275,020
Postage and delivery 235,110 239,519 270,976
FDIC assessment 22,481 81,162 92,456
Directors fees and expenses 134,092 151,737 168,061
Marketing 342,737 305,794 249,958
Data processing 222,709 205,839 135,326
Correspondent bank services 98,896 114,689 119,479
Telephone 102,757 95,572 69,873
Liability insurance 91,783 89,149 89,146
Losses and expenses on real estate owned (OREO) 38,218 33,414 143,045
Other 595,645 391,567 464,594
------------- -------------- -------------
$ 2,850,745 $ 4,112,919 $ 4,072,983
============= ============== =============
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. LITIGATION 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 other expenses for 1997.
In 1998, the Company accrued for losses of $420,000 and incurred
additional actual losses of $805,003 relating to legal claims involving
fraudulent check endorsement issues and\or bankruptcies. These
nonrecurring charges were included in other expenses for 1998. In 1999,
the Company settled on these claims for $220,000.
NOTE 14. REPURCHASE AND RETIREMENT OF COMPANY COMMON STOCK
During 1998, the Company was pursued by another competing financial
institution (the institution) in a hostile take-over attempt. In
November 1998, the Company reached an agreement with the institution to
repurchase 213,168 shares of its common stock, or approximately 19.5%
of its outstanding shares, for an aggregate purchase price of
$5,580,764. In conjunction with the redemption agreement, the Company
and the institution also entered into a standstill agreement through
November 2008. Under the standstill agreement, the Company will make
payments over five years totaling $675,510 beginning with a payment of
$150,000 in January 1999 and four subsequent annual payments of
$131,378.
During 1999, the Company made payments totaling $281,378, relating to
the standstill agreement. These payments are included in other expenses
for 1999.
NOTE 15. 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.
Outstanding loan commitments, unused lines of credit and letters of
credit are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Loan commitments:
Construction and land development $ 740,000 $ 1,537,400 $ 150,000
Other mortgage loans 739,800 1,671,050 330,500
------------- -------------- -------------
$ 1,479,800 $ 3,208,450 $ 480,500
============= ============== =============
Unused lines of credit:
Home-equity lines $ 3,215,502 $ 3,029,929 $ 2,629,589
Commercial lines 9,981,462 6,149,939 7,524,017
Unsecured consumer lines 824,978 851,390 799,826
------------- -------------- -------------
$ 14,021,942 $ 10,031,258 $ 10,953,432
============= ============== =============
Letters of credit: $ 1,384,969 $ 2,012,626 $ 2,221,173
============= ============== =============
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENCIES (continued)
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,
1999, 1998, and 1997, $71,623, $67,168, and $70,168, 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.
NOTE 16. STOCKHOLDERS' EQUITY
Restrictions on dividends:
Banking regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agencies. Regulatory
approval is required to pay dividends which exceed the Bank's net
profits for the current year plus its retained net profits for the
preceding two years. Retained earnings from which dividends may not be
paid without prior approval were approximately $2,276,000 at December
31, 1999, based on the earnings restrictions and minimum capital ratio
requirements noted below.
In 1997 the Bank's payment of dividends was restricted by a Memorandum
of Understanding (M.O.U.) which required 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%. This
M.O.U. was lifted in June 1998.
Change in par value of common stock:
In December 1999, the Company changed the par value of its common stock
from $10 par value to $1 par value. $9 per share of par value has been
reclassified as surplus. Prior year financial statements presented have
been restated to conform to the current year's presentation.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
Employee stock purchase benefit plans:
During 1998, the Company established a stock-based compensation plan,
which is described below. The Bank applies Accounting Principles Board
Opinion ("APB") No. 25 and related Interpretations in accounting for
this plan. Net compensation cost of $90 and $21,607 have been
recognized in the accompanying consolidated financial statements in
1999 and 1998, respectively. If compensation cost for the Company's
stock-based compensation plan had been determined based on the fair
value at the grant date for awards under this plan 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 number of shares
of common stock granted under options will bear a uniform relationship
to compensation. The plan allows employees to buy stock under options
granted at the lesser of 85 percent of the fair market value of the
stock on the date of grant or exercise. Options granted will expire no
later than 27 months from the grant date or upon termination of
employment. Activity under this plan is as follows:
Grant
Shares Price
Granted on July 1, 1998, expiring October 1, 1999 5,794 $ 21.25
Expired (32)
Exercised (935)
-------
Outstanding December 31, 1998 4,827 $ 21.25
=======
Exercised (1,040) $ 21.25
Expired (3,787) $ 21.25
Granted on August 12, 1999, expiring November 12, 2000 4,095 $ 19.76
Exercised (975)
-------
Outstanding December 31, 1999 3,120 $ 19.76
=======
At December 31, 1999 and 1998, there were 23,090 and 24,065 shares of
common stock reserved for issuance under the plan, respectively.
The Board of Directors may suspend or discontinue the plan at its
discretion.
Dividend reinvestment and stock purchase plan:
The Company's dividend reinvestment and stock purchase plan allows all
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 1999 and 1998, 4,832 and 7,015 shares of common stock,
respectively, were purchased under the plan. During 1997, the Company
had suspended participation in the plan. At December 31, 1999 and 1998,
there were 281,666 and 199,335 shares of common stock reserved for
issuance under the plan, respectively.
The Board of Directors may suspend or discontinue the plan at its
discretion.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
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. Options granted will expire no
later than 3 months from the grant date. Each option will entitle the
stockholder to purchase one share of common stock, and will be granted
in proportion to stockholder share holdings. At the discretion of the
Board of Directors, stockholders may be given the opportunity to
purchase unsubscribed shares.
Grant
Shares Price
Granted on November 30, 1998, expiring January 29, 1999 110,396 $26.125
Exercised (7,388)
-------
Outstanding December 31, 1998 103,008 $26.125
=======
Exercised (3,347) $26.125
Expired (99,661) $26.125
Granted on June 24, 1999, expiring September 24, 1999 50,000 $23.250
Exercised (3,722)
Expired (46,278) $23.250
Granted on September 24, 1999, expiring December 24, 1999 50,000 $23.000
Exercised (2,401)
Expired (47,599) $23.000
-------
Outstanding December 31, 1999 -
=======
At December 31, 1999 and 1998 there were 103,142 and 112,612 shares of
common stock reserved for issuance under the plan, respectively.
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, 1999, 1998, and 1997, that the
Company and Bank meet all capital adequacy requirements to which it is
subject.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
As of December 31, 1999, 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 Bank's category.
A comparison of capital as of December 31, 1999, 1998, and 1997 with
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>
As of December 31, 1999
Total Capital
(to Risk Weighted Assets)
Company $ 16,912,000 10.8% $ 12,527,000 8.0% N/A
Bank 16,586,000 10.3% 12,870,000 8.0% $ 16,087,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 14,942,000 9.5% 6,265,000 4.0% N/A
Bank 14,563,000 9.0% 6,437,000 4.0% 9,655,000 6.0%
Tier I Capital
(to Average Assets)
Company 14,942,000 6.8% 8,815,000 4.0% N/A
Bank 14,563,000 6.6% 8,813,000 4.0% 11,016,000 5.0%
As of December 31, 1998
Total Capital
(to Risk Weighted Assets)
Company $ 14,785,000 10.5% $ 11,265,000 8.0% N/A
Bank 14,495,000 10.4% 11,150,000 8.0% $ 13,938,000 10.0%
Tier I Capital
(to Risk Weighted Assets)
Company 13,018,000 9.3% 5,599,000 4.0% N/A
Bank 12,736,000 9.1% 5,598,000 4.0% 8,397,000 6.0%
Tier I Capital
(to Average Assets)
Company 13,018,000 6.0% 8,722,000 4.0% N/A
Bank 12,736,000 5.8% 8,723,000 4.0% 10,904,000 5.0%
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. STOCKHOLDERS EQUITY (continued)
<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>
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%
</TABLE>
NOTE 17. EARNINGS PER COMMON SHARE
Earnings per common share are calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Basic:
Net income $ 1,445,350 $ 833,192 $ 747,247
Weighted average common shares outstanding 1,261,166 1,253,275 1,275,017
Basic net income per share $ 1.15 $ 0.66 $ 0.59
Diluted:
Net income $ 833,192
Weighted average common shares outstanding 1,253,275
Dilutive effect of stock options 362
---------------
Average common shares outstanding - diluted 1,253,637
Diluted net income per share $ 0.66
</TABLE>
Diluted earnings per share calculations were not required for 1999 and
1997 due to all options having an anti-dilutive effect and the Company
having a simple capital structure, respectively.
During 1998, options relating to the stockholder purchase plan have an
anti-dilutive effect, and therefore were not included in the diluted
calculation.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. 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>
1999 1998 1997
-------------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $8,317,450 $8,317,450 $8,197,344 $8,197,344 $8,127,732 $8,127,732
Interest-bearing deposits in
other financial institutions 10,245 10,245 4,958,337 4,958,337 1,558,879 1,558,879
Federal funds sold 555,627 555,627 2,863,635 2,863,635 18,850,000 18,850,000
Investment securities
available for sale 15,317,253 15,317,253 32,924,539 32,924,539 40,678,867 40,678,867
Investment securities held to
maturity 28,657,242 27,041,751 32,561,288 32,539,731 41,178,804 41,566,019
Loans, less allowance for
credit losses 151,106,560 138,422,000 125,501,252 125,980,000 111,545,262 109,301,000
Ground rents 254,025 254,025 257,025 257,025 262,525 262,525
Accrued interest receivable 1,279,067 1,279,067 1,401,660 1,401,660 1,556,971 1,556,971
Financial liabilities:
Deposits 194,089,995 194,002,000 199,611,115 201,124,000 207,110,272 207,622,000
Short-term borrowings 2,464,936 2,464,936 1,143,904 1,143,904 889,398 889,398
Dividends payable 136,666 136,666 123,039 123,039 81,146 81,146
Accrued interest payable 152,555 152,555 160,597 160,597 177,922 177,922
Unrecognized financial
instruments:
Commitments to extend
credit 15,501,742 15,430,119 13,239,708 13,172,540 11,433,932 11,363,764
Standby letters of credit 1,384,969 1,384,969 2,012,626 2,012,626 2,221,173 2,221,173
</TABLE>
For purposes of the disclosures of estimated fair value, the following
assumptions were used.
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.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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.
NOTE 19. 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, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash $ 184,555 $ 239,226 $ 166,195
Investment in The Bank of Glen Burnie 14,722,533 13,886,563 18,514,844
Investment in GBB Properties, Inc. 235,706 165,637 365,341
Due from affiliates 96,321 4,789 -
Other assets - - 1,259
-------------- --------------- --------------
TOTAL ASSETS $ 15,239,115 $ 14,296,215 $ 19,047,639
============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividend payable $ 136,666 $ 123,039 $ 81,146
Due to affiliates - 4,503 1,903
-------------- --------------- --------------
TOTAL LIABILITIES 136,666 127,542 83,049
-------------- --------------- --------------
Stockholders' equity:
Common stock 1,093,496 894,938 1,092,768
Surplus 10,149,247 9,788,889 14,770,821
Retained earnings 4,013,171 3,202,488 2,876,069
Accumulated other comprehensive income, net of
taxes (benefits) (153,465) 282,358 224,932
-------------- --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 15,102,449 14,168,673 18,964,590
-------------- --------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,239,115 $ 14,296,215 $ 19,047,639
============== =============== ==============
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statements of Income
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends and distributions from subsidiaries $ 350,000 $ 5,740,764 $ 312,097
Standstill agreement expense (281,378) - -
Other expenses, net of revenues of $279 in 1998 (1,078) (840) (3,704)
-------------- --------------- --------------
Income before income taxes and equity in
undistributed net income of subsidiaries 67,544 5,739,924 308,393
Income tax benefit 96,035 286 1,259
Change in undistributed net income of subsidiaries 1,281,771 (4,907,018) 437,595
-------------- --------------- --------------
NET INCOME $ 1,445,350 $ 833,192 $ 747,247
============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,445,350 $ 833,192 $ 747,247
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase (decrease) in other assets - 1,259 24,674
Increase in due from subsidiaries (91,533) (4,789) -
(Decrease) increase in due to subsidiaries (4,503) 2,600 1,903
Change in undistributable net income of subsidiaries (1,281,771) 4,907,018 (437,595)
-------------- --------------- --------------
Net cash provided by operating activities 67,543 5,739,280 336,229
-------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Contributed to Subsidiary (60,000) - -
-------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from dividend reinvestment plan 106,149 166,515 -
Proceeds from sales of common stock 270,566 212,880 -
Repurchase and retirement common stock (138) (5,580,764) -
Dividends paid (438,791) (464,880) (292,201)
-------------- --------------- --------------
Net cash used in financing activities (62,214) (5,666,249) (292,201)
-------------- --------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (54,671) 73,031 44,028
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 239,226 166,195 122,167
-------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 184,555 $ 239,226 $ 166,195
============== =============== ==============
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the Company's unaudited quarterly results
of operations:
<TABLE>
<CAPTION>
1999 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 $ 3,896 $ 3,957 $ 3,802 $ 3,895
Interest expense 1,427 1,410 1,379 1,406
Net interest income 2,469 2,547 2,423 2,489
Provision for credit losses 300 - - -
Net securities gains (losses) (93) 2 2 25
Income (loss) before income taxes 1,285 622 549 443
Net income 579 403 357 283
Net income per share (basic and diluted) $ 0.46 $ 0.32 $ 0.28 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
1998 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 $ 3,977 $ 3,986 $ 3,930 $ 3,996
Interest expense 1,499 1,537 1,520 1,540
Net interest income 2,478 2,449 2,410 2,456
Provision for credit losses - (500) - -
Net securities gains 111 165 219 32
Income (loss) before income taxes 460 895 371 (86)
Net income 84 516 230 3
Net income per share (basic and diluted) $ 0.10 $ 0.47 $ 0.21 $ 0.00
</TABLE>
<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 (basic and diluted) $ 0.15 $ 0.18 $ 0.01 $ 0.34
</TABLE>
NOTE 21. SUBSEQUENT EVENT
On February 15, 2000, the Bank sold its entire credit card portfolio, which was
considered part of the installment loan portfolio, to another financial
institution. The outstanding balance of the portfolio as of the date of
settlement was $1,064,857.
As a result of the sale, the Bank recognized a gain of approximately $59,000.
The Bank was also required to maintain a loan loss reserve with the financial
institution of approximately $48,000, that was funded with part of the
settlement proceeds. The loan loss reserve is for a one year period, with any
remaining reserve returned to the Bank. The Bank has no additional
responsibilities for loan losses in excess of the initial reserve.
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 9, 2000 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 9, 2000
-----------------------------------
F. William Kuethe, Jr.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ John I. Young March 9, 2000
-----------------------------------
John I. Young
Executive Vice President, Chief Operating
Officer and Director
By: /s/ John E. Porter March 9, 2000
-----------------------------------
John E. Porter
Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
By: /s/ John E. Demyan March 9, 2000
-----------------------------------
John E. Demyan
Chairman of the Board and Director
By: /s/ Theodore L. Bertier, Jr. March 9, 2000
-----------------------------------
Theodore L. Bertier, Jr.
Director
By: /s/ Shirley E. Boyer March 9, 2000
-----------------------------------
Shirley E. Boyer
Director
By: /s/ Thomas Clocker March 9, 2000
-----------------------------------
Thomas Clocker
Director
By: /s/ Alan E. Hahn March 9, 2000
-----------------------------------
Alan E. Hahn
Director
<PAGE>
By: /s/ Charles L. Hein March 9, 2000
-----------------------------------
Charles L. Hein
Director
By: /s/ F. W. Kuethe, III March 9, 2000
-----------------------------------
F. W. Kuethe, III
Director
By: /s/ William N. Scherer, Sr. March 9, 2000
-----------------------------------
William N. Scherer, Sr.
Director
By: /s/ Karen B. Thorwarth March 9, 2000
-----------------------------------
Karen B. Thorwarth
Director
By: /s/ Mary Lou Wilcox March 9, 2000
-----------------------------------
Mary Lou Wilcox
Director
EXHIBIT 10.4
THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR
DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
<PAGE>
THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
1.1 ACCOUNT.......................................................................1
1.2 BENEFICIARY...................................................................1
1.3 CODE..........................................................................1
1.4 COMPENSATION..................................................................1
1.5 COMPENSATION DEFERRAL ACCOUNT.................................................1
1.6 COMPENSATION DEFERRALS........................................................1
1.7 DESIGNATION DATE..............................................................1
1.8 EFFECTIVE DATE................................................................2
1.9 ELIGIBLE INDIVIDUAL...........................................................2
1.10 EMPLOYER......................................................................2
1.11 ENTRY DATE....................................................................2
1.12 PARTICIPANT...................................................................2
1.13 PARTICIPANT ENROLLMENT AND ELECTION FORM......................................2
1.14 PLAN..........................................................................2
1.15 PLAN YEAR.....................................................................2
1.16 TRUST.........................................................................2
1.17 TRUSTEE.......................................................................2
1.18 VALUATION DATE................................................................2
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS..................................................................3
2.2 RE-EMPLOYMENT.................................................................3
2.3 CHANGE OF EMPLOYMENT CATEGORY.................................................3
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 PARTICIPANT COMPENSATION DEFERRALS............................................3
3.2 COMPENSATION DEFERRAL ACCOUNT.................................................4
3.3 CONTRIBUTIONS TO THE TRUST....................................................4
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS...........................5
4.2 ACCOUNTING FOR DISTRIBUTIONS..................................................5
4.3 SEPARATE ACCOUNTS.............................................................5
4.4 INTERIM VALUATIONS............................................................5
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS..................................6
4.6 EXPENSES......................................................................7
4.7 TAXES.........................................................................7
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT................................7
5.2 HARDSHIP DISTRIBUTIONS........................................................8
5.3 APPLICATION TO TRUSTEE........................................................8
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT........................................................................8
6.2 METHOD OF PAYMENT.............................................................9
6.3 RE-EMPLOYMENT OF PARTICIPANT..................................................9
6.4 DEATH BENEFITS................................................................9
6.5 WITHHOLDING..................................................................10
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES.................................................10
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES............................10
ii
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ARTICLE 8
ADMINISTRATION
<S> <C>
8.1 ADMINISTRATIVE AUTHORITY.....................................................11
8.2 UNIFORMITY OF DISCRETIONARY ACTS.............................................12
8.3 LITIGATION...................................................................12
8.4 CLAIMS PROCEDURE.............................................................12
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND...............................................................13
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN.........................13
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN................................13
10.2 AUTOMATIC TERMINATION OF PLAN................................................13
10.3 SUSPENSION OF DEFERRALS......................................................14
10.4 ALLOCATION AND DISTRIBUTION..................................................14
10.5 SUCCESSOR TO EMPLOYER........................................................14
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST.......................................................14
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER.........................................14
12.2 CONSTRUCTION.................................................................15
12.3 SPENDTHRIFT PROVISION........................................................15
</TABLE>
iii
<PAGE>
THE BANK OF GLEN BURNIE
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 9, 2000
RECITALS
This The Bank of Glen Burnie Executive and Director Deferred
Compensation Plan (the "Plan") is adopted by The Bank of Glen Burnie (the
"Employer") for certain of its executive employees and members of its Board of
Directors. The purpose of the Plan is to offer those employees and members of
the Board of Directors an opportunity to elect to defer the receipt of
compensation in order to provide deferred compensation benefits taxable pursuant
to section 451 of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan is intended to be a "top-hat" plan (i.e., an unfunded deferred
compensation plan maintained for a select group of management or
highly-compensated employees) under sections 201(2), 301(a)(3) and 401(a)(1) of
the Employee Retirement Income Security Act of 1974 ("ERISA") and a Board of
Directors deferred compensation plan.
Accordingly, the following Plan is adopted.
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT means the balance credited to a Participant's or
Beneficiary's Plan account, including contribution credits and deemed income,
gains and losses (as determined by the Employer, in its discretion) credited
thereto. A Participant's or Beneficiary's Account shall be determined as of the
date of reference.
1.2 BENEFICIARY means any person or person so designated in accordance
with the provisions of Article 7.
1.3 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
1.4 COMPENSATION means the total current cash remuneration paid by the
Employer to an Eligible Individual with respect to his or her service for the
Employer.
1.5 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1.6 COMPENSATION DEFERRALS is defined in Section 3.2.
1.7 DESIGNATION DATE means the date or dates as of which a designation
of deemed investment directions by an individual pursuant to Section 4.5, or any
change in a prior
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designation of deemed investment directions by an individual pursuant to Section
4.5, shall become effective. The Designation Dates in any Plan Year shall be
designated by the Employer.
1.8 EFFECTIVE DATE means the effective date of the Plan, which shall be
March 9, 2000.
1.9 ELIGIBLE INDIVIDUAL means, for any Plan Year (or applicable portion
thereof), a person who is determined by the Employer, or its designee, to be a
member of a select group of management or highly compensated employees of the
Employer or a member of the Employer's Board of Directors, and who is designated
by the Employer, or its designee, to be an Eligible Individual under the Plan.
By each December 31 (or before the Effective Date for the Plan's first Plan
Year), the Employer shall notify those individuals, if any, who will be Eligible
Individuals for the next Plan Year. If the Employer determines that an
individual first becomes an Eligible Individual during a Plan Year, the Employer
shall notify such individual of its determination and of the date during the
Plan Year on which the individual shall first become an Eligible Individual.
1.10 EMPLOYER means The Bank of Glen Burnie and its successors and
assigns unless otherwise herein provided, or any other corporation or business
organization which, with the consent of The Bank of Glen Burnie, or its
successors or assigns, assumes the Employer's obligations hereunder, or any
other corporation or business organization which agrees, with the consent of The
Bank of Glen Burnie, to become a party to the Plan.
1.11 ENTRY DATE with respect to an individual means the first day of
the pay period following the date on which the individual first becomes an
Eligible Individual.
1.12 PARTICIPANT means any person so designated in accordance with the
provisions of Article 2, including, where appropriate according to the context
of the Plan, any former employee or former member of the Board of Directors who
is or may become (or whose Beneficiaries may become) eligible to receive a
benefit under the Plan.
1.13 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form or forms
on which a Participant elects to defer Compensation or fees hereunder and/or on
which the Participant makes certain other designations as required thereon.
1.14 PLAN means this The Bank of Glen Burnie Executive and Director
Deferred Compensation Plan, as amended from time to time.
1.15 PLAN YEAR means the twelve (12) month period (or for the first
Plan Year, the period beginning March 9, 2000 and ending on December 31, 2000)
ending on the December 31 of each year during which the Plan is in effect.
1.16 TRUST means the Trust established pursuant to Article 11.
1.17 TRUSTEE means the trustee of the Trust established pursuant to
Article 11.
1.18 VALUATION DATE means the last day of each Plan Year and any other
date that the Employer, in its sole discretion, designates as a Valuation Date.
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ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS. Every Eligible Individual on the Effective Date shall
be eligible to become a Participant on the Effective Date. Every other Eligible
Individual shall be eligible to become a Participant on the first Entry Date
occurring on or after the date on which he or she becomes an Eligible
Individual. No individual shall become a Participant, however, if he or she is
not an Eligible Individual on the date his or her participation is to begin.
Participation in the Participant Compensation Deferral feature
of the Plan is voluntary. In order to participate in the Participant
Compensation Deferral feature of the Plan, an otherwise Eligible Individual must
make written application in such manner as may be required by Section 3.2 and by
the Employer and must agree to make Compensation Deferrals as provided in
Article 3.
2.2 RE-EMPLOYMENT. If a Participant whose employment or Director status
with the Employer is terminated is subsequently re-employed or subsequently
becomes a Director of the Employer, he or she shall become a Participant in
accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a
Participant remains in the employ of the Employer, but ceases to be an Eligible
Individual, he or she shall not be eligible to make Compensation Deferrals
hereunder.
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation which
is not yet payable and which would otherwise be paid to the Participant. Amounts
so deferred will be considered a Participant's "Compensation Deferrals".
Ordinarily, a Participant shall make such an election with respect to a coming
twelve (12) month Plan Year during the period beginning on the December 1 and
ending on the December 31 of the prior Plan Year, or during such other period
established by the Employer.
Compensation Deferrals shall be made through regular payroll
or retainer/meeting fee deductions and/or through an election by the Participant
to defer a bonus payment not yet payable to him or her at the time of the
election. The Participant may reduce his or her regular payroll or
retainer/meeting fee for a particular year by written notice delivered to the
Employer at least thirty (30) days prior to the beginning of any regular payroll
or Director's compensation period, of the payroll or retainer/meeting fee
Compensation Deferral Amount, with such reduction being first effective for
Compensation to be earned in that payroll or Director's compensation period. In
the case of bonus payment deferrals, the Participant may reduce his or her bonus
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payments due to be paid by the Employer by giving written notice to the Employer
of the bonus payment Compensation Deferral amount prior to the date the
applicable bonus is first due to be paid.
Once made, a Compensation Deferral regular payroll or
retainer/meeting fee deduction election shall continue in force indefinitely,
until reduced by the Participant on a subsequent Participant Enrollment and
Election Form provided by the Employer as provided above or until increased
during an annual enrollment period under the Plan. A bonus payment reduction
election, or a reduction thereof pursuant to the foregoing, shall continue in
force only for one bonus payment.
Notwithstanding the preceding, Participant Compensation
Deferrals shall not exceed such maximum percentages as may be established by the
Employer in its discretion and communicated to Participants from time to time.
If a Participant?s Compensation Deferrals exceed such maximum percentage(s), the
Employer shall have the right to reduce the percentage(s) of the Participant?s
Compensation Deferrals by giving the Participant written notification of such
reduction. As of the Effective Date, Compensation Deferrals made through regular
payroll deductions by a Participant who is an employee of the Employer shall not
exceed ten percent (100%) of the Participant?s base salary, but Compensation
Deferrals made through retainer/meeting fee deductions or through an election by
the Participant to defer a bonus payment shall not be subject to any limitation
on the percentage of the Compensation Deferrals.
Compensation Deferrals shall be deducted by the Employer from
the pay of a deferring Participant and shall be credited to the Compensation
Deferral Account of the deferring Participant.
3.2 COMPENSATION DEFERRAL ACCOUNT. There shall be established and
maintained by the Employer a separate Compensation Deferral Account in the name
of each Participant to which shall be credited or debited: (a) amounts equal to
the Participant's Compensation Deferrals; (b) amounts equal to any deemed
earnings or losses (to the extent realized, based upon deemed fair market value
of the Account's deemed assets, as determined by the Employer, in its
discretion) attributable or allocable thereto; and (c) expenses and/or taxes
charged to that Account.
A Participant shall at all times be 100% vested in amounts
credited to his or her Participant Compensation Deferral Account.
3.3 CONTRIBUTIONS TO THE TRUST. An amount shall be contributed by the
Employer to the Trust maintained under Section 11.1 equal to the amount(s)
required to be credited to the Participant's Account under Sections 3.1 and 3.2.
The Employer shall make a good faith effort to contribute these amounts to the
Trust as soon as is practicable after such amounts are determined.
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ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to
Section 4.5, each Participant shall have the right to direct the Employer as to
how amounts in his or her Plan Account shall be deemed to be invested. Subject
to such limitations as may from time to time be required by law, imposed by the
Employer or the Trustee or contained elsewhere in the Plan, and subject to such
operating rules and procedures as may be imposed from time to time by the
Employer, prior to the date on which a direction will become effective, the
Participant shall have the right to direct the Employer as to how amounts in his
or her Account shall be deemed to be invested.
The Employer shall direct the Trustee to invest the account
maintained in the Trust on behalf of the Participant pursuant to the deemed
investment directions the Employer properly has received from the Participant.
The value of the Participant's Account shall be equal to the value of the
account maintained under the Trust on behalf of the Participant. As of each
valuation date of the Trust, the Participant's Account will be credited or
debited to reflect the Participant's deemed investments of the Trust.
The Participant's Plan Account will be credited or debited
with the increase or decrease in the realizable net asset value or credited
interest, as applicable, of the designated deemed investments, as follows. As of
each Valuation Date, an amount equal to the net increase or decrease in
realizable net asset value or credited interest, as applicable (as determined by
the Employer or the Trustee, as applicable), of each deemed investment option
within the Account since the preceding Valuation Date shall be allocated among
all Participants' Accounts deemed to be invested in that investment option in
accordance with the ratio which the portion of the Account of each Participant
which is deemed to be invested within that investment option, determined as
provided herein, bears to the aggregate of all amounts deemed to be invested
within that investment option.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to the Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
Such amounts shall be charged on a pro rata basis against the investments of the
Trust in which the Participant's Account is deemed to be invested.
4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be
established and maintained by the Employer to reflect the Account for each
Participant with sub-accounts to show separately the applicable deemed
investments of the Account.
4.4 INTERIM VALUATIONS. If it is determined by the Employer that the
value of a Participant's Account as of any date on which distributions are to be
made differs materially from the value of the Participant's Account on the prior
Valuation Date upon which the distribution is to be based, the Employer, in its
discretion, shall have the right to designate any
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date in the interim as a Valuation Date for the purpose of revaluing the
Participant's Account so that the Account will, prior to the distribution,
reflect its share of such material difference in value.
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such
limitations as may from time to time be required by law, imposed by the Employer
or the Trustee or contained elsewhere in the Plan, and subject to such operating
rules and procedures as may be imposed from time to time by the Employer, prior
to and effective for each Designation Date, each Participant may communicate to
the Employer a direction as to how his or her Plan Accounts should be deemed to
be invested (in any whole dollar amounts or percentage multiples) among such
categories of deemed investments as may be made available by the Employer
hereunder. Such direction may separately designate deemed investments (a) for
that portion of the Participant's Account attributable to amounts that will be
credited to the Participant's Account prior to the Designation Date on which
such direction shall become effective, and (b) for that portion of the
Participant's Account attributable to amounts that will be credited to the
Participant's Account after the Designation Date on which such direction shall
become effective, and shall be subject to the following rules:
(i) Any initial or subsequent deemed investment direction
shall be in writing, on a form supplied by and filed with the Employer (or made
in such other manner specified by the Employer), and shall be effective as of
the next Designation Date after such filing.
(ii) All amounts credited to the Participant's Account shall
be deemed to be invested in accordance with the then effective deemed investment
direction, and as of the effective date of any new deemed investment direction,
all or a portion of the Participant's Account at that date shall be reallocated
among the designated deemed investment funds according to the percentages
specified in the new deemed investment direction unless and until a subsequent
deemed investment direction shall be filed and become effective. An election
concerning deemed investment choices shall continue indefinitely until changed
by the Participant in a manner permitted by the Employer.
(iii) If the Employer receives an initial or revised deemed
investment direction which it deems to be incomplete, unclear or improper, the
Participant's investment direction then in effect shall remain in effect (or, in
the case of a deficiency in an initial deemed investment direction, the
Participant shall be deemed to have filed no deemed investment direction) until
the next Designation Date, unless the Employer provides for, and permits the
application of, corrective action prior thereto.
(iv) If the Employer possesses (or is deemed to possess as
provided in (c), above) at any time directions as to the deemed investment of
less than all of a Participant's Account, the Participant shall be deemed to
have directed that the undesignated portion of the Account be deemed to be
invested in a money market, fixed income, or similar fund made available under
the Plan as determined by the Employer in its discretion.
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(v) Each Participant hereunder, as a condition to his or her
participation hereunder, agrees to indemnify and hold harmless the Employer and
its agents and representatives from any losses or damages of any kind relating
to the deemed investment of the Participant's Account hereunder.
(vi) Each reference in this Section to a Participant shall be
deemed to include, where applicable, a reference to a Beneficiary.
4.6 EXPENSES. Expenses, including Trustee fees, allocable to the
administration or operation of an Account maintained under the Plan shall be
paid by the Employer unless, in the discretion of the Employer, the Employer
elects to charge such expenses, or any portion thereof, against the appropriate
Participant's Account or Participants' Accounts. If an expense, or any portion
thereof, is charged against a Participant's Account, at the discretion of the
Employer, such expense, or any portion thereof, either (a) will reduce the
contribution to the Trust under Section 3.3 next due to be made by the Employer
in respect of the Account, or (b) will be paid from the Trust to the Employer
out of assets of the Trust corresponding to the Participant's Account hereunder.
4.7 TAXES. Any taxes allocable to an Account (or portion thereof)
maintained under the Plan which are payable prior to the distribution of the
Account (or portion thereof), as determined by the Employer, shall be paid by
the Employer unless, in the discretion of the Employer, the Employer elects to
charge such taxes against the appropriate Participant's Account or Participants?
Accounts. If a tax amount is charged against a Participant's Account, at the
discretion of the Employer, such expense either (a) will reduce the contribution
to the Trust under Section 3.3 next due to be made by the Employer in respect of
the Account, or (b) will be paid from the Trust to the Employer out of assets of
the Trust corresponding to the Participant's Account.
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account, which will be valued and payable according to the provisions of Article
6. Such a fixed payment date may be extended to later dates so long as elections
to so extend are made by the Participant prior to the then applicable fixed
date. Such a fixed payment date may not be accelerated.
Alternatively, on his or her Participant Enrollment and
Election Form, a Participant may select payment or commencement of payment of
his or her vested Account at his or her termination of employment or Director
status with the Employer, or at the earlier of a fixed payment date or his or
her termination of employment or Director status with the Employer. In either of
these cases, the extension and non-acceleration rules discussed above shall
apply to such fixed payment date and/or termination of employment or Director
status date, as applicable.
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Any fixed payment date elected by a Participant pursuant to
the foregoing must be no earlier than the January 1 of the third calendar year
in which the election is made.
If a Participant does not select a payment date pursuant to
the foregoing, his or her vested Account shall be distributed or commence to be
distributed, as provided in Article 6, at the termination of his or her
employment or Director status with the Employer.
5.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her vested Account. The
Employer shall consider the circumstances of each such case, and the best
interests of the Participant and his or her family, and shall have the right, in
its sole discretion, if applicable, to allow such distribution, or, if
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of financial hardship, the
Employer shall make the appropriate distribution to the Participant from amounts
held by the Employer in respect of the Participant's vested Account. In no event
shall the aggregate amount of the distribution exceed either the full value of
the Participant's vested Account or the amount determined by the Employer to be
necessary to alleviate the Participant's financial hardship (which financial
hardship may be considered to include any taxes due because of the distribution
occurring because of this Section), and which is not reasonably available from
other resources of the Participant. For purposes of this Section, the value of
the Participant's vested Account shall be determined as of the date of the
distribution.
"Financial hardship" means (a) a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident of
the Participant or of a dependent (as defined in Code section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, each as determined to exist by
the Employer. A distribution may be made under this Section only with the
consent of the Employer.
5.3 APPLICATION TO TRUSTEE. On the date or dates on which a Participant
or Beneficiary is entitled to payment under Section 5.1, the Participant or
Beneficiary need not make application for payment to the Employer, but instead
may make application for payment directly to the Trustee who shall pay the
Participant or Beneficiary the appropriate amount directly from the Trust
without the consent of the Employer. The Trustee shall report the amount of each
such payment, and any withholding thereon, to the Employer.
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become
entitled to receive, on or about the date or dates selected by the Participant
on his or her Participant Enrollment and Election Form or, if none, on or about
the date of the Participant?s termination of employment or Director status with
the Employer (as provided in Article 5), a distribution in an aggregate amount
equal to the Participant's vested Account. Any payment due hereunder from
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the Trust which is not paid by the Trust for any reason will be paid by the
Employer from its general assets.
6.2 METHOD OF PAYMENT.
(a) Cash Or In-Kind Payments. Payments under the Plan shall be
made in cash or in-kind, as elected by the Participant, as permitted by the
Employer and the Trustee in their sole and absolute discretion and subject to
applicable restrictions on transfer as may be applicable legally or
contractually.
(b) Timing and Manner of Payment. In the case of distributions
to a Participant or his or her Beneficiary by virtue of an entitlement pursuant
to Sections 5.1, an aggregate amount equal to the Participant's vested Account
will be paid by the Trust or the Employer, as provided in Section 6.1, in a lump
sum or in five (5), ten (10), or fifteen (15) substantially equal annual
installments (adjusted for gains and losses), as selected by the Participant
prior to the date on which amounts are first payable to the Participant.
If a Participant fails to designate properly the manner of
payment of the Participant's benefit under the Plan, such payment will be in a
lump sum.
If the whole or any part of a payment hereunder is to be in
installments, the total to be so paid shall continue to be deemed to be invested
pursuant to Sections 4.1 and 4.5 under such procedures as the Employer may
establish, in which case any deemed income, gain, loss or expense attributable
thereto (as determined by the Trustee, in its discretion) shall be reflected in
the installment payments, in such equitable manner as the Trustee shall
determine.
6.3 RE-EMPLOYMENT OF PARTICIPANT. If a Participant who has terminated
his or her employment or Director status with the Employer is receiving
installment distributions pursuant to Section 6.2 and is re-employed by the
Employer (or becomes a member of the Employer?s Board of Directors), the
remaining distributions due to the Participant shall be suspended until such
times as the Participant once again becomes eligible for benefits under Sections
5.1 or 5.2, at which time such distribution shall commence, subject to the
limitations and conditions contained in this Plan.
6.4 DEATH BENEFITS. If a Participant dies before terminating his or her
employment or Director status with the Employer and before the commencement of
payments to the Participant hereunder, the entire value of the Participant's
Account shall be paid, at the time(s) selected by the Participant under Article
5 and in the manner provided in Section 6.2, to the person or persons designated
in accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have
begun but before he or she has received all payments to which he or she is
entitled under the Plan, the remaining benefit payments shall be paid to the
person or persons designated in accordance with Section 7.1 in the manner in
which such benefits were payable to the Participant.
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6.5 WITHHOLDING. All distributions under the Plan are subject to any
applicable tax withholding, as determined by the Employer in its discretion.
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time
may designate any person or persons (who may be named contingently or
successively) to receive such benefits as may be payable under the Plan upon or
after the Participant's death, and such designation may be changed from time to
time by the Participant by filing a new designation. Each designation will
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Employer, and will be effective only when filed in writing
with the Employer during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at
the time any benefit payment is due to a Beneficiary, there is no living
Beneficiary validly named by the Participant, the Employer shall pay any such
benefit payment to the Participant's spouse, if then living, but otherwise to
the Participant's then living descendants, if any, per stirpes, but, if none, to
the Participant's estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Employer may rely conclusively upon
information supplied by the Participant's personal representative, executor or
administrator.
If a question arises as to the existence or identity of anyone
entitled to receive a benefit payment as aforesaid, or if a dispute arises with
respect to any such payment, then, notwithstanding the foregoing, the Employer,
in its sole discretion, may distribute such payment to the Participant's estate
without liability for any tax or other consequences which might flow therefrom,
or may take such other action as the Employer deems to be appropriate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records shall be binding on the
Participant or Beneficiary for all purposes of the Plan. The Employer shall not
be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Employer notifies any
Participant or Beneficiary that he or she is entitled to an amount under the
Plan and the Participant or Beneficiary fails to claim such amount or make his
or her location known to the Employer within three (3) years thereafter, then,
except as otherwise required by law, if the location of one or more of the next
of kin of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture, except that the
dollar amount of the forfeiture, unadjusted for deemed gains or losses in the
interim, shall be paid by the Employer if a claim for the benefit subsequently
is made by the Participant or the Beneficiary to whom it was payable. If a
benefit
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payable to an unlocated Participant or Beneficiary is subject to escheat
pursuant to applicable state law, the Employer shall not be liable to any person
for any payment made in accordance with such law.
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided
herein, the Employer, acting through its Board of Directors or the designee(s)
thereof, shall have the sole responsibility for and the sole control of the
operation and administration of the Plan, and shall have the power and authority
to take all action and to make all decisions and interpretations which may be
necessary or appropriate in order to administer and operate the Plan, including,
without limiting the generality of the foregoing, the power, duty and
responsibility to:
(a) Resolve and determine all disputes or questions arising
under the Plan, and to remedy any ambiguities, inconsistencies or omissions in
the Plan.
(b) Adopt such rules of procedure and regulations as in its
opinion may be necessary for the proper and efficient administration of the Plan
and as are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the
rules and regulations adopted as above.
(d) Make determinations with respect to the eligibility of any
Eligible Individual as a Participant and make determinations concerning the
crediting of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or desirable in
connection with the administration and operation of the Plan, and the Employer
shall be entitled to rely conclusively upon, and shall be fully protected in any
action or omission taken by it in good faith reliance upon, the advice or
opinion of such firms or persons. The Employer shall have the power and
authority to delegate from time to time by written instrument all or any part of
its duties, powers or responsibilities under the Plan, both ministerial and
discretionary, as it deems appropriate, to any person or committee, and in the
same manner to revoke any such delegation of duties, powers or responsibilities.
Any action of such person or committee in the exercise of such delegated duties,
powers or responsibilities shall have the same force and effect for all purposes
hereunder as if such action had been taken by the Employer. Further, the
Employer may authorize one or more persons to execute any certificate or
document on behalf of the Employer, in which event any person notified by the
Employer of such authorization shall be entitled to accept and conclusively rely
upon any such certificate or document executed by such person as representing
action by the Employer until such notified person shall have been notified of
the revocation of such authority.
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8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. Except as may be otherwise required by law, in any
action or judicial proceeding affecting the Plan, no Participant or Beneficiary
shall be entitled to any notice or service of process, and any final judgment
entered in such action shall be binding on all persons interested in, or
claiming under, the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer or the Trustee,
and the Employer or the Trustee shall respond in writing. If the claim is
denied, the written notice of denial shall state, in a manner calculated to be
understood by the Claimant:
(a) The specific reason or reasons for the denial, with
specific references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation of why
such material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim
shall be provided to the Claimant within ninety (90) days after the Employer's
or Trustee's receipt of the claim, unless special circumstances require an
extension of time for processing the claim. If such an extension is required,
written notice of the extension shall be furnished by the Employer or Trustee to
the Claimant within the initial ninety (90) day period and in no event shall
such an extension exceed a period of ninety (90) days from the end of the
initial ninety (90) day period. Any extension notice shall indicate the special
circumstances requiring the extension and the date on which the Employer or
Trustee expects to render a decision on the claim. Any claim not granted or
denied within the period noted above shall be deemed to have been denied.
Any Claimant whose claim is denied, or deemed to have been
denied under the preceding sentence (or such Claimant's authorized
representative), may, within sixty (60) days after the Claimant's receipt of
notice of the denial, or after the date of the deemed denial, request a review
of the denial by notice given, in writing, to the Employer or Trustee. Upon such
a request for review, the claim shall be reviewed by the Employer or Trustee (or
its designated representative) which may, but shall not be required to, grant
the Claimant a hearing. In connection with the review, the Claimant may have
representation, may examine pertinent documents, and may submit issues and
comments in writing.
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The decision on review normally shall be made within sixty
(60) days of the Employer's receipt of the request for review. If an extension
of time is required due to special circumstances, the Claimant shall be
notified, in writing, by the Employer or Trustee, and the time limit for the
decision on review shall be extended to one hundred twenty (120) days. The
decision on review shall be in writing and shall state, in a manner calculated
to be understood by the Claimant, the specific reasons for the decision and
shall include references to the relevant Plan provisions on which the decision
is based. The written decision on review shall be given to the Claimant within
the sixty (60) day (or, if applicable, the one hundred twenty (120) day) time
limit discussed above. If the decision on review is not communicated to the
Claimant within the sixty (60) day (or, if applicable, the one hundred twenty
(120) day) period discussed above, the claim shall be deemed to have been denied
upon review. All decisions on review shall be final and binding with respect to
all concerned parties.
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND. The Employer, by written instrument executed by a
duly authorized representative of the Employer, shall have the right to amend
the Plan, at any time and with respect to any provisions hereof, and all parties
hereto or claiming any interest hereunder shall be bound by such amendment;
provided, however, that no such amendment shall deprive a Participant or a
Beneficiary of a right accrued hereunder prior to the date of the amendment.
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN.
Notwithstanding the provisions of Section 9.1, the Plan may be amended by the
Employer at any time, retroactively if required, in the opinion of the Employer,
in order to ensure that the Plan is characterized as "top-hat" plan as described
under ERISA sections 201(2), 301(a)(3), and 401(a)(1), and to conform the Plan
to the provisions and requirements of any applicable law (including ERISA and
the Code). No such amendment shall be considered prejudicial to any interest of
a Participant or a Beneficiary hereunder.
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer
reserves the right to terminate the Plan and/or its obligation to make further
credits to Plan Accounts. The Employer also reserves the right to suspend the
operation of the Plan for a fixed or indeterminate period of time.
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall
terminate upon the dissolution of the Employer, or upon its merger into or
consolidation with any other corporation or business organization if there is a
failure by the surviving corporation or business organization to adopt
specifically and agree to continue the Plan.
13
<PAGE>
10.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan,
the Employer shall continue all aspects of the Plan, other than Compensation
Deferrals and Employer Contribution Credits, during the period of the
suspension, in which event payments hereunder will continue to be made during
the period of the suspension in accordance with Articles 5 and 6.
10.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative
on a complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is applicable.
Upon the effective date of any such event, notwithstanding any other provisions
of the Plan, no persons who were not theretofore Participants shall be eligible
to become Participants, the value of the interest of all Participants and
Beneficiaries shall be determined and, after deduction of estimated expenses in
liquidating and, if applicable, paying Plan benefits, paid to them as soon as is
practicable after such termination.
10.5 SUCCESSOR TO EMPLOYER. Any corporation or other business
organization which is a successor to the Employer by reason of a consolidation,
merger or purchase of substantially all of the assets of the Employer shall have
the right to become a party to the Plan by adopting the same by resolution of
the entity's board of directors or other appropriate governing body. If, within
ninety (90) days from the effective date of such consolidation, merger or sale
of assets, such new entity does not become a party hereto, as above provided,
the Plan automatically shall be terminated, and the provisions of Section 10.4
shall become operative.
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust
with the Trustee pursuant to such terms and conditions as are set forth in the
Trust agreement to be entered into between the Employer and the Trustee. The
Trust is intended to be treated as a "grantor" trust under the Code and the
establishment of the Trust is not intended to cause the Participant to realize
current income on amounts contributed thereto, and the Trust shall be so
interpreted.
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of
the Plan nor any modification thereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employer thereof except as provided by law or by
any Plan provision. The Employer does not in any way guarantee any Participant's
Account from loss or depreciation, whether caused by poor investment performance
of a deemed investment or the inability to realize upon an investment due to an
insolvency affecting an investment vehicle or any other reason. In no event
shall the Employer, or any
14
<PAGE>
successor, employee, officer, director or stockholder of the Employer, be liable
to any person on account of any claim arising by reason of the provisions of the
Plan or of any instrument or instruments implementing its provisions, or for the
failure of any Participant, Beneficiary or other person to be entitled to any
particular tax consequences with respect to the Plan, or any credit or
distribution hereunder.
12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal
or void, such illegality or invalidity shall not affect the remaining provisions
of the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provision had never been inserted herein.
For all purposes of the Plan, where the context admits, the singular shall
include the plural, and the plural shall include the singular. Headings of
Articles and Sections herein are inserted only for convenience of reference and
are not to be considered in the construction of the Plan. The laws of the State
of Maryland shall govern, control and determine all questions of law arising
with respect to the Plan and the interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give any Participant the right to
be retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
The Plan is intended to be and at all times shall be
interpreted and administered so as to qualify as an unfunded deferred
compensation plan, and no provision of the Plan shall be interpreted so as to
give any individual any right in any assets of the Employer which right is
greater than the rights of a general unsecured creditor of the Employer.
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a
Beneficiary under the Plan will, except as otherwise specifically provided by
law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled thereto. Further, (i) the withholding of taxes from Plan
benefit payments, (ii) the recovery under the Plan of overpayments of benefits
previously made to a Participant or Beneficiary, (iii) if applicable, the
transfer of benefit rights from the Plan to another plan, or (iv) the direct
deposit of benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits
hereunder are garnished or attached by order of any court, the Employer or
Trustee may bring an action or a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid under
the Plan. During the pendency of said action, any benefits that become payable
shall be held as credits to the Participant's or Beneficiary's Account or, if
the Employer or Trustee prefers, paid into the court as they become payable, to
be distributed by the court to the recipient as the court deems proper at the
close of said action.
15
<PAGE>
IN WITNESS WHEREOF, the Employer has caused the Plan to be executed and
its seal to be affixed hereto, effective as of the 9th day of March, 2000.
ATTEST/WITNESS THE BANK OF GLEN BURNIE
/s/ John I. Young By: /s/ F. William Kuethe, Jr. (SEAL)
- ----------------- --------------------------------------
Print Name: John I. Young Print Name: F. William Kuethe, Jr.
Date: March 9, 2000
--------------------
16
EXHIBIT 23
[TRICE GEARY & MYERS LLC LETTERHEAD]
Board of Directors
Glen Burnie Bancorp
Glen Burnie, Maryland
We hereby consent to the incorporation by reference of our report, dated
February 9, 2000, except for Note 21 as to which the date is February 15, 2000,
included in this annual report on Form 10-K, into the Company's Registration
Statements on Forms S-3 and S-8 (SEC File Nos. 333-37073, 333-46943 and
33-62280).
/s/ TRICE GEARY & MYERS LLC
- ----------------------------
TRICE GEARY & MYERS LLC
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
consolidated financial statements and notes thereto of Glen Burnie Bancorp
at and for the year ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000890066
<NAME> GLEN BURNIE BANCORP
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<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1999
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<CASH> 8,317,450
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<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> (63,968)
<EXPENSE-OTHER> 9,821,690
<INCOME-PRETAX> 2,631,394
<INCOME-PRE-EXTRAORDINARY> 1,445,350
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