EDGAR 10-K Filing

Company CIK: 890066
Filing Year: 2025
Filename: 890066_10-K_2025_0001558370-25-004608.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
GENERAL
Glen Burnie Bancorp (the “Company”) is a bank holding company organized in 1990 under the laws of the State of Maryland. The Company owns all the outstanding shares of capital stock of The Bank of Glen Burnie (the “Bank”), a commercial bank organized in 1949 under the laws of the State of Maryland, serving northern Anne Arundel County and surrounding areas from its main office and branch in Glen Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville, Severn (two locations), Linthicum and Severna Park, Maryland. As of January 31, 2025, the Bank closed the Linthicum branch and anticipates closing the Severna Park branch by May 31, 2025. The Bank also maintains a remote Automated Teller Machine (“ATM”) located in Pasadena, Maryland. The Bank maintains a website at www.thebankofglenburnie.com. It 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. The Bank also originates automobile loans through arrangements with local automobile dealers. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). We attract deposit customers from the general public and use such funds, together with other borrowed funds, to make loans. Our results of operations are primarily determined by the difference between interest income earned on our interest-earning assets, primarily interest and fee income on loans and investment securities, and interest paid on our interest-bearing liabilities, including deposits and borrowings.
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.
AVAILABILITY OF INFORMATION
Information on the Company and its subsidiary Bank may be obtained from the Company’s website www.thebankofglenburnie.com. Copies of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto are available free of charge on the website as soon as practicable after they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu item, then click on the “All SEC Filings” or “Insider Transactions” link.
MARKET AREA
The Bank considers its principal market area for lending and deposit products to consist of Anne Arundel County, Maryland. Anne Arundel County includes the suburbs of the City of Baltimore and maintains a diverse set of economic drivers such as a large international airport, the defense industry, a large number of large private sector employers as well as telecommunications, retail, and distribution operations. The population of Anne Arundel County, Maryland in 2022 was 593,286, 10% up from the 539,305 who lived there in 2010. The population of Anne Arundel County has been growing steadily since 2010 and projected to continue such growth in 2025. The median age for Anne Arundel County residents is 39.6 years. Management believes that the majority of the working population in its market area either commutes to Baltimore or is employed at businesses located at or around the nearby Baltimore Washington
International Airport. Lending activities are broader, including the entire State of Maryland, and, to a limited extent, the surrounding states. All of our revenue is generated within the United States.
COMPETITION
Our principal competitors for deposits are other financial institutions, including savings institutions, commercial banks, credit unions, and local banks and branches or affiliates of other larger banks located in our primary market area. Competition among these institutions is based primarily on interest rates and other terms offered, service charges imposed on deposit accounts, the quality of services rendered, and the convenience of banking facilities. Additional competition for depositors' funds comes from mutual funds, U.S. Government securities, insurance companies and private issuers of debt obligations and suppliers of other investment alternatives for depositors such as securities firms. Competition from credit unions has intensified in recent years as historical federal limits on membership have been relaxed. Because federal law subsidizes credit unions by giving them a general exemption from federal income taxes, credit unions have a significant cost advantage over banks and savings associations, which are fully subject to federal income taxes. Credit unions may use this advantage to offer rates that are highly competitive with those offered by banks and thrifts.
The Bank’s interest rates, loan and deposit terms, and offered products and services are impacted, to a large extent, by competition. With respect to indirect lending, the Bank faces competition from other banks and the financing arms of automobile manufacturers. We compete in this area by offering competitive rates and a responsive service to dealers. The Bank attempts to provide superior service within its community and to know and facilitate services for its customers. It seeks commercial relationships with small to medium-sized businesses, which the Bank believes would welcome personal service and flexibility. The Bank believes its greatest competition comes from larger intra- and inter-state financial institutions.
STRATEGY
We operate on the premise that the consolidation activities in the banking industry have created an opportunity for a well-capitalized community bank to satisfy banking needs that are no longer being adequately met in the local market. Large national and regional banks are catering to larger customers and provide an impersonal experience, while typical community banks, because of their limited capacity, are able to meet the needs of many small-to-medium-sized businesses. Specifically, as a result of bank mergers, many banks in the Baltimore metropolitan area became local branches of large regional and national banks. Although size gave the larger banks some advantages in competing for business from large corporations, including economies of scale and higher lending limits, we believe that these larger, national banks remain focused on a mass market approach which de-emphasizes personal contact and service. We also believe that the centralization of decision-making power at these large institutions has resulted in a lack of customer service. At many of these institutions, determinations are made at the out-of-state “home office" by individuals who lack personal contact with customers as well as an understanding of the customers' needs and scope of the relationship with the institution. We believe that this trend is ongoing and continues to be particularly frustrating to owners of small and medium-sized businesses, business professionals and individual consumers who traditionally have been accustomed to dealing directly with a bank executive who understood their banking needs with the ability to deliver a prompt response.
We attempt to differentiate ourselves from the competition through personalized service, flexibility in meeting the needs of customers, prompt decision making and the availability of senior management to meet with customers and prospective customers.
PRODUCTS AND SERVICES
General
Our primary market focus is on making loans to and gathering deposits from small and medium-sized businesses and their owners, professionals and executives, real estate investors and individual consumers in our primary market area. We lend to customers throughout Maryland, with our core market being Northern Anne Arundel County
and surrounding areas of Central Maryland. To a limited extent, we lend to customers in neighboring states. 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, 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 Company 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 indirect automobile loans originated through arrangements with local dealers.
Lending Activities
Credit Policies and Administration
The Bank’s lending activities are conducted pursuant to written policies approved by the Board of Directors (“Board”) 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 Bank’s senior credit officer to identify potential underperforming loans and other credit facilities, to estimate loss exposure and to ascertain compliance with the Bank’s policies. For significant problem loans, management review consists of evaluation of the financial strengths of the borrower and any 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 aggregate lending authority granted by the Bank to any one Lending Officer is $750,000. A combination of approvals from certain officers may be used to lend up to an aggregate of $1,000,000. We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. Our lending staff follow pricing guidelines established periodically by our management team. The Bank maintains two committees, separate from the Board of Directors, which have authorization to approve credit extensions. The two committees are called the Officer’s Loan Committee (“OLC”) and the Executive Committee (“EC”). The OLC is authorized to approve extensions of credit where the total aggregate amount of credit to the borrower or guarantor is less than or equal to $1,000,000. The OLC consists of the President/Chief Executive Officer (“President/CEO”), Chief Financial Officer (“CFO”), and Chief Lending Officer (“CLO”) plus two additional loan officers. The EC approves extensions of credit where the aggregate amount of credit to an existing borrower is less than or equal to $3,000,000. The EC is comprised of the Chairman of the Board, or the President/CEO plus two (2) outside Directors. Extensions of credit greater than $3,000,000 must be approved by the Board of Directors. Under the leadership of our executive management team, we believe that we employ experienced lending officers, secure appropriate collateral and carefully monitor the financial conditions of our borrowers and the concentration of loans in our portfolio.
All loans by the Bank to our directors and executive officers and their affiliates require pre-approval by the Bank’s Board of Directors to ensure, among other things, compliance with Section 23A and Section 23B of the Federal Reserve Act and Regulation O promulgated thereunder. It is the Bank’s policy that all approved loans must be made on substantially the same terms as loans made for persons who are unrelated to the Bank.
In addition to the normal repayment risks, all loans in the portfolio are subject to the state of the economy and the related effects on the borrower and/or the real estate market. Generally, longer-term loans have periodic interest rate adjustments and/or call provisions. Senior management through the collections department monitors the loan portfolio closely to ensure that we minimize past due loans and that we swiftly deal with potential problem loans.
The Bank also retains an outside, independent firm to review the loan portfolio. This firm performs a detailed annual review. We use the results of the firm’s report primarily to validate the risk ratings applied to loans in the portfolio and identify any systemic weaknesses in underwriting, documentation or management of the portfolio.
Results of the annual review are presented to Executive Management, the Audit Committee of the Board and the full Board of Directors and are available to and used by regulatory examiners when they review the Bank’s asset quality.
The Bank maintains the normal checks and balances on the loan portfolio not only through the underwriting process but through the utilization of an internal credit administration group that both assists in the underwriting and serves as an additional reviewer of underwriting. The separately managed loan administration group also has oversight into documentation, compliance and timeliness of collection activities. Our internal auditors also review documentation, compliance and file management.
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 may be originated on either a fixed or a variable rate basis. Substantially all of the Bank’s real estate loans are secured by properties in Anne Arundel County, Maryland. Under the Bank’s loan policies, the maximum permissible loan-to-value ratio for owner-occupied residential mortgages is 80% of the lesser of the purchase price or appraised value. With private mortgage insurance this limit may be higher than 80%. For residential investment properties, the maximum loan-to-value ratio is 80%. The maximum permissible loan-to-value ratio for residential and residential 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 90% of its value for loan commitments greater than $100,000. Because mortgage lending decisions are based on conservative lending policies, the Company has no exposure to credit issues affecting the sub-prime residential mortgage market.
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.
Commercial Lending
The Bank’s commercial loan portfolio consists of demand, installment and time loans for commercial purposes. The Bank’s business demand, installment and time lending includes various working capital loans, equipment, vehicles, lines of credit and letters of credit for commercial customers. Demand loans require the payment of interest until called, while installment loans require a monthly payment of principal and interest, and time loans require at maturity a single payment of principal and interest due monthly. 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 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 borrowers’ cost, environmental hazards, weather, changes in laws and regulations and general changes in the marketplace.
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 other types of credit repayable in installments.
Indirect Automobile Lending
The Bank commenced its indirect lending program in January 1998. The Bank finances new and used automobiles for terms of no more than 84 months. The Bank will lend a maximum of 90% of invoice on new vehicles. On used vehicles, the Bank will lend no more than 90% of the average retail value as defined by a major national publication approved by the Bank. The Bank requires all borrowers to obtain vendors single interest coverage protecting the Bank against loss in case a borrower’s automobile insurance lapses. The Bank originates indirect loans through a network of dealers which are primarily new car dealers located in Anne Arundel County and the surrounding counties. Participating dealers take loan applications from their customers and transmit them to the Bank for approval.
Indirect automobile loans, are affected primarily by 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. In addition, dealerships are contractually obligated to indemnify the Bank for such losses for a limited period of time.
Consumer Lending
We offer various types of secured and unsecured consumer loans. Generally, our consumer loans are made for personal, family or household purposes as a convenience to our customer base. As a general guideline, a consumer’s total debt service should not exceed 40% of their gross income. The underwriting standards for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan.
Consumer loans may present greater credit risk than residential real estate loans because many consumer loans are unsecured or are secured by rapidly depreciating assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections also depend on the borrower’s continuing financial stability. If a borrower suffers personal financial difficulties, the loan may not be repaid. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans.
Personal Unsecured Lines
The Bank offers overdraft protection lines of credit, tied to checking accounts, as a convenience to qualified customers.
Loan Originations, Purchases, Sales, Participations and Servicing
All loans that we originate are underwritten pursuant to our policies and procedures, which incorporate standard underwriting guidelines. We originate both fixed and variable rate loans. Our loan origination activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand. We occasionally sell participations in commercial loans to correspondent banks if the amount of the loan exceeds our internal limits. More rarely, we purchase loan participations from correspondent banks in the local market as well. Those loans are underwritten in-house with the same standards as loans directly originated.
Loan Approval Procedures and Authority
Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors. The loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan, and the adequacy of the value of the collateral that will secure the loan, if applicable. To assess a business borrower’s ability to repay, we review and analyze, among other factors: current income, credit history including the Bank’s prior experience with the borrower, cash flow, any secondary sources of
repayment, other debt obligations in regard to the equity/net worth of the borrower and collateral available to the Bank to secure the loan.
We require appraisals or valuations of all real property securing one-to-four family residential and commercial real estate loans and home equity loans and lines of credit. All appraisers are state licensed or state certified appraisers, and a list of approved appraisers is maintained and updated on an annual basis.
Deposit Activities
Deposits are the major source of our funding. We offer a broad array of consumer and business deposit products that include demand, money market, and savings accounts, as well as time deposits and individual retirement accounts. We offer a competitive array of commercial cash management products, which allow us to attract demand deposits. We believe that we pay competitive rates on our interest-bearing deposits. As a relationship-oriented organization, we generally seek to obtain deposit relationships with our loan clients.
Other Banking Products
We offer our customers treasury services products that include wire transfer and ACH services, debit card and automated teller machines and safe deposit boxes at all branches. In addition to traditional deposit services, we offer telephone banking services, mobile banking, internet banking services and internet bill paying services to our customers.
EMPLOYEES
At December 31, 2024, the Bank had 89 full-time equivalent employees. Glen Burnie Bancorp does not currently have any employees. None of our employees are represented by a union or covered under a collective bargaining agreement. Management considers its employee relations to be excellent.
SUPERVISON AND REGULATION
General
The Company and the Bank are extensively regulated under federal and state law. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on our business and our prospective business. Our operations may be affected by legislative changes and by the policies of various regulatory authorities. We are unable to predict the nature or the extent of the effects on our business and earnings that fiscal or monetary policies, economic controls, or new federal or state legislation may have in the future.
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. As a publicly traded company whose common stock is registered under Section 12(g) of the Exchange Act, we are under the jurisdiction of the SEC and subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. We are listed on the NASDAQ Global Select Market and we are subject to the rules of NASDAQ for listed companies.
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 Maryland Commissioner of Financial Regulation (“Commissioner”) and the FDIC. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit
insurance funds and depositors, and not for the protection of stockholders. The Commissioner and FDIC regularly examine the operations of the Bank, including but not limited to capital adequacy, assets, earnings, liquidity, sensitivity to market interest rates, reserves, loans, investments and management practices. In addition, the Bank is required to furnish quarterly 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.
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 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 customer information, the disclosure of credit terms and discrimination in credit transactions.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank (“FHLB”), which is one of 11 regional banks in the Federal Home Loan Bank System. The FHLB System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. The Bank is required to acquire and hold shares of capital stock of the FHLB as a condition of membership. As of December 31, 2024, the Bank was in compliance with this requirement.
Consumer Financial Protection Laws
The Bank is subject to a number of federal and state consumer financial protection laws and regulations that extensively govern its transactions with consumers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, and the Service Members Civil Relief Act. The Bank must also comply with applicable state usury laws and other laws prohibiting unfair and deceptive acts and practices. These laws, among other things, require disclosures of the cost of credit and the terms of deposit accounts, prohibit discrimination in credit transactions, regulate the use of credit report information, restrict the Bank’s ability to raise interest rates and subject the Bank to substantial regulatory oversight. Violations of these laws may expose us to liability from potential lawsuits brought by affected customers. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce these consumer financial protection laws, in which case we may be subject to regulatory sanctions, civil money penalties, and customer rescission rights.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act, which was signed into law in 2010, significantly changed the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes provisions affecting large and small financial institutions alike, including several provisions that profoundly affected the regulation of community banks, thrifts, and small bank and thrift holding companies. Among other things, these provisions relaxed rules on interstate branching, allow financial institutions to pay interest on business checking accounts, and impose heightened capital requirements on bank and thrift holding companies. The Dodd-Frank Act also includes several corporate governance provisions that apply to all public companies, not just financial institutions. These include provisions mandating certain disclosures regarding executive compensation and provisions addressing proxy access by shareholders.
The Dodd-Frank Act also establishes the Consumer Financial Protection Bureau (“CFPB”) as an independent entity within the Federal Reserve and transferred to the CFPB primary responsibility for administering substantially all of the consumer compliance protection laws formerly administered by other federal agencies. The Dodd-Frank Act also authorizes the CFPB to promulgate consumer protection regulations that will apply to all entities, including banks that offer consumer financial services or products. It also includes a series of provisions covering mortgage loan
origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payment penalties.
The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, including some that may affect our business in substantial and unpredictable ways. We have incurred higher operating costs in complying with the Dodd-Frank Act, and we expect that these higher costs will continue for the foreseeable future. Our management continues to monitor the ongoing implementation of the Dodd-Frank Act and as new regulations are issued, will assess their effect on our business, financial condition, and results of operations.
The Volcker Rule
The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and from investing and sponsoring hedge funds and private equity funds. The provision of the statute imposing these restrictions is commonly called the “Volcker Rule.” The regulations implementing the Volcker Rule require institutions to conform their activities to the requirements of the Volcker Rule by July 21, 2015, and to conform their investments in certain “legacy covered funds” by July 21, 2017. These regulations exempt the Bank, as a bank with less than $10 billion in total consolidated assets that does not engage in any covered activities.
Liquidity Requirements
Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures. The Basel III final framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test, referred to as the liquidity coverage ratio, or LCR, is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the net stable funding ratio, or NSFR, is designed to promote more medium and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements are expected to incentivize banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source.
In September 2015, the federal bank regulators approved final rules implementing the LCR for advanced approaches banking organizations (i.e., banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in total on-balance sheet foreign exposure) and a modified version of the LCR for bank holding companies with at least $50 billion in total consolidated assets that are not advanced approach banking organizations, neither of which would apply to the Company or the Bank.
Bank Holding Company Act (BHCA)
Under the BHCA our activities are limited to business closely related to banking, managing, or controlling banks. We are also subject to capital requirements applied on a consolidated basis in a form substantially similar to those required of the Bank. The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring, or holding more than 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company. The BHCA also restricts non-bank activities to those which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks.
Gramm-Leach-Bliley Act of 1999 (GLBA)
The GLBA removed barriers to affiliations among banks, insurance companies, the securities industry, and other financial service providers, and provides greater flexibility to these organizations in structuring such affiliations. The GLBA also expanded the types of financial activities a bank may conduct through a financial subsidiary and
established a distinct type of bank holding company, known as a financial holding company, which may engage in an expanded list of activities that are “financial in nature.” These activities include securities and insurance brokerage, securities underwriting, insurance underwriting, and merchant banking. A bank holding company may become a financial holding company only if all of its subsidiary financial institutions are well-capitalized and well-managed and have at least a satisfactory Community Reinvestment Act (CRA) rating. While we meet these standards, we do not currently intend to file notice with the Federal Reserve to become a financial holding company or to engage in expanded financial activities through a financial subsidiary of the Bank. The GLBA also includes privacy protections for nonpublic personal information held by financial institutions regarding their customers, and establishes a system of functional regulation that makes the Federal Reserve the “umbrella supervisor” for holding companies, and other federal and state agencies the supervisor of the holding company’s subsidiary.
Financial Privacy
In accordance with the GLBA, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLBA affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. We are also subject to various state laws that generally require us to notify any customer whose personal financial information may have been released to an unauthorized person as the result of a breach of our data security policies and procedures.
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. The Maryland Financial Institutions Code prohibits a bank holding company from acquiring more than 5% of any class of voting stock of a bank or bank holding company without the approval of the Commissioner except as otherwise expressly permitted by federal law or in certain other limited situations. The Maryland Financial Institutions Code additionally prohibits any person from acquiring voting stock in a bank or bank holding company without 60 days’ prior notice to the Commissioner if such acquisition will give the person control of 25% or more of the voting stock of the bank or bank holding company or will affect the power to direct or to cause the direction of the policy or management of the bank or bank holding company. Any doubt whether the stock acquisition will affect the power to direct or cause the direction of policy or management shall be resolved in favor of reporting to the Commissioner. The Commissioner may deny approval of the acquisition if the Commissioner determines it to be anti-competitive or to threaten the safety or soundness of a banking institution. Voting stock acquired in violation of this statute may not be voted for five years.
Capital Standards
In July 2013, the Federal Reserve and other federal banking agencies approved final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for all U.S. banks and for bank holding companies with greater than $500 million in assets. The Federal bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks. If capital falls below the minimum levels established by these guidelines, a bank holding company or bank must submit an acceptable plan for achieving compliance with the capital guidelines and, until its capital sufficiently improves, will be subject to denial of applications and appropriate supervisory enforcement actions. Under these final rules, minimum requirements increased for both the quantity and quality of capital held by the Company and the Bank. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The final rules also require a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. A three-year phase in period for the capital buffer
requirement began in 2016. The capital buffer requirement effectively raised the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5%.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiary. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
The final rules also increase the required capital for certain categories of assets, including higher-risk construction real estate loans and certain exposures related to securitizations. The final rules adopt the risk weights for residential mortgages under the existing general risk-based capital rules, which assign a risk weight of either 50% (for most first-lien exposures) or 100% for other residential mortgage exposures.
As of December 31, 2024, we were in compliance with all applicable regulatory capital requirements.
Loans-to-One Borrower
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 allowance for possible credit losses. 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 credit loss allowances not included in regulatory capital). As of December 31, 2024, the Bank was in compliance with the loans-to-one-borrower limitations.
Prompt Corrective Action Regulations
The FDIC’s prompt corrective action regulations establish five capital levels for financial institutions (“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized”), and impose mandatory regulatory scrutiny and limitations on institutions that are less than adequately capitalized. At December 31, 2024, the Bank was categorized as “well capitalized,” meaning that our total risk-based capital ratio exceeded 10.00%, our Tier 1 risk-based capital ratio exceeded 8.00%, our common equity Tier-1 risk-based capital ratio exceeded 6.50%, our leverage ratio exceeded 5.00%, and we are not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.
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 of 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.
USA Patriot Act of 2001
The USA Patriot Act of 2001 (the “Patriot Act”) substantially broadened the scope of anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions. The regulations adopted by the Treasury under the Patriot Act require financial institutions to maintain appropriate controls to combat money laundering activities, perform due diligence of private banking and correspondent accounts, establish standards for verifying customer identity, and provide records related to suspected anti-money laundering activities upon request from federal authorities. A financial institution’s failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches, and could also have other serious legal and reputational consequences for the institution. We have established policies, procedures and systems designed to comply with these regulations. However, it is reasonable to anticipate that the United States Congress may enact additional legislation in the future to combat terrorism including modifications to existing laws such as the Patriot Act to expand powers as deemed necessary. The enactment of the Patriot Act has increased the Bank’s compliance costs, and the impact of any additional legislation enacted by Congress may have upon financial institutions is uncertain. However, such legislation would likely increase compliance costs and thereby potentially have an adverse effect upon the Company’s results of operations.
Community Reinvestment Act
The Community Reinvestment Act of 1977 (“CRA”) requires that, in connection with examinations of financial institutions, federal banking regulators must evaluate the record of the financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of the bank. Federal banking regulators are required to consider a financial institution’s performance in these areas as they review applications filed by the institution to engage in mergers or acquisitions or to open a branch or facility. In addition, any bank rated in “substantial noncompliance” with the CRA regulations may be subject to enforcement proceedings. The Bank has a current rating of “satisfactory” for CRA compliance.
Interstate Branching
The Dodd-Frank Act expanded the authority of a state or national bank to open offices in other states. A state or national bank may now open a de novo branch in a state where the bank does not already operate a branch if the law of the state where the branch is to be located would permit a state bank chartered by that state to open the branch. This provision removed restrictions under prior law that restricted a state or national bank from expanding into another state unless the laws of the bank’s home state and the laws of the other state both permitted out-of-state banks to open de novo branches.
Dividend Limitations
The ability of the Bank to pay dividends is limited by state and federal laws and regulations that require the Bank to obtain prior approval before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income year to date combined with its retained net income for the previous two
years. 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.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (“SOX”) includes provisions intended to enhance corporate responsibility and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws, and which increase penalties for accounting and auditing improprieties at publicly traded companies. The SOX generally applies to all companies that file or are required to file periodic reports with the SEC under the Exchange Act.
Among other things, the SOX creates the Public Company Accounting Oversight Board (“PCAOB”) as an independent body subject to SEC supervision with responsibility for setting auditing, quality control, and ethical standards for auditors of public companies. The SOX also requires public companies to make faster and more-extensive financial disclosures, requires the chief executive officer and the chief financial officer of public companies to provide signed certifications as to the accuracy and completeness of financial information filed with the SEC, and provides enhanced criminal and civil penalties for violations of the federal securities laws.
The SOX also addresses functions and responsibilities of audit committees of public companies. The statute, by mandating certain stock exchange listing rules, makes the audit committee directly responsible for the appointment, compensation, and oversight of the work of the company’s outside auditor, and requires the auditor to report directly to the audit committee. The SOX authorizes each audit committee to engage independent counsel and other advisors, and requires a public company to provide the appropriate funding, as determined by its audit committee, to pay the company’s auditors and any advisors that its audit committee retains. The SOX also requires public companies to prepare an internal control report and assessment by management, along with an attestation to this report prepared by the company’s independent registered public accounting firm, in their annual reports to stockholders.
FDIC Deposit Insurance Assessment
The Dodd-Frank Act which was signed into law on July 21, 2010, changed how the FDIC calculates deposit insurance premiums payable by insured depository institutions. The Dodd-Frank Act directs the FDIC to calculate the deposit insurance assessments payable by each insured depository institution based generally upon the institution’s average total consolidated assets minus its average tangible equity during the assessment period. Previously, an institution’s assessments were based on the amount of its insured deposits. The minimum deposit insurance fund rate increased from 1.15% to 1.35% on September 30, 2020, and the cost of the increase is borne by depository institutions with assets of $10 billion or more. The Dodd-Frank Act also provides the FDIC with discretion to determine whether to pay rebates to insured depository institutions when its deposit insurance reserves exceed certain thresholds.
Transactions with Affiliates
A state non-member bank or its subsidiary 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 $100,000 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.

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ITEM 1A. RISK FACTORS

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the Bank’s offices (dollars in thousands):
Year
Owned/
Approximate
Opened
Leased
Book Value
Square Footage
Deposits
Main Office:
101 Crain Highway, S.E.
Owned
$
10,000
$
76,874
Glen Burnie, MD 21061
Branches:
Odenton
Owned
6,000
30,687
1405 Annapolis Road
Odenton, MD 21113
Riviera Beach
Owned
2,500
37,174
8707 Ft. Smallwood Road
Pasadena, MD 21122
Crownsville
Owned
3,000
62,530
1221 Generals Highway
Crownsville, MD 21032
Severn
Owned
2,500
32,642
811 Reece Road
Severn, MD 21144
New Cut Road
Owned
2,600
41,129
740 Stevenson Road
Severn, MD 21144
Linthicum
Leased
2,500
18,902
Burwood Village Shopping Center
Glen Burnie, MD 21060
Severna Park
Leased
2,184
9,251
534 Ritchie Highway
Severna Park, MD 21146
Operations Centers:
106 Padfield Blvd.
Owned
-
16,200
N/A
Glen Burnie, MD 21061
103 Crain Highway, S.E.
Owned
-
3,727
N/A
Glen Burnie, MD 21061

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank from time to time are involved in legal proceedings related to collection suits and other actions that arise in the ordinary course of business against their borrowers and are defendants in legal actions arising from normal business activities. The Company’s management, after consultation with legal counsel, believe there are no pending or threatened legal proceedings that, upon resolution, are expected to have a material adverse effect upon the Company’s or the Bank’s financial condition or results of operations based on all known information at this time.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information about the Company’s executive officers.
NAME
AGE(1)
POSITIONS
Mark C. Hanna
President and Chief Executive Officer
Jeffrey Welch
Executive Vice President and Chief Credit Officer
Andrew J. Hines
Executive Vice President and Chief Lending Officer
Donna L. Smith
Senior Vice President and Director of Branch and Deposit Operations
Jeffrey D. Harris
Senior Vice President and Treasurer and Chief Financial Officer
Michelle R. Stambaugh
Senior Vice President and HR Director
Jonathan Shearin
Vice President and Director of Commercial Banking
(1) Age shown as of December 31, 2024.
MARK C. HANNA was appointed President and Chief Executive Officer of the Company and the Bank effective October 16, 2023. From October 2, 2023, to that date, Mr. Hanna was Executive Vice President. Prior to that, he was President and CEO at two other community banks in Virginia.
JEFFREY WELCH was appointed Executive Vice President and Chief Credit Officer of the Bank effective March 31, 2025. Prior to that he was Chief Credit Officer at Burke & Herbert Bank.
ANDREW J. HINES was appointed Chief Lending Officer of the Bank effective March 1, 2014. He was appointed Senior Lending Officer and Senior Vice President effective January 2, 2014. Effective January 12, 2017, he was appointed Executive Vice President. Mr. Hines and the Bank terminated their relationship effective January 10, 2025.
DONNA L. SMITH was appointed Senior Vice President - Director of Retail Banking / Information/Physical Security Officer of the Bank on October 26, 2015. In 2017 she was also appointed to Director of Branch and Deposit Operations. Prior to that, she was the SVP - Enterprise Risk Manager at Bay Bank.
JEFFREY D. HARRIS was appointed Senior Vice President, Treasurer of the Company and Senior Vice President, Chief Financial Officer, and CRA and Compliance Officer of the Bank effective March 30, 2017. Prior to that, he was the SVP - Controller at Bay Bank.
MICHELLE R. STAMBAUGH was appointed Senior Vice President effective February 2, 2011. Effective November 28, 2016, she assumed the role of Corporate Secretary of the Company and Bank. Prior to that, she was Vice President and Director of Human Resources for 18 years.
JONATHAN SHEARIN was appointed Vice President and Director of Commercial Banking effective September 16, 2024 and Chief Lending Officer effective March 13, 2025. Prior to that, he was a Commercial Relationship Manager at Shore United Bank and prior to that he was a Vice President and Commercial Relationship Manager at Primis.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our authorized common stock consists of 15,000,000 shares, of which 2,900,681 shares are issued and outstanding as of December 31, 2024. The Common Stock is traded on the Nasdaq Capital Market under the symbol “GLBZ”. As of February 18, 2025, there were 304 record holders of the Common Stock. The closing price for the Common Stock on that date was $4.88.
The following table sets forth the high and low sales prices for the Common Stock as of the last trading date for each quarter end period during 2024 and 2023 as reported by Nasdaq. The quotations represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. Also shown are dividends declared per share during the respective quarterly periods shown.
Quarter Ended
High
Low
Dividends
High
Low
Dividends
March 31,
$
5.50
$
5.46
$
0.10
$
7.40
$
7.22
$
0.10
June 30,
4.16
3.96
0.10
7.80
7.68
0.10
September 30,
5.75
5.60
-
6.65
6.37
0.10
December 31,
5.85
5.60
-
6.00
5.86
0.10
The payment of dividends by the Company depends upon the ability of the Bank to declare and pay dividends to the Company because the principal source of the Company's revenue will be dividends paid by the Bank. The Company recognizes the importance of dividends to its shareholders and intends to evaluate a variety of factors, on a quarterly basis, in determining whether dividend payments are prudent as well as the amount of the dividend. 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.”

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include projections, predictions, expectations or statements as to beliefs or future events or results, or refer to other matters that are not purely statements of historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking statements contained in this Annual Report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by words like “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words. You should be aware that those statements reflect only our predictions. If known or unknown risks or uncertainties should materialize, or if underlying assumptions should prove inaccurate, actual results
could differ materially from past results and those anticipated, estimated or projected. Further, factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Factors that might cause such differences include, but are not limited to:
● changes in our plans and strategies and the results thereof;
● the impact of acquisitions and other strategic transactions;
● unexpected changes in the housing market, business markets, and/or general economic conditions in our market area;
● unexpected changes in market interest rates or monetary policy;
● the impact of new laws, regulations and governmental policies and guidelines that might require changes to our business model;
● changes in laws, regulations and governmental policies and guidelines that might impact our ability to collect on outstanding loans or otherwise negatively impact our business;
● higher than anticipated credit losses or the insufficiency of the allowance for credit losses;
● our potential exposure to various types of market risks, such as interest rate risk and credit risk;
● our ability to recover the fair values of available for sale securities;
● our obligation to fund commitments to extend credit and unused lines of credit;
● changes in consumer confidence, spending and savings habits relative to the services we provide;
● continued relationships with major customers;
● competition from other financial institutions in originating loans, attracting deposits, and providing various financial services that may affect our profitability;
● the ability to continue to grow our business internally and through acquisition and successful integration of bank entities while controlling our costs;
● changes in competitive, governmental, regulatory, accounting, technological and other factors that may affect us specifically or the banking industry generally, including as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”);
● changes in our sources and availability of liquidity;
● the impact of pending and future legal proceedings; and
● losses that we may realize from off-balance sheet arrangements.
You should also carefully consider additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
OVERVIEW
This section is intended to help investors understand the financial performance of the Company through a discussion of the factors affecting our financial condition at December 31, 2024 and 2023 and our results of operations for the years ended December 31, 2024 and 2023. This section should be read in conjunction with the consolidated financial statements and notes thereto that appear elsewhere in this Annual Report on Form 10-K.
Net interest income was $10.9 million for the year ended December 31, 2024, and $12.1 million for the year ended December 31, 2023. Total interest income increased from $13.3 million in 2023 to $15.2 million in 2024, a 14.1% increase. Interest expense for 2024 totaled $4.3 million, a 255.3% increase from $1.2 million in 2023. Net loss for 2024 was $0.1 million, and net income for 2023 was $1.4 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
General. For the year ended December 31, 2024, the Company reported consolidated net loss of $0.1 million ($ (0.04) per basic and diluted loss per share) compared to consolidated net income of $1.4 million ($0.50 per basic and diluted earnings per share) for the year ended December 31, 2023. The $1.5 million decrease in the 2024 consolidated net income as compared to 2023 was primarily due to a $1.2 million decrease in net interest income, a $748,000 increase in the provision of credit loss allowance, and a $253,000 increase in noninterest expenses, that were partially offset by a $597,000 reduction in income tax expense for 2024.
Annualized return on average assets was (0.03)% at December 31, 2024 compared to 0.40% at December 31, 2023. Annualized return on average equity was (0.58)% and 8.35% at December 31, 2024 and 2023, respectively. The dividend payout ratio was -750% for December 31, 2024 and 80% for December 31, 2023. The equity to asset ratio was 5.0% and 5.5% at December 31, 2024 and 2023, respectively.
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 income producing assets. 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.
The Company’s net interest margin is determined by dividing net interest income by the Company’s average interest-earning assets.
Net interest income is affected by the mix of loans in the Bank’s loan portfolio. Currently, a majority of the Bank’s loans are residential and commercial mortgage loans secured by real estate, and indirect automobile loans secured by automobiles.
Consolidated net interest income for the year ended December 31, 2024 was $10.9 million and $12.1 million for the year ended December 31, 2023. Total interest income increased from $13.3 million in 2023 to $15.2 million in 2024, a $1.9 million, or 14.1% increase, primarily due to a $1.9 million increase in interest and fees on loans and a $704,000 increase in interest on deposits with banks and federal funds sold that were partially offset by a $768,000 decrease in interest and dividends on securities.
Total interest expense increased from $1.2 million in 2023 to $4.3 million in 2024, a $3.1 million, or 255.3% increase, primarily due to a $1.1 million increase in interest on short-term borrowings and a $2.0 million increase in interest on deposits. Net interest margin for the year ended December 31, 2024 was 2.98% compared to 3.31% for the year ended December 31, 2023.
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.
Year Ended December 31,
VS.
Change Due To:
Increase/
(dollars in thousands)
Decrease
Rate
Volume
ASSETS:
Interest-earning assets:
Interest-bearing deposits w/ banks & fed funds
$
$
$
Investment securities:
Investment securities available for sale
(768)
(124)
(644)
Restricted equity securities
(2)
Total investment securities
(756)
(126)
(630)
Loans, net of unearned income
Loans Secured by Real Estate
Construction and land
Farmland
-
-
-
Single-family residential
1,053
Multi-family
(11)
(14)
Commercial
Total loans secured by real estate
1,576
Commercial and Industrial
Commercial and industrial
SBA guaranty
(7)
(18)
Total commercial and industrial loans
Consumer Loans
Consumer
(9)
(18)
Automobile
(8)
(427)
Total consumer loans
(17)
(418)
Total gross loans(1)
1,939
1,197
Total interest-earning assets
$
1,875
$
1,131
LIABILITIES:
Interest-bearing deposits:
Interest-bearing checking and savings
$
(8)
$
$
(24)
Money market
2,078
1,549
Other time deposits
(50)
(132)
Total interest-bearing deposits
2,020
1,393
Borrowed funds
1,049
Total interest-bearing liabilities
$
3,069
$
1,303
$
1,766
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.
Year Ended December 31,
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
(dollars In thousands)
ASSETS:
Interest-earning assets:
Interest-bearing deposits w/ banks & fed funds
$
25,469
$
1,279
5.02
%
$
12,892
$
4.55
%
Investment securities:
Investment securities available for sale
148,037
3,379
2.49
173,902
4,147
2.38
Restricted equity securities
7.51
7.74
Total investment securities
148,782
3,435
2.31
174,467
4,191
2.40
Loans Secured by Real Estate
Construction and land
6,260
7.96
4,359
4.23
Farmland
5.06
5.04
Single-family residential
94,130
4,774
5.53
82,091
3,721
4.53
Multi-family
5,094
5.33
5,043
5.15
Commercial
44,028
2,638
5.99
41,935
2,418
5.77
Total loans secured by real estate
149,831
8,175
5.46
133,757
6,599
4.93
Commercial and Industrial
Commercial and industrial
14,503
5.89
10,541
4.44
SBA guaranty
5,771
8.28
5,984
8.10
Total commercial and industrial loans
20,274
1,333
6.57
16,525
5.77
Consumer Loans
Consumer
2,847
0.89
1,827
1.87
Automobile
19,694
5.35
27,681
3.51
Total consumer loans
22,541
4.39
29,508
1,007
3.41
Total gross loans(1)
192,646
10,498
5.45
179,790
8,559
4.76
Total interest-earning assets
366,897
15,212
4.15
367,149
13,337
3.63
Cash and due from banks
2,108
2,173
Allowance for credit losses
(2,460)
(2,144)
Other assets
(2,551)
(5,447)
Total assets
$
363,994
$
361,731
LIABILITIES AND STOCKHOLDER'S EQUITY:
Interest-bearing deposits:
Interest-bearing checking and savings
$
110,736
0.08
%
$
139,703
0.07
%
Money market
58,891
2,154
3.66
16,558
0.46
Certificates of deposit
28,934
0.99
42,221
0.80
Total interest-bearing deposits
198,561
2,533
1.28
198,482
0.26
Borrowed funds:
Bank Term Funding Program
22,303
1,208
5.41
5,222
5.41
FHLB advances
10,417
5.09
7,357
5.54
Federal funds purchased
-
-
-
-
Total interest-bearing liabilities
231,281
4,271
1.85
211,062
1,202
0.57
Non-interest-bearing deposits
111,277
131,613
Other liabilities
2,267
1,951
Stockholder's equity
19,169
17,105
Total liabilities and equity
$
363,994
$
361,731
Net interest income
$
10,941
$
12,135
Net interest spread
2.30
%
3.06
%
Net interest margin
2.98
%
3.31
%
1 Nonaccrual loans included in average balance.
Allowance for Credit Losses. Effective January 1, 2021, the Company applied ASU 2016-13, Financial Instruments - Credit Losses ("ASC 326"), such that the allowance calculation is based on the CECL methodology. Prior to January 1, 2021, the calculation was based on incurred loss methodology. The Company maintains an allowance for credit losses (“ACL”) for the expected credit losses of the loan portfolio as well as unfunded loan commitments. The amount of ACL is based on ongoing, quarterly assessments by management. The CECL methodology requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures) and replaces the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was probable a loss event was incurred.
The ACL consists of the allowance for credit losses - loans and the reserve for unfunded commitments. The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.
Portfolio segment is defined as the level at which the Company develops and documents a systematic methodology to determine its ACL. The Company has designated three loan portfolio segments: loans secured by real estate, commercial and industrial loans, and consumer loans. These loan portfolio segments are further disaggregated into classes, which represent loans of similar type, risk characteristics, and methods for monitoring and assessing credit risk. The loans secured by real estate portfolio segment is disaggregated into five classes: construction and land, farmland, single-family residential, multi-family, and commercial. The commercial and industrial loan portfolio segment is disaggregated into two classes: commercial and industrial, and SBA guaranty. The risk of loss for the commercial and industrial loan portfolio segment is generally most indicated by the credit risk rating assigned to each borrower. Commercial and industrial loan risk ratings are determined by experienced senior credit officers based on specific facts and circumstances and are subject to periodic review by an independent internal team of credit specialists. The consumer loan portfolio segment is disaggregated into two classes: consumer and automobile. The risk of loss for the consumer loan portfolio segment is generally most indicated by delinquency status and general economic factors. Each of the three loan portfolio segments may also be further segmented based on risk characteristics.
For most of our loan portfolio classes, the historical loss experience is determined using the Average Charge-Off Method. This method pools loans into groups (“cohorts”) sharing similar risk characteristics and tracks each cohort’s net charge-offs over the lives of the loans. The Average Charge-Off Method uses historical values by period (20-year look-back) to calculate losses and then applies the historical average to future balances over the life of the account. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. For certain loan portfolio classes, the Company determined there was not sufficient historical loss information to calculate a meaningful historical loss rate using the average charge-off methodology. For any such loan portfolio class, peer group history contributes to the Company’s weighted average loss history. The peer group data is included in the weighted average loss history that is developed for each loan pool.
The Company also considers qualitative adjustments to the historical loss rate for each loan portfolio class. The qualitative adjustments for each loan class consider the conditions over the 20-year look-back period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors; and 2) reasonable and supportable forecast of future economic conditions and collateral values.
The Company performs a quarterly asset quality review which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans, risk rating migration, delinquencies, etc. The asset quality review is performed by management and the results are used to consider a qualitative overlay to the quantitative baseline.
When management deems it to be appropriate, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans or loans to borrowers experiencing financial difficulty.
During the year ended December 31, 2024, the Company recognized a credit loss provision - loans of $0.8 million, compared to $0.1 million for the year ended December 31, 2023. The increase was primarily driven by a $61,000 increase in net charge offs, a $28.2 million increase in the reservable balance of the loan portfolio and a 0.16% increase in the current expected credit loss percentage. The allowance for credit losses - loans was $2.8 million, or 1.4% of total loans at December 31, 2024, compared to $2.2 million, or 1.2% of total loans at December 31, 2023. At December 31, 2024, the allowance for credit losses - loans equaled 788.6% of nonaccrual loans and loans past due by 90+ days compared to 409.5% at December 31, 2023. During the year ended December 31, 2024, the Company recorded net charge offs of $0.2 million compared to net charge offs of $0.1 million during the year ended December 31, 2023.
Noninterest Income. Noninterest income includes service charges on deposit accounts, other fees and commissions, and income on life insurance policies. Noninterest income increased from $1.1 million in 2023 to $1.2 million in 2024, a $57,000, or 5.2% increase. The increase was primarily due to a $52,000 increase in other fees and commissions earned in 2024 compared to 2023.
Noninterest Expenses. Noninterest expenses increased from $11.6 million in 2023 to $11.9 million in 2024, a $253,000 or 2.2% increase. Legal, accounting and other professional fees increased by $122,000, or 12.3 %, to $1.1 million at December 31, 2024, compared to $1.0 million at December 31, 2023. Other expenses rose by $195,000, or 16.2% to $1.4 million while salary and employee benefits decreased from $6.7 million at December 31, 2023 to $6.6 million at December 31, 2024, a decrease of $130,000 or 1.9%.
Income Taxes. During the year ended December 31, 2024, the Company recorded an income tax benefit of $525,000, compared to an expense of $72,000 for the year ended December 31, 2023, a $597,000 or 829.2% decrease in expense. This decrease was primarily due to $2.1 million, or 142.5% lower income before taxes in 2024 compared to 2023.
FINANCIAL CONDITION
Total assets increased by $7.1 million, or 2.0% to $359.0 million at December 31, 2024, compared to $351.8 million at December 31, 2023. The increase was primarily a result of increases in interest-bearing deposits in other financial institutions and the loan portfolio, offset by declines in the investment securities available for sale portfolio.
Cash and cash equivalents at December 31, 2024 were $24.5 million compared to $15.2 million at December 31, 2023. Loans, net at December 31, 2024 were $202.4 million compared to $174.2 million at December 31, 2023, a decrease of $28.2 million or 16.2%. At year-end 2024, investment securities had decreased $31.5 million, or 22.6% to $107.9 million compared to year end 2023. At December 31, 2024, total deposits were $309.2 million compared to $300.1 million at the end of 2023, a 3.0% increase during the period. Total borrowings were $30.0 million at December 31, 2024 unchanged from December 31, 2023.
Cash
Cash and cash equivalents increased by $9.2 million primarily due to a $9.1 million increase in deposit balances and a $30.6 million decrease in investment securities that was partially offset by a $28.9 million increase in loans net of deferred fees and costs.
Investment Securities
The Company’s investment policy authorizes management to invest in traditional securities instruments in order to provide ongoing liquidity, income and a ready source of collateral that can be pledged in order to access other sources of funds. The investment portfolio consists solely of securities available for sale. Securities available for sale are those securities that we intend to hold for an indefinite period of time but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability management strategy, liquidity management, interest rate risk management, regulatory capital management or other similar factors.
The investment portfolio consists primarily of U.S. Agency mortgage-backed securities, U.S. Government agency securities, and municipal obligations. The income from state and municipal obligations may be taxable or tax-exempt from federal and state income tax. State and municipal obligations from the State of Maryland are exempt from federal and state income taxes. We use the investment portfolio as a source of both liquidity and earnings. Management continuously evaluates investment options that will produce income without assuming significant credit or interest rate risk and looks for opportunities to use liquidity from maturing investments to reduce our use of high-cost time deposits and borrowed funds.
During 2024, the Company’s investment securities portfolio totaled $107.9 million, a $31.5 million, or 22.58% decrease from $139.4 million at December 31, 2023. This decrease was primarily driven by $30.5 million of paydowns and redemptions of investment securities, and a $0.9 million increase in the unrealized loss on available for sale securities during 2024.
The composition of investment securities, at carrying value, at December 31, 2024 and 2023 are presented in the following table:
(dollars in thousands)
Amount
%
Amount
%
Available for sale securities:
U.S. Treasury
$
-
-
%
$
6,945
5.0
%
U.S. Government agency
23,538
21.8
%
37,694
27.0
%
Residential mortgage-backed securities
50,659
46.9
%
59,775
42.9
%
State and municipal
32,411
30.0
%
33,729
24.2
%
Corporate securities
1,341
1.3
%
1,284
0.9
%
Total debt securities
$
107,949
100.0
%
$
139,427
100.0
%
At December 31, 2024, the Company had municipal securities from eight single issuers that, individually, were more than 10% of stockholders’ equity, which totaled $30.4 million.
Maturities and weighted average yields for investment securities at December 31, 2024 are presented in the following table:
Mortgage Backed
Municipals
U.S. Government Agencies
Corporates
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
(dollars in thousands)
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Due within one year
$
5.49
%
$
1,003
2.52
%
$
-
-
%
$
-
-
%
Due over one to five years
1,520
2.20
1.06
3,777
1.34
-
-
Due over five to ten years
15,129
2.08
5,191
2.76
9,597
1.76
1,500
3.75
Due over ten years
41,724
2.49
36,178
2.61
17,994
1.86
-
-
Total securities available for sale
$
58,691
2.38
%
$
42,607
2.62
%
$
31,368
1.76
%
$
1,500
3.75
%
________________________
(1) Yields are stated as book yields which are adjusted for amortization and accretion of purchase premiums and discounts, respectively.
(2) Yields on tax-exempt obligations have been computed on a tax-equivalent basis.
Restricted Equity Securities
Restricted equity securities were $1.7 million and $1.2 million at December 31, 2024 and 2023, respectively.
Loans
A comparison of the loan portfolio for the years indicated is presented in the following table:
December 31,
(dollars in thousands)
$
%
$
%
$
%
$
%
$
%
Loans Secured by Real Estate
Construction and land
$
8,882
%
$
4,636
%
$
4,499
%
$
4,087
%
$
2,553
%
Farmland
-
-
-
-
-
Single-family residential
98,993
86,887
80,251
78,119
82,520
Multi-family
5,022
5,165
5,304
5,428
6,105
Commercial
48,726
39,217
42,936
48,729
57,027
Total loans secured by real estate
161,938
136,230
133,323
136,705
148,555
Commercial and Industrial
Commercial and industrial
16,705
10,850
8,990
10,003
10,800
SBA guaranty
5,691
5,924
6,158
6,397
7,200
Comm SBA PPP
-
-
-
-
-
-
1,047
-
9,912
Total commercial and industrial loans
22,396
16,774
15,148
17,447
27,912
Consumer Loans
Consumer
2,880
2,039
1,521
2,090
3,063
Automobile
18,005
21,264
36,448
54,150
74,242
Total consumer loans
20,885
23,303
37,969
56,240
77,305
Gross loans
205,219
%
176,307
%
186,440
%
210,392
%
253,772
%
Allowance for credit losses
(2,839)
(2,157)
(2,162)
(2,470)
(1,476)
Net loans
$
202,380
$
174,150
$
184,278
$
207,922
$
252,296
The Company’s net loan receivables increased by $28.2 million to $202.4 million at December 31, 2024 from $174.2 million at December 31, 2023 primarily due to $67.4 million in new originations outpacing $39.2 million in pay downs. This change in the composition of the loan portfolio resulted primarily from a $4.2 million increase in construction and land loans, a $12.1 million increase in single-family loans, a $9.5 million increase in commercial real estate loans, and a $5.9 million increase in commercial and industrial loans, offset by a $3.2 million decrease in automobile loans.
The following table summarizes the scheduled repayments of our loan portfolio, both by loan category and by fixed and adjustable rates, at December 31, 2024. Demand loans and loans which have no stated maturity, are treated as due in one year or less:
Due Within
Due Over One To
Due Over
One Year
Five Years
Five Years
Total
(dollars in thousands)
By Loan Category:
Loans Secured by Real Estate
Construction and land
$
3,154
$
2,285
$
3,443
$
8,882
Farmland
-
-
Single-family residential
1,678
97,277
98,993
Multi-family
-
-
5,022
5,022
Commercial
-
12,494
36,232
48,726
Total loans secured by real estate
3,192
16,457
142,289
161,938
Commercial and Industrial
Commercial and industrial
13,352
3,210
16,705
SBA guaranty
-
5,377
5,691
Total commercial and industrial loans
13,666
8,587
22,396
Consumer Loans
Consumer
2,438
2,880
Automobile
8,944
8,268
18,005
Total consumer loans
9,371
10,706
20,885
Gross loans
$
4,143
$
39,494
$
161,582
$
205,219
Fixed Rate
Adjustable Rate
Total
By Loan Category:
Loans Secured by Real Estate
Construction and land
$
5,027
$
3,855
$
8,882
Farmland
-
Single-family residential
88,991
10,002
98,993
Multi-family
5,022
-
5,022
Commercial
20,956
27,770
48,726
Total loans secured by real estate
120,311
41,627
161,938
Commercial and Industrial
Commercial and industrial
14,946
1,759
16,705
SBA guaranty
5,065
5,691
Total commercial and industrial loans
15,572
6,824
22,396
Consumer Loans
Consumer
2,880
-
2,880
Automobile
18,005
-
18,005
Total consumer loans
20,885
-
20,885
Gross loans
$
156,768
$
48,451
$
205,219
Loans are placed on nonaccrual status when they are past due 90 days as to either principal or interest or when, in the opinion of management, the collection of all interest and/or principal is in doubt. Placing a loan on nonaccrual status means that we no longer accrue interest on such loan and reverse any interest previously accrued but not collected. Management may grant a waiver from nonaccrual status for a 90 day past due loan that is both well secured and in the process of collection. An asset is “well secured” if it is secured by (1) collateral in the form of liens on or pledges of real or personal property, including securities that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) the guarantee of a financially responsible party. An asset is “in the process of collection” if collection of the asset is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in prepayment of the debt or in its restoration to a current status in the near future. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to make payments in accordance with the terms of the loan and remains current.
A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the fair value of the collateral for collateral dependent loans and at the present value of expected future cash flows using the loans’ effective interest rates for loans that are not collateral dependent.
The Bank seeks to control delinquencies through diligent collection efforts. 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/or 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 may 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 may seek a deficiency judgment against the borrower. The Bank follows similar collection procedures with respect to commercial loans.
Our current charge-off policy is as follows:
When the probability for full payment of a loan is unlikely, the Bank will initiate a full charge-off or a partial write-down of the asset based upon the status of the loan. The following guidelines apply:
● Consumer loans less than $25,000 for which payments of principal and/or interest are past due ninety (90) days are charged-off and referred for collection. Consumer loans of $25,000 or more shall be evaluated for charge-off or partial write-down at the discretion of Bank management.
● Any other loan over 120 days past due shall be evaluated for charge-off or partial write-down at the discretion of Bank management. Any non-consumer unsecured loan more than 180 days delinquent in payment of principal and/or interest (or sooner if deemed uncollectible) is charged-off in full.
● If secured, a charge-off is made to reduce the loan balance to a level equal to the anticipated liquidation value of the collateral when payment of principal and/or interest is more than 180 days delinquent, or prior to that if deemed uncollectible.
● Generally, real estate secured loans are charged-off on a deficiency basis after liquidation of the collateral. In some cases, Bank management may determine that a charge-off or write-down is appropriate prior to liquidation of the collateral, when the full loan balance is clearly uncollectible and some loss is anticipated. In order to make this determination, an updated evaluation or appraisal of the property is obtained.
The Bank experienced a $167,000 or 31.7% decrease in the total nonperforming loans in 2024. The following table presents details of our nonperforming loans and nonperforming assets, as these asset quality metrics are evaluated by management, for the years indicated:
As of December 31,
(dollars in thousands)
Nonaccrual loans
$
$
$
$
$
4,512
Accruing loans past due 90+ days
-
-
Total nonperforming loans
4,530
Real estate acquired through foreclosure
-
-
-
-
Total nonperforming assets
$
$
$
$
$
5,105
Nonperforming loans to gross loans
0.2
%
0.3
%
0.3
%
0.2
%
1.8
%
Allowance for credit losses to nonperforming loans
788.6
%
409.5
%
434.0
%
700.3
%
32.6
%
Nonperforming assets, which consist of nonaccrual loans, loans to borrowers experiencing financial difficulty, accruing loans past due 90 days or more, and real estate acquired through foreclosure, decreased to $0.4 million at December 31, 2024 from $0.5 million at December 31, 2023. Nonperforming assets represented 0.10% of total assets at December 31, 2024, compared to 0.15% at December 31, 2023. Management has worked diligently to identify borrowers that may be facing difficulties in order to restructure terms where appropriate, secure additional collateral or pursue foreclosure and other secondary sources of repayment.
Allowance for Credit Losses - Loans and Credit Risk Management
Credit risk is the risk of loss arising from the inability of a borrower to meet his or her obligations and entails both general risks, which are inherent in the process of lending, and risks specific to individual borrowers. Credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry, or collateral type.
Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as automobile loans, generally experience medium credit losses. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and for that reason, the Bank has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.
On January 1, 2021, the Company early adopted ASU 2016-13, Financial Instruments - Credit Losses (“ASC 326”) which replaces the “incurred loss approach” for estimating credit losses with an expected loss methodology. The incurred loss model delayed the recognition of credit losses until it was probable that a loss had occurred, while the CECL model requires the immediate recognition of expected credit losses over the contractual term for financial instruments that fall within the scope of CECL at the date of origination or purchase of the financial instrument. The CECL model, which is applicable to the measurement of credit losses on financial assets measured at amortized cost and certain off-balance sheet credit exposures, affects the Company’s estimates of the allowance for credit losses for our loan portfolio and the reserve for our off-balance sheet credit exposures related to loan commitments. 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 collectability of the principal is unlikely. The allowance, based on all available information from internal and external sources, relevant to assessing the collectability of loans over their contractual terms, adjusted for expected prepayments when appropriate, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations are performed for each class of loans and take into consideration factors such as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, value of collateral securing the loans and current economic conditions and trends that may affect the borrowers’ ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Finally, the Company considers forecasts about future economic conditions or changes in collateral values that are reasonable and supportable. Based on that analysis, the Bank deems its allowance for credit losses in proportion to the total nonaccrual loans and past due loans to be sufficient.
The allowance was $2.8 million at December 31, 2024, compared to $2.2 million at December 31, 2023. The allowance as a percentage of total portfolio loans was 1.4% at December 31, 2024 and 1.2% at December 31, 2023.
During the year ended December 31, 2024, the Company recorded net charge offs of $0.2 million compared to $0.1 million during the year ended December 31, 2023.
The following table reflects activity in the allowance for credit losses - loans for the periods indicated:
Year Ended December 31,
(dollars in thousands)
Beginning Balance
$
2,157
$
2,162
$
2,470
$
1,476
$
2,066
Impact of ASC 326 adoption
-
-
-
1,574
-
Loans charged-off
Loans Secured by Real Estate
Construction and land
-
-
-
-
-
Farmland
-
-
-
-
-
Single-family residential
-
-
-
-
-
Multi-family
-
-
-
-
-
Commercial
-
-
-
-
-
Total loans secured by real estate
-
-
-
-
-
Commercial and Industrial
Commercial and industrial
-
-
-
-
SBA guaranty
-
-
-
Total commercial and industrial loans
-
-
-
Consumer Loans
Consumer
-
Automobile
Total consumer loans
Total loans charged-off
Recoveries
Loans Secured by Real Estate
Construction and land
-
-
-
-
-
Farmland
-
-
-
-
-
Single-family residential
-
-
-
Multi-family
-
-
-
-
-
Commercial
-
-
-
-
-
Total loans secured by real estate
-
-
-
Commercial and Industrial
Commercial and industrial
-
-
-
-
SBA guaranty
-
-
-
-
-
Total commercial and industrial loans
-
-
-
-
Consumer Loans
Consumer
-
Automobile
Total consumer loans
Total recoveries
Net charge offs (recoveries)
(1,969)
(99)
Provision (release) for credit loss
(112)
(975)
(689)
Balance at end of year
$
2,839
$
2,157
$
2,162
$
2,470
$
1,476
Allowance as a percentage of total
loans at the end of the year
1.38
%
1.22
%
1.16
%
1.17
%
0.58
%
Net charge offs (recoveries) as a percentage of
average loans during the year
0.08
%
0.06
%
0.10
%
(0.84)
%
(0.04)
%
The following table reflects net charge-offs (recoveries) as a percent of average loans by category:
Loans Secured by Real Estate
-
%
-
%
Construction and land
-
-
Farmland
-
-
Single-family residential
-
-
Multi-family
-
-
Commercial
-
-
Total loans secured by real estate
-
-
Commercial and Industrial
Commercial and industrial
-
-
SBA guaranty
5.18
-
Total commercial and industrial loans
1.47
-
Consumer Loans
Consumer
(4.04)
4.30
Automobile
(0.11)
0.08
Total consumer loans
(0.61)
0.34
Total net charge-offs (recoveries)
0.08
0.06
The following table reflects the amount and percentage of credit loss allowance for each category for the periods indicated:
At December 31,
Percentage
Percentage
Of Loans
Of Loans
Allowance
In Each
Allowance
In Each
For Each
Category To
For Each
Category To
Portfolio
Category
Total Loans
Category
Total Loans
(dollars in thousands)
Loans Secured by Real Estate
Construction and land
$
4.3
%
$
2.6
%
Farmland
0.2
0.2
Single-family residential
1,529
48.3
1,290
49.3
Multi-family
2.4
2.9
Commercial
23.7
22.2
Total loans secured by real estate
2,316
78.9
1,625
77.2
Commercial and Industrial
Commercial and industrial
8.1
6.1
SBA guaranty
2.8
3.4
Total commercial and industrial loans
10.9
9.5
Consumer Loans
Consumer
1.4
1.2
Automobile
8.8
12.1
Total consumer loans
10.2
13.3
Total
$
2,839
100.0
%
$
2,157
100.0
%
Deposits
The funds needed by the Bank to make loans are primarily generated by deposit accounts solicited from the communities in Anne Arundel County. The Bank’s deposit products include savings accounts, money market deposit accounts, demand deposit accounts, NOW checking accounts, IRA and SEP accounts and certificates of deposit. The Bank does not solicit brokered deposits. 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, night depositories, automated clearinghouse transactions, wire transfers, ATMs, electronic banking (telephone banking, online banking, bill
pay, card management and control, mobile app, merchant source capture, mobile deposit capture, Zelle®, etc.). The Bank is a member of the Accel(R) and MoneyPass(R) ATM networks.
The following deposit table presents the composition of deposits at December 31, 2024 and 2023:
2024 vs 2023
Amount in
% of
Amount in
% of
$
%
thousands
Total
thousands
Total
Change
Change
Noninterest-bearing deposits
$
100,747
32.6
%
$
116,922
39.0
%
$
(16,175)
(13.8)
%
Interest-bearing deposits:
Checking
25,487
8.2
%
28,571
9.5
%
(3,084)
(10.8)
%
Savings
75,444
24.4
%
93,104
31.0
%
(17,660)
(19.0)
%
Money market
81,513
26.4
%
26,836
9.0
%
54,677
203.7
%
Total interest-bearing checking,
savings and money market deposits
182,444
59.0
%
148,511
49.5
%
33,933
22.8
%
Time deposits of $250,000 or less
24,865
8.0
%
32,133
10.7
%
(7,268)
(22.6)
%
Time deposits of more than $250,000
1,133
0.4
%
2,501
0.8
%
(1,368)
(54.7)
%
Total time deposits
25,998
8.4
%
34,634
11.5
%
(8,636)
(24.9)
%
Total interest-bearing deposits
208,442
67.4
%
183,145
61.0
%
25,297
13.8
%
Total Deposits
$
309,189
100.0
%
$
300,067
100.0
%
$
9,122
3.0
%
Total deposits were $309.2 million at December 31, 2024, an increase of $9.1 million, or 3.0%, when compared to $300.1 million recorded at December 31, 2023. Within the deposit base, noninterest-bearing deposit balances decreased $16.2 million, or 13.8%, interest-bearing checking account balances decreased $3.1 million, or 10.8%, interest-bearing savings account balances decreased by $17.7 million, or 19.0%, money market balances increased $54.7 million, or 203.7%, and time deposit balances decreased by $8.6 million, or 24.9%, when compared to the amounts at December 31, 2023.
The following table presents the maturity distribution for time deposits of $250,000 or more at December 31, 2024:
(dollars in thousands)
Amount
Three months or less
$
-
Over three months through twelve months
-
Over twelve months through twenty-four months
Over twenty-four months
Total Time Deposits of $250,000 or More
$
1,133
Borrowings
The Bank uses borrowings from the Federal Home Loan Bank (“FHLB”) of Atlanta, of which it is a member, to supplement funding from deposits. The Bank’s total credit availability is $92.1 million at December 31, 2024 and it may draw $52.3 million which is secured by a floating lien on the Bank’s residential first mortgage loans and pledged securities.
As of December 31, 2024, the Bank was permitted to draw on a line of credit from the Federal Reserve Bank’s discount window. Credit is available up to the total value of investment securities pledged as collateral. Borrowings under the line are secured by investment securities of $45.4 million at December 31, 2024 and there were no outstanding loan balances.
The Bank has available unsecured federal funds lines of credit from two financial institutions for $9.0 million and $8.0 million as of December 31, 2024.
CAPITAL RESOURCES
Ample capital is necessary to sustain growth, provide a measure of protection against unanticipated declines in asset values and safeguard the funds of depositors. Capital also provides a source of funds to meet loan demand and enables us to manage assets and liabilities effectively.
Stockholders’ equity decreased to $17.8 million at December 31, 2024, compared to $19.3 million at December 31, 2023. The $1.5 million, or 7.8%, decrease for the year ended December 31, 2024, resulted primarily from a $622,000 increase in net unrealized losses on the available for sale bond portfolio, a $112,000 net loss and $865,000 in dividends paid that were partially offset by $91,000 stock issuances under the dividend reinvestment program. The book value of the Company’s common stock was $6.14 at December 31, 2024 and $6.70 at December 31, 2023.
The Bank is subject to various regulatory capital requirements administered by federal 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 our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The capital requirements to which the Bank is subject are known as the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. These Basel III Capital Rules and have been applicable to the Bank since January 1, 2015.
Specifically, the rule imposes the following minimum capital requirements to be considered adequately capitalized:
● A common equity Tier 1 risk-based capital ratio of 4.50%;
● A Tier 1 risk-based capital ratio of 6.00%;
● A total risk-based capital ratio of 8.00%; and
● A leverage ratio of 4.00%.
Under the rule, common equity Tier 1 capital includes accumulated other comprehensive income (which includes all unrealized net gains and losses on available for sale debt and equity securities and all unrealized net gain or loss on defined benefit pension plan), subject to a one-time opt-out election. The Bank elected to opt-out of this provision. As such, accumulated comprehensive income is not included in determining the Bank’s regulatory capital ratios.
The rule also includes risk weights of assets to reflect credit risk and other risk exposures. These include a 150% risk weight for certain high volatility commercial real estate acquisitions, development and construction loans and non-residential mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for deferred tax assets that are not deducted from capital and increased risk weights (from 0% to up to 600%) for certain equity exposures.
Finally, the rule limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
For regulatory capital purposes, deferred tax assets that arise from net operating loss and tax credit carryforwards (net of any related valuations allowances and net of deferred tax liabilities) are excluded from regulatory capital, in addition to certain overall limits on net deferred tax assets as a percentage of common equity Tier 1 capital. At December 31, 2024, none of the Bank’s net deferred tax asset was excluded from common equity Tier 1, Tier 1 and total regulatory capital. We will continue to evaluate the realizability of our net deferred tax asset on a quarterly basis for both financial reporting and regulatory capital purposes. This evaluation may result in the inclusion of a deferred tax asset in regulatory capital in an amount that is different from the amount determined under GAAP.
In addition, the Bank is required to maintain a minimum level of Tier 1 capital to average total assets excluding intangibles. This measure is known as the leverage ratio. The current regulatory minimum for the leverage ratio for institutions to be considered “well capitalized” is 5.00%, but an individual institution could be required to maintain a higher level.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain amounts and ratios (set forth in the table below) of total, common equity Tier 1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio of Tier 1 capital (as defined) to average tangible assets (as defined). At December 31, 2024 and 2023, the Bank had regulatory capital in excess of that required under each requirement and was classified as “well capitalized”.
Actual capital amounts and ratios for the Bank are presented in the following tables (dollars in thousands):
To Be Well Capitalized
To Be Considered
Under Prompt Corrective
Actual
Adequately Capitalized
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2024
Common Equity Tier 1 Capital
$
36,481
15.15
%
$
10,837
4.50
%
$
15,653
6.50
%
Total Risk-Based Capital
$
39,496
16.40
%
$
19,265
8.00
%
$
24,082
10.00
%
Tier 1 Risk-Based Capital
$
36,481
15.15
%
$
14,449
6.00
%
$
19,265
8.00
%
Tier 1 Leverage
$
36,481
9.97
%
$
14,640
4.00
%
$
18,300
5.00
%
To Be Well Capitalized
To Be Considered
Under Prompt Corrective
Actual
Adequately Capitalized
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2023
Common Equity Tier 1 Capital
$
37,975
17.37
%
$
9,840
4.50
%
$
14,213
6.50
%
Total Risk-Based Capital
$
40,237
18.40
%
$
17,493
8.00
%
$
21,867
10.00
%
Tier 1 Risk-Based Capital
$
37,975
17.37
%
$
13,120
6.00
%
$
17,493
8.00
%
Tier 1 Leverage
$
37,975
10.76
%
$
14,113
4.00
%
$
17,641
5.00
%
Federal bank regulatory agencies are required to take certain supervisory actions against an undercapitalized bank, the severity of which depends upon the bank’s degree of capitalization. Failure to maintain an appropriate level of capital could cause the regulator to take any one or more of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
LIQUIDITY
Liquidity describes our ability to meet financial obligations, including lending commitments and contingencies, which arise during the normal course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company’s customers, as well as to meet current and planned expenditures. Management monitors the liquidity position daily.
Our liquidity is derived primarily from our deposit base, scheduled amortization and prepayments of loans and investment securities, funds provided by operations and capital. Additionally, liquidity is provided through our portfolios of cash and interest-bearing deposits in other banks, federal funds sold and securities available for sale.
While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by the Bank’s competitors.
The borrowing requirements of customers include commitments to extend credit and the unused portion of lines of credit, which totaled $31.6 million at December 31, 2024. Management notes that, historically, a small percentage of unused lines of credit are actually drawn down by customers within a 12-month period.
Our most liquid assets are cash and assets that can be readily converted into cash, including interest-bearing deposits with banks and federal funds sold, and investment securities. At December 31, 2024, we had $2.0 million in cash and due from banks, $22.5 million in interest-bearing deposits with banks and federal funds sold, and $107.9 million in investment securities available for sale.
The Bank also has external sources of funds through the FHLB, and Federal Reserve Discount Window which can be drawn upon when required. The Bank has a line of credit totaling approximately $92.1 million with the FHLB of which $62.1 million was available to be drawn on December 31, 2024, subject to qualifying loans and securities pledged as collateral. The lines of credit with the Federal Reserve are limited to the amount of qualifying collateral pledged which totaled $33.4 million at December 31, 2024.
Additionally, the Bank has unsecured federal funds lines of credit totaling $17.0 million with two institutions. The proceeds of the Company’s line of credit may be used for general corporate purposes.
To further aid in managing liquidity, the Bank’s Board of Directors has approved and formed an Asset/Liability Management Committee (“ALCO”) to review and discuss recommendations for the use of available cash and to maintain an investment portfolio. By limiting the maturity of securities and maintaining a conservative investment posture, management can rely on the investment portfolio to help meet any short-term funding needs.
We believe the Bank has adequate cash on hand and available through liquidation of investment securities and available borrowing capacity to meet our liquidity needs. Although we believe sufficient liquidity exists, if economic conditions and consumer confidence deteriorate, this liquidity could be depleted, which would then materially affect our ability to meet operating needs and to raise additional capital.
OFF-BALANCE SHEET ARRANGEMENTS
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.
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.
Currently, we break-out our unfunded commitments into the following categories:
● Unfunded Construction Commitments
● Unfunded Commercial Lines of Credit and Other
● Unfunded Home Equity LOC
● Unfunded Demand Deposit Overdraft LOC
● Committed Loans Which Have Not Closed
● Letters of Credit
Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. As of December 31, 2024, the Bank has accrued $584,000 as a reserve for credit losses on unfunded commitments, an increase of $111,000 from the $473,000 accrued as of December 31, 2023. Unfunded commitments related to these financial instruments with off balance sheet risk, are included in “other liabilities”. The additional provision amount is included in ‘other expense’.
MARKET RISK MANAGEMENT
Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on liabilities. Our interest rate risk represents the level of exposure we have to fluctuations in interest rates and is primarily measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The Asset Liability Committee (“ALCO”) oversees our management of interest rate risk. The objective of the management of interest rate risk is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs, and protect the Company from any adverse material financial consequences associated with changes in interest rate risk.
Interest rate risk is that risk to earnings or capital arising from movement of interest rates. It arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships across yield curves that affect bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The value of a bank’s assets, liabilities, and interest-rate related, off-balance sheet contracts are affected by a change in rates because they represent the value of future cash flows, and in some cases the cash flows themselves, is changed.
We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and the Board of Directors have chosen an interest rate risk profile that is consistent with our strategic business plan.
The Company’s Board of Directors has established a comprehensive interest rate risk management policy, which is administered by our ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation
model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology we employ. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
We prepare a current base case and alternative simulations at least once a quarter and report the analysis to the ALCO and Board of Directors. In addition, more frequent forecasts are produced when the direction or degree of change in interest rates are particularly uncertain to evaluate the impact of balance sheet strategies or when other business conditions so dictate.
The statement of condition is subject to quarterly testing for alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/ - 100, 200, 300, and 400 basis points (“bp”), although we may elect not to use particular scenarios that we determine are impractical in the current rate environment. It is our goal to structure the balance sheet so that net interest-earnings at risk over a 12-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.
At December 31, 2024, the net interest income simulation analysis indicated that the Bank is in an asset sensitive position in all falling rate scenarios and is in a liability sensitive position in all rising rate scenarios. Overall, falling rate scenarios indicate a fairly balanced profile. An asset sensitive position, theoretically, is favorable in a rising rate environment since more assets than liabilities will re-price in a given time frame as interest rates rise. Similarly, a liability sensitive position, theoretically, is favorable in a declining interest rate environment since more liabilities than assets will re-price in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.
The foregoing analysis assumes that the Company’s assets and liabilities move with rates at their earliest repricing opportunities based on final maturity, while considering optionality such as call features, where applicable. Certificates of deposit and IRA accounts are presumed to be repriced at maturity. NOW and savings accounts are assumed to be repriced within three months although it is the Company’s experience that such accounts may be less sensitive to changes in market rates.
Static Balance Sheet/Immediate Change in Rates
Estimated Changes in Net Interest Income
`-200 bp
`-100 bp
`+100 bp
`+200 bp
Policy Limit
%
%
%
%
December 31, 2024
%
%
%
%
December 31, 2023
%
%
%
%
As shown above, measures of net interest income at risk were slightly less favorable in up-rate scenarios but more favorable in down-rate scenarios on December 31, 2024 than on December 31, 2023 over a 12-month modeling period. These measures remained within prescribed policy limits in the up and down interest rate scenarios.
The following table sets forth the Company’s interest-rate sensitivity at December 31, 2024, as measured by the Gap analysis.
Over 1
Over 3 to
Through
Over
0-3 Months
12 Months
5 Years
5 Years
Total
(dollars in thousands)
Assets:
Repricing asset balances
$
83,773
$
28,008
$
111,068
$
136,107
$
358,956
Liabilities and Stockholders' Equity
Repricing liability and equity balances
$
83,371
$
23,322
$
80,109
$
172,154
$
358,956
GAP
$
$
4,686
$
30,959
$
(36,047)
Cumulative GAP
$
$
5,088
$
36,047
$
-
Cumulative GAP as a % of total assets
0.1
%
1.4
%
10.0
%
0.0
%
Falling Rates: If market rates decline in a parallel fashion (i.e., down 100 or 200 bp over 12 months), projected NII levels quickly fall beneath the base rates scenario and present potential exposure to NII over the life of the simulation as the asset base is assumed to be recycled into lower rates while the low cost nature of the current funding base severely limits the amount of relief it can provide to asset yield pressures.
Rising Rates: Over the first 12 months in our rising rate scenarios, projected NII shows a slight decrease in projected net interest income at December 31, 2024 compared to a projected slight increase at December 31, 2023. At December 31, 2024 and December 31, 2023, NII trends upward over the following months as more assets reprice more quickly than our interest-bearing deposits.
The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of the Company’s net assets.
Static Balance Sheet/Immediate Change in Rates
Estimated Changes in Economic Value of Equity (EVE)
`-200 bp
`-100 bp
`+100 bp
`+200 bp
Policy Limit
%
%
%
%
December 31, 2024
%
%
%
%
December 31, 2023
%
%
%
%
In a decreasing interest rate environment, the Company’s interest income changes at a rate consistent with changes in its total interest expense, thereby resulting in a balanced profile, with net interest income exhibiting minor changes in falling rate scenarios. Conversely, in an increasing interest rate environment the increases in the Company’s interest income will be less than increases in its interest expense, thereby resulting in lower net interest income. In a rising interest rate environment, the Company is positioned to generate less economic value of equity as the duration of the assets is longer than the duration of the liabilities, with liabilities repricing more quickly than our assets. Conversely, the Company’s economic value of equity increases in a falling interest rate environment as the longer initial duration of the assets benefits the Company in falling rate scenarios. Thus, the economic value of equity increases compared to the base case. The measured change in EVE in the +100 bps shock as of December 31, 2024 of -11% is slightly outside of the policy limit of -10%. This is due in part to a shift in the deposit mix during the 4th quarter of 2024, with balances in demand deposits accounts decreasing and balances in money market accounts increasing. Going forward, the Company acknowledges that reducing long term mortgages off the balance sheet will help mitigate this position.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) and follow general practices within the industries in which we operate. All intercompany transactions are eliminated in consolidation and certain reclassifications are made when necessary, in order to conform the previous year’s financial statements to the current year’s presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the most important variables in the estimation process:
Allowance for Credit Losses. The allowance for credit losses (“ACL”) consists of the allowance for credit losses and the reserve for unfunded commitments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASC 326”). The ASC, as amended, is intended to provide financial statement users with more decision useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income.
The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was based. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.
Management’s determination of the amount of the ACL is a critical accounting estimate as it requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.
Going forward, the impact of utilizing the CECL methodology to calculate the ACL will be significantly influenced by the composition, characteristics, and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility in our reported earnings. For further information regarding the Bank’s allowance for credit losses, see “Allowance for Credit Losses,” in Note 4 to the consolidated financial statements.
Other significant accounting policies are presented in Note 1 to the consolidated financial statements that appear elsewhere in this Annual Report on Form 10-K. We have not substantively changed any aspect of our overall approach in the application of the foregoing policy.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DICLOSURES ABOUT MARKET RISK
Not applicable.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15 of this Annual Report.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated this system of disclosure controls and procedures as of the end of the period covered by this annual report, and have concluded that the system was ineffective as of December 31, 2024.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management, including its CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management (with the participation of the Company’s CEO and CFO) conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2024.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Identified Material Weakness - Journal Entry Permissions
Management identified that as of December 31, 2024, the Company had ineffective design and operation of controls over the segregation of duties to prevent unauthorized or erroneous journal entries. The Company had not implemented system restrictions or compensating controls to require secondary review and approval of journal entries before they are posted.
The material weakness did not result in a material misstatement to the Company’s consolidated financial statements, however, the control deficiency described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. The Company concluded that the deficiency represents a material weakness in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as of December 31, 2024.
Management’s Plan to Remediate the Identified Material Weakness - Journal Entry Permissions
Management has taken the required steps to implement system-based controls that require a second person review and approve journal entries before allowing journal entries to be posted. However, the material weakness cannot be considered fully remediated until the changes to the production environment have been in place and operated for a sufficient period of time to enable management to conclude, through testing, that these controls are designed and operating effectively. Accordingly, management will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the activities affected by the material weakness described above.
Identified Material Weakness - Current Estimated Credit Losses
Management has not fully implemented a comprehensive control framework to ensure key CECL model inputs, assumptions, and results are appropriately validated, documented, and assessed for reasonableness through the financial statement issuance date. Additionally, third-party data was relied upon without appropriately verifying the information.
The material weakness did not result in a material misstatement to the Company’s consolidated financial statements, however, the control deficiency described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. The Company concluded that the deficiency represents a material weakness in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as of December 31, 2024.
Management’s Plan to Remediate the Identified Material Weakness - Current Estimated Credit Losses
Since identifying the material weakness described above, management, with oversight from the Audit Committee, has begun to implement enhancements to policies and procedures intended to address the identified material weaknesses and to enhance the Company’s overall internal control over financial reporting. With respect to validation of the third-party data, management will investigate the issue and based on its findings will recommend appropriate procedures designed to validate the data.
Changes in Internal Control Over Financial Reporting
Other than the material weaknesses and remediation plans discussed above, there have been no other changes in our internal control over financial reporting that occurred during the fourth quarter of the year ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Proposal I - Election of Directors” in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 2025 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K. The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings and Committees of the Board of Directors” in the Proxy Statement. The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. The information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code of Ethics” in the Proxy Statement.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the sections captioned “Voting Securities and Principal Holders Thereof” and “Securities Ownership of Management” in the Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the section captioned “Proposal I - Election of Directors” and “Transactions with Management” in the Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section captioned “Proposal II - Authorization for Appointment of Auditors” “Disclosure of Independent Auditor Fees” in the Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements.
Page
Report of Independent registered Public Accounting Firm (PCAOB 1195)
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Income for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
(a) 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.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.
Exhibit No.
Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
3.2
Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
3.3
Articles Supplementary, dated November 16, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December 8, 1999, File No. 0-24047)
3.4
By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
4.1
Description of Registrant’s Securities (incorporated by reference to “Description of Common Stock” set forth in Amendment No. 1 to the Registrant’s Form 8 A filed December 27, 1999, File No. 0 24047)
10.1
Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No.33-62280)
10.2
The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)
10.3
Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
10.4
The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047)
Glen Burnie Bancorp Insider Trading and Confidentiality Policy (filed herewith)
Subsidiary of the Registrant (incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
23.1
Consent of UHY LLP, Certified Public Accountants (filed herewith)
31.1
Rule 15d-14(a) Certification by the Principal Executive Officer (filed herewith)
31.2
Rule 15d-14(a) Certification by the Principal Accounting Officer (filed herewith)
Certification by the Principal Executive Officer and Principal Accounting Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
Executive Compensation Recovery Policy (incorporated by reference to Exhibit 97 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2023, File No. 0-24047)
101.INS
Inline XBRL Instance Document (filed herewith)
101.SCH
Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)