Quarterly Report (10-q)

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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly period ended March 31, 2023

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

Commission file number 0-24047

GLEN BURNIE BANCORP

(Exact name of registrant as specified in its charter)


Maryland		52-1782444
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

101 Crain Highway, S.E.
Glen Burnie, Maryland		21061
(Address of principal executive offices)		(Zip Code)

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

Inapplicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

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

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


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

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

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

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


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

The number of shares of the registrant’s common stock outstanding as of May 9, 2023, was 2,872,834.

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

TABLE OF CONTENTS


		Page
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets: As of March 31, 2023 (unaudited) and December 31, 2022 (audited)	3

	Consolidated Statements of Income: Three months Ended March 31, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Comprehensive Income (Loss): Three months Ended March 31, 2023 and 2022 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity: Three months Ended March 31, 2023 and 2022 (unaudited)	6

	Consolidated Statements of Cash Flows: Three months Ended March 31, 2023 and 2022 (unaudited)	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	40

Part II.	OTHER INFORMATION	40

Item 1.	Legal Proceedings	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

	SIGNATURES	42

- 2 -

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	March 31,		December 31,
	2023			2022
		(unaudited)		(audited)
ASSETS
Cash and due from banks	$	1,959	$	2,035
Interest-bearing deposits in other financial institutions		12,633		28,057
Cash and Cash Equivalents		14,592		30,092

Investment securities available for sale, at fair value		144,726		144,133
Restricted equity securities, at cost		191		221

Loans, net of deferred fees and costs		184,141		186,440
Less: Allowance for credit losses		(2,161)		(2,162)
Loans, net		181,980		184,278

Premises and equipment, net		3,171		3,277
Bank owned life insurance		8,532		8,493
Deferred tax assets, net		8,142		8,902
Accrued interest receivable		1,259		1,159
Accrued taxes receivable		8		—
Prepaid expenses		479		493
Other assets		333		388
Total Assets	$	363,413	$	381,436

LIABILITIES
Noninterest-bearing deposits	$	136,324	$	143,262
Interest-bearing deposits		206,690		219,685
Total Deposits		343,014		362,947

Defined pension liability		318		317
Accrued Taxes Payable		—		151
Accrued expenses and other liabilities		1,846		1,967
Total Liabilities		345,178		365,382

STOCKHOLDERS' EQUITY
Common stock, par value $1, authorized 15,000,000 shares, issued and outstanding 2,868,504 and 2,865,046 shares as of March 31, 2023 and December 31, 2022, respectively.		2,869		2,865
Additional paid-in capital		10,888		10,862
Retained earnings		23,727		23,579
Accumulated other comprehensive loss		(19,249)		(21,252)
Total Stockholders' Equity		18,235		16,054

Total Liabilities and Stockholders' Equity	$	363,413	$	381,436

See accompanying notes to unaudited consolidated financial statements.

- 3 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts)

(unaudited)




	Three Months Ended March 31,
	2023		2022
INTEREST INCOME
Interest and fees on loans	$	2,087	$	2,168
Interest and dividends on securities		965		698
Interest on deposits with banks and federal funds sold		233		50
Total Interest Income		3,285		2,916

INTEREST EXPENSE
Interest on deposits		107		124
Interest on short-term borrowings		—		102
Interest on long-term borrowings		—		8
Total Interest Expense		107		234

Net Interest Income		3,178		2,682

Provision (release) for credit losses		(42)		(100)
Net interest income after provision (release)		3,220		2,782

NONINTEREST INCOME
Service charges on deposit accounts		42		42
Other fees and commissions		164		174
Income on life insurance		39		38
Total Noninterest Income		245		254

NONINTEREST EXPENSE
Salary and benefits		1,698		1,620
Occupancy and equipment expenses		327		331
Legal, accounting and other professional fees		263		324
Data processing and item processing services		267		226
FDIC insurance costs		45		26
Advertising and marketing related expenses		22		22
Loan collection costs		1		(75)
Telephone costs		41		44
Other expenses		280		266
Total Noninterest Expenses		2,944		2,784

Income before income taxes		521		252

Income tax expense		86		21

NET INCOME	$	435	$	231

Basic and diluted net income per share of common stock	$	0.15	$	0.08

See accompanying notes to unaudited consolidated financial statements.

- 4 -

Table of Contents

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2023		2022

Net income	$	435	$	231

Other comprehensive income (loss):

Net unrealized income (loss) on securities available for sale:
Net unrealized income (loss) on securities during the period		2,763		(11,937)
Income tax (expense) benefit relating to item above		(760)		3,285
Net effect on other comprehensive income (loss)		2,003		(8,652)

Net unrealized gain on interest rate swaps:
Net unrealized gain on interest rate swap during the period		-		337
Income tax expense relating to item above		-		(93)
Net effect on other comprehensive loss		-		244

Other comprehensive income (loss)		2,003		(8,408)

Comprehensive income (loss)	$	2,438	$	(8,177)

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)





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


Balance, December 31, 2021	$	2,854	$	10,759	$	22,977	$	(874)	$	35,716

Net income		—		—		231		—		231
Cash dividends, $0.10 per share		—		—		(286)		—		(286)
Dividends reinvested under
dividend reinvestment plan		2		25		—		—		27
Other comprehensive loss		—		—		—		(8,408)		(8,408)

Balance, March 31, 2022	$	2,856	$	10,784	$	22,922	$	(9,282)	$	27,280




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

Balance, December 31, 2022	$	2,865	$	10,862	$	23,579	$	(21,252)	$	16,054

Net income		—		—		435		—		435
Cash dividends, $0.10 per share		—		—		(287)		—		(287)
Dividends reinvested under
dividend reinvestment plan		4		26		—		—		30
Other comprehensive gain		—		—		—		2,003		2,003

Balance, March 31, 2023	$	2,869	$	10,888	$	23,727	$	(19,249)	$	18,235

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)



	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	435	$	231
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretion of premises and equipment		103		107
Amortization, and accretion of investment securities available for sale		37		91
Release for credit losses		(42)		(100)
Increase in cash surrender value of bank owned life insurance		(39)		(38)
Decrease in ground rents		3		—
Increase in accrued interest receivable		(101)		(39)
Net decrease (increase) in other assets		58		(118)
Net decrease in accrued expenses and other liabilities		(224)		(364)

Net cash provided by (used in) operating activities		230		(230)

Cash flows from investing activities:
Redemptions and maturities of investment securities available for sale		2,134		3,527
Purchases of investment securities available for sale		—		(7,000)
Net sale (purchase) of Federal Home Loan Bank stock		30		(11)
Net decrease in loans		2,339		6,151
Purchases of premises and equipment		(43)		(47)

Net cash provided by investing activities		4,460		2,620

Cash flows from financing activities:
Net (decrease) increase in deposits		(19,933)		4,528
Cash dividends paid		(287)		(286)
Common stock dividends reinvested		30		27

Net cash (used in) provided by financing activities		(20,190)		4,269

Net (decrease) increase in cash and cash equivalents		(15,500)		6,659

Cash and cash equivalents at beginning of period		30,092		62,181

Cash and cash equivalents at end of period	$	14,592	$	68,840

Supplemental Disclosures of Cash Flow Information:
Interest paid on deposits and borrowings	$	99	$	228
Net income taxes paid		245		—
Net decrease (increase) in unrealized depreciation on available for sale securities		2,763		(11,937)
Net decrease in unrealized depreciation on swaps		—		337

See accompanying notes to unaudited consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATIONAL

Nature of Business

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

NOTE 2 – BASIS OF PRESENTATION

In management’s opinion, the accompanying unaudited consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim period reporting, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position at March 31, 2023 and December 31, 2022, the results of operations for the three-month period ended March 31, 2023 and 2022, and the statements of cash flows for the three-month period ended March 31, 2023 and 2022. The operating results for the three-month period ended March 31, 2023, are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or any future interim period. The consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2023. The unaudited consolidated financial statements for March 31, 2023 and 2022, the consolidated balance sheet at December 31, 2022, and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022. There have not been any significant changes in the Company's significant accounting policies.

Allowance for Credit Losses – Loans Receivable

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 current expected credit loss (“CECL”) methodology. Prior to January 1, 2021, the calculation was based on incurred loss methodology. See Note 7 "Recent Accounting Pronouncements" and Note 5 "Loans Receivable and Allowance for Credit Losses" for details. 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 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.

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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 the 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 troubled debt restructurings (“TDRs”).

Allowance for Credit Losses – Held-to-Maturity Debt Securities

For held-to-maturity (“HTM”) debt securities, the Company is required to utilize a CECL methodology to estimate expected credit losses. The Company does not own any HTM debt securities. Therefore, the Company did not record an allowance for credit losses for these types of securities.

Allowance for Credit Losses – Available-for-Sale Debt Securities

The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASC 326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. For AFS debt securities in an unrealized loss position, the Company first

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assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Under the new guidance, an entity may no longer consider the length of time fair value has been less than amortized cost. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the collectability of an AFS security is considered below the amortized cost basis of the security. As of December 31, 2022 and March 31, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded.

Off-Balance-Sheet Credit Exposures

The only material off-balance-sheet credit exposures are unfunded loan commitments, which had a combined balance of $34.6 million on March 31, 2023. The reserve for unfunded commitments is recognized as a liability (accrued expenses and other liabilities in the consolidated statements of financial condition), with adjustments to the reserve recognized through provision for credit losses in the consolidated statements of income. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments that are unconditionally cancellable by the Company. The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class.

Principles of Consolidation

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

Cash Flow Presentation

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

Reclassifications

Certain items in the fiscal year 2022 consolidated financial statements have been reclassified to conform to the fiscal year 2023 classifications. The reclassifications had no effect on previously reported results of operations or retained earnings.

Use of Estimates

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

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NOTE 3 – EARNINGS PER SHARE

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


	Three Months Ended
	March 31,
	2023		2022
Basic and diluted earnings per share:
Net income	$	435,021	$	230,733
Weighted average common shares outstanding		2,867,082		2,855,253
Basic and dilutive net income per share	$	0.15	$	0.08

Diluted earnings per share calculations were not required for the three-month periods ended March 31, 2023 and 2022, as there were no stock options outstanding.

NOTE 4 – INVESTMENT SECURITIES

Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company held no trading securities at March 31, 2023 or December 31, 2022. Available-for-sale investment securities, comprised of debt and mortgage-backed securities, are those that may be sold before maturity due to changes in the Company's interest rate risk profile or funding needs, and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. Held-to-maturity investment securities are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company held no held-to-maturity securities at March 31, 2023 or December 31, 2022.

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

The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at March 31, 2023 and December 31, 2022:


	At March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collateralized mortgage obligations	$	17,090	$	4	$	(2,217)	$	14,877
Agency mortgage-backed securities		57,170		—		(6,078)		51,092
Municipal securities		43,067		7		(9,641)		33,433
Corporate Securities		1,500		—		(185)		1,315
U.S. Government agency securities		45,462		—		(8,283)		37,179
U.S. Treasury securities		6,995		—		(165)		6,830

Total securities available for sale	$	171,284	$	11	$	(26,569)	$	144,726

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	At December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collateralized mortgage obligations	$	17,596	$	7	$	(2,348)	$	15,255
Agency mortgage-backed securities		58,801		—		(6,908)		51,893
Municipal securities		43,092		1		(10,796)		32,297
Corporate Securities		1,500		—		(175)		1,325
U.S. Government agency securities		45,471		—		(8,891)		36,580
U.S. Treasury securities		6,993		—		(210)		6,783

Total securities available for sale	$	173,453	$	8	$	(29,328)	$	144,133

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2023 and December 31, 2022 are as follows:


March 31, 2023	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss

	(dollars in thousands)
Collateralized mortgage obligations	$	5,010	$	(84)	$	9,114	$	(2,133)	$	14,124	$	(2,217)
Agency mortgage-backed securities		11,707		(369)		39,385		(5,709)		51,092		(6,078)
Municipal securities		3,968		(35)		26,882		(9,606)		30,850		(9,641)
Corporate Securities		—		—		1,315		(185)		1,315		(185)
U.S. Government agency securities		12,968		(310)		24,211		(7,973)		37,179		(8,283)
U.S. Treasury securities		—		—		6,830		(165)		6,830		(165)
	$	33,653	$	(798)	$	107,737	$	(25,771)	$	141,390	$	(26,569)


December 31, 2022	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss

	(dollars in thousands)
Collateralized mortgage obligations	$	8,315	$	(364)	$	6,127	$	(1,984)	$	14,442	$	(2,348)
Agency mortgage-backed securities		20,029		(1,308)		31,865		(5,600)		51,894		(6,908)
Municipal securities		18,456		(5,438)		13,340		(5,358)		31,796		(10,796)
Corporate Securities		—		—		1,325		(175)		1,325		(175)
U.S. Government agency securities		13,526		(474)		22,767		(8,417)		36,293		(8,891)
U.S. Treasury securities		6,783		(210)		—		—		6,783		(210)
	$	67,109	$	(7,794)	$	75,424	$	(21,534)	$	142,533	$	(29,328)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment upon adoption of ASC 326 on January 1, 2021 or as of March 31, 2023. As of March 31, 2023, the Company did not intend to sell the investment securities that were in an unrealized loss position. It is more likely than not that the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Municipal bonds are considered to have issuer(s) of high credit quality (rated A or higher) and the decline in fair value is due to changes in interest rates and other market conditions. Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating. The absence of a rating does not imply substandard quality. Non-rated corporate securities may be purchased from issuers operating in

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and around the Company’s operating footprint. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

At March 31, 2023, the Company recorded unrealized losses in its portfolio of debt securities totaling $26,569,000 related to 256 securities, which resulted from decreases in market value, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

At December 31, 2022, the Company recorded unrealized losses in its portfolio of debt securities totaling $29,328,000 related to 256 securities, which resulted from decreases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

Shown below are contractual maturities of debt securities at March 31, 2023. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.


	At March 31, 2023

	Amortized		Fair		Yield
(dollars in thousands)	Cost		Value		(1), (2)
Available for sale securities maturing:
Within one year	$	6,995	$	6,830	2.20	%
Over one to five years		20,640		19,731	2.28	%
Over five to ten years		34,805		31,332	2.06	%
Over ten years		108,844		86,833	2.36	%
Total debt securities	$	171,284	$	144,726

_____________________

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

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

NOTE 5 – LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

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

The Company currently manages its credit products and the respective exposure to credit losses by specific portfolio segments and classes, which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses. The Company believes each portfolio segment has unique risk characteristics. The Company's loans held for investment is divided into three portfolio segments: loans secured by real estate, commercial and industrial loans, and consumer loans. Each of these segments is further divided into loan classes for purposes of estimating the allowance for credit losses.

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For additional information, including the accounting policies and CECL methodology used to estimate the allowance for credit losses, see Note 2 “Basis of Presentation” and Note 7 “Recent Accounting Pronouncements.”

The following table is a summary of loans receivable by loan portfolio segment and class.


	March 31,			December 31,
	2023			2022
(dollars in thousands)	Amount		%	Amount		%
Loans Secured by Real Estate
Construction and land	$	4,320	2	$	4,499	2
Farmland		331	—		333	—
Single-family residential		81,506	44		80,251	43
Multi-family		5,269	3		5,304	3
Commercial		43,205	24		42,936	23
Total loans secured by real estate		134,631			133,323
Commercial and Industrial
Commercial and industrial		10,336	6		8,990	5
SBA guaranty		6,076	3		6,158	3
Total commercial and industrial loans		16,412			15,148
Consumer Loans
Consumer		1,577	1		1,521	1
Automobile		31,521	17		36,448	20
Total consumer loans		33,098			37,969

Loans, net of deferred fees and costs		184,141	100		186,440	100
Less: Allowance for credit losses		(2,161)			(2,162)
Loans, net	$	181,980		$	184,278

The Bank’s net loans totaled $182.0 million on March 31, 2023, compared to $184.3 million on December 31, 2022, a decrease of $2.3 million, or 1.25%. Construction and land loans decreased from $4.5 million on December 31, 2022, to $4.3 million on March 31, 2023, a decrease of $0.2 million, or 3.97%. Farmland loans were $0.3 million at March 31, 2023 and December 31, 2022. Single-family residential loans increased from $80.3 million on December 31, 2022, to $81.5 million on March 31, 2023, an increase of $1.3 million, or 1.56%. Multi-family residential loans were $5.3 million on March 31, 2023 and on December 31, 2022. Commercial real estate loans increased $0.3 million, or 0.63%, to $ 43.2 at March 31, 2023, compared to $42.9 million on December 31, 2022. Commercial and industrial loans increased by $1.3 million, or 14.97%, to $10.3 million on March 31, 2023, compared to $9.0 million on December 31, 2022. SBA guaranty loans were $6.1 million on March 31, 2023, a decrease of $0.1 million, or 1.33%, compared to $6.2 million at December 31, 2022. Consumer loans increased by $0.1 million, or 3.66% to $1.6 million on March 31, 2023, compared to $1.5 million on December 31, 2022. Automobile loans decreased from $36.4 million on December 31, 2022, to $31.5 million on March 31, 2023, a decrease of $4.9 million or 13.52%.

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

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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.

Transactions in the allowance for credit losses for the three months ended March 31, 2023 and the year ended December 31, 2022 were as follows:


	Loans Secured By Real Estate										Commercial and Industrial Loans				Consumer Loans
March 31, 2023	Construction				Single-family						Commercial
(dollars in thousands)	and Land		Farmland		Residential		Multi-family		Commercial		and Industrial		SBA Guaranty		Consumer		Automobile		Total

Balance, beginning of year	$	44	$	20	$	1,230	$	103	$	221	$	174	$	22	$	23	$	325	$	2,162
Charge-offs		—		—		—		—		—		—		—		—		(8)		(8)
Recoveries		—		—		—		—		—		—		—		—		49		49
Release (provision) for credit losses		(4)		(1)		(29)		(3)		(5)		110		(3)		(1)		(106)		(42)

Balance, end of quarter	$	40	$	19	$	1,201	$	100	$	216	$	284	$	19	$	22	$	260	$	2,161

Individually evaluated for impairment:
Balance in allowance	$	—	$	—	$	21	$	—	$	149	$	—	$	—	$	—	$	—	$	170
Related loan balance		—		—		33		—		299		—		—		—		—		332

Collectively evaluated for impairment:
Balance in allowance	$	40	$	19	$	1,180	$	100	$	67	$	284	$	19	$	22	$	260	$	1,991
Related loan balance		4,320		331		81,473		5,269		42,906		10,336		6,076		1,577		31,521		183,809

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	Loans Secured By Real Estate										Commercial and Industrial Loans				Consumer Loans
December 31, 2022	Construction				Single-family						Commercial
(dollars in thousands)	and Land		Farmland		Residential		Multi-family		Commercial		and Industrial		SBA Guaranty		Consumer		Automobile		Total

Balance, beginning of year	$	5	$	11	$	1,357	$	105	$	278	$	115	$	30	$	36	$	533	$	2,470
Charge-offs		—		—		—		—		—		(200)		(9)	-14	(14)		(169)		(392)
Recoveries		—		—		—		—		—		—		—		8		188		196
Release (provision) for credit losses		39		9		(127)		(2)		(57)		259		1		(7)		(227)		(112)

Balance, end of the year	$	44	$	20	$	1,230	$	103	$	221	$	174	$	22	23	23	$	325	$	2,162

Individually evaluated for impairment:
Balance in allowance	$	—	$	—	$	20	$	—	$	—	$	59	$	—	$	—	$	—	$	79
Related loan balance		—		—		34		—		—		300		—		—		—		334

Collectively evaluated for impairment:
Balance in allowance	$	44	$	20	$	1,210	$	103	$	221	$	115	$	22	$	23	$	325	$	2,083
Related loan balance		4,499		333		80,217		5,304		42,936		8,690		6,158		1,521		36,448		186,106


	March 31,			March 31,
(dollars in thousands)	2023			2022
Average loans	$	184,787		$	207,321
Net charge offs to average loans (annualized)		(0.09)	%		(0.02)	%

During the three-month period ended March 31, 2023, loans to 3 borrowers and related entities totaling approximately $8,000 were determined to be uncollectible and were charged off. During the three-month period ended March 31, 2022, loans to 5 borrowers and related entities totaling approximately $64,000 were determined to be uncollectible and were charged off.

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

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

As of March 31, 2023, and 2022, the Bank had outstanding commitments totaling $34.6 million and $28.1 million, respectively. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments that are unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class.

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


	Three Months Ended
	Ended March 31,
(dollars in thousands)	2023		2022
Beginning balance	$	477	$	371
Reduction of unfunded reserve		—		(17)
Provisions charged to operations		5		—

Ending balance	$	482	$	354

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the first quarter of 2023.

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


At March 31, 2023					90 Days or
(dollars in thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total
Loans Secured by Real Estate
Construction and land	$	4,320	$	—	$	—	$	—	$	4,320
Farmland		331		—		—		—		331
Single-family residential		81,284		111		10		100		81,506
Multi-family		5,269		—		—		—		5,269
Commercial		43,205		—		—		—		43,205
Total loans secured by real estate		134,409		111		10		100		134,631
Commercial and Industrial
Commercial and industrial		10,036		—		—		300		10,336
SBA guaranty		6,076		—		—		—		6,076
Total commercial and industrial loans		16,112		—		—		300		16,412
Consumer Loans
Consumer		1,529		48		—		—		1,577
Automobile		31,258		195		—		68		31,521
Total consumer loans		32,787		243		—		68		33,098

	$	183,308	$	354	$	10	$	468	$	184,141

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At December 31, 2022					90 Days or
(dollars in thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total
Loans Secured by Real Estate
Construction and land	$	4,499	$	—	$	—	$	—	$	4,499
Farmland		333		—		—		—		333
Single-family residential		79,952		185		10		104		80,251
Multi-family		5,304		—		—		—		5,304
Commercial		42,936		—		—		—		42,936
Total loans secured by real estate		133,024		185		10		104		133,323
Commercial and Industrial										—
Commercial and industrial		8,691		—		—		299		8,990
SBA guaranty		6,158		—		—		—		6,158
Total commercial and industrial loans		14,849		—		—		299		15,148
Consumer Loans
Consumer		1,521		—		—		—		1,521
Automobile		36,037		326		—		85		36,448
Total consumer loans		37,558		326		—		85		37,969

	$	185,431	$	511	$	10	$	488	$	186,440

The balances in the above charts have not been reduced by the allowance for credit losses. For the period ended March 31, 2023, the allowance for credit loss is $2.2 million. For the period ended December 31, 2022, the allowance for credit loss is $2.2 million.

Non-accrual loans with specific reserves at March 31, 2023 are comprised of:

Single–family residential – One loan to one borrower that totaled $32,983 with specific reserves of $20,629 established for the loan. This loan was also a troubled debt restructured loan.

Commercial and industrial – One loan to one borrower that totaled $299,453 with specific reserves of $149,453 established for the loan

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Below is a summary of the recorded investment amount and related allowance for losses of the Bank’s impaired loans at March 31, 2023 and December 31, 2022.


March 31, 2023			Unpaid		Interest				Average
(dollars in thousands)	Recorded		Principal		Income		Specific		Recorded
	Investment		Balance		Recognized		Reserve		Investment
Impaired loans with specific reserves:
Loans Secured by Real Estate
Construction and land	$	—	$	—	$	—	$	—	$	—
Farmland		—		—		—		—		—
Single-family residential		12		33		1		21		44
Multi-family		—		—		—		—		—
Commercial		—		—		—		—		—
Total loans secured by real estate		12		33		1		21		44
Commercial and Industrial
Commercial and industrial		150		299		—		149		499
SBA guaranty		—		—		—		—		—
Total commercial and industrial loans		150		299		—		149		499
Consumer Loans
Consumer		—		—		—		—		—
Automobile		—		—		—		—		—
Total consumer loans		—		—		—		—		—
Total impaired loans with specific reserves	$	162	$	332	$	1	$	170	$	543

Impaired loans with no specific reserve:
Loans Secured by Real Estate
Construction and land	$	—	$	—	$	—	$	n/a	$	—
Farmland		—		—		—		n/a		—
Single-family residential		78		78		1		n/a		89
Multi-family		—		—		—		n/a		—
Commercial		—		—		—		n/a		—
Total loans secured by real estate		78		78		1		—		89
Commercial and Industrial
Commercial and industrial		—		—		—		n/a		—
SBA guaranty		—		—		—		n/a		—
Total commercial and industrial loans		—		—		—		—		—
Consumer Loans
Consumer		—		—		—		n/a		—
Automobile		193		193		3		n/a		89
Total consumer loans		193		193		3		n/a		89
Total impaired loans with no specific reserve	$	271	$	271	$	4	$	—	$	178

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December 31, 2022			Unpaid		Interest				Average
(dollars in thousands)	Recorded		Principal		Income		Specific		Recorded
	Investment		Balance		Recognized		Reserve		Investment
Impaired loans with specific reserves:
Loans Secured by Real Estate
Construction and land	$	—	$	—	$	—	$	—	$	—
Farmland		—		—		—		—		—
Single-family residential		14		34		2		20		48
Multi-family		—		—		—		—		—
Commercial		—		—		—		—		—
Total loans secured by real estate		14		34		2		20		48
Commercial and Industrial
Commercial and industrial		240		299		19		59		499
SBA guaranty		—		—		—		—		—
Total commercial and industrial loans		240		299		19		59		499
Consumer Loans
Consumer		—		—		—		—		—
Automobile		—		—		—		—		—
Total consumer loans		—		—		—		—		—
Total impaired loans with specific reserves	$	254	$	333	$	21	$	79	$	547

Impaired loans with no specific reserve:
Loans Secured by Real Estate
Construction and land	$	—	$	—	$	—	$	n/a	$	—
Farmland		—		—		—		n/a		—
Single-family residential		70		70		2		n/a		79
Multi-family		—		—		—		n/a		—
Commercial		—		—		—		n/a		—
Total loans secured by real estate		70		70		2		—		79
Commercial and Industrial
Commercial and industrial		—		—		—		n/a		—
SBA guaranty		—		—		—		n/a		—
Total commercial and industrial loans		—		—		—		—		—
Consumer Loans
Consumer		—		—		—		n/a		—
Automobile		85		85		6		n/a		107
Total consumer loans		85		85		6		n/a		107
Total impaired loans with no specific reserve	$	155	$	155	$	8	$	—	$	186


	March 31,			December 31,
(dollars in thousands)	2023			2022

Troubled debt restructured loans	$	33		$	34
Non-accrual and 90+ days past due and still accruing loans to average loans		0.26	%		0.26	%
Allowance for credit losses to nonaccrual & 90+ days past due and still accruing loans		451.6	%		433.9	%

At March 31, 2023, there was one troubled debt restructured loan consisting of a single-family residential loan in the amount of $32,983. This loan is in a nonaccrual status.

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The following table shows the activity for non-accrual loans for the three months ended March 31, 2023 and 2022.


					Commercial and				Consumer
	Loans Secured By Real Estate				Industrial Loans				Loans
	Single-family				Commercial
(dollars in thousands)	Residential		Commercial		and Industrial		SBA Guaranty		Automobile		Total

December 31, 2021	$	123	$	—	$	—	$	71	$	144	$	338
Transfers into nonaccrual		—		—		—		—		61		61
Loans paid down/payoffs		(41)		—		—		(61)		(46)		(148)
Loans returned to accrual status		—		—		—		—		—		—
Loans charged off		—		—		—		(10)		(39)		(49)

March 31, 2022	$	82	$	—	$	—	$	—	$	120	$	202


December 31, 2022	$	104	$	—	$	299	$	—	$	85	$	488
Transfers into nonaccrual		187		—		—		—		3		190
Loans paid down/payoffs		(191)		—		—		—		(11)		(202)
Loans returned to accrual status		—		—		—		—		—		—
Loans charged off		—		—		(3)		—		(5)		(8)

March 31, 2023	$	100	$	—	$	296	$	—	$	72	$	468

Other Real Estate Owned. The Company had no real estate acquired in partial or total satisfaction of debt at March 31, 2023, and December 31, 2022. All such properties are initially recorded at the lower of cost or fair value (net realizable value) at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in noninterest expense. Gains and losses realized from the sale of other real estate owned were included in noninterest income.

Credit Quality Information

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

The Bank’s internal risk ratings are as follows:

1 – 4 (Pass) - Pass credits are loans in grades “superior” through “acceptable”. These are at least considered to be credits with acceptable risks and would be granted in the normal course of lending operations.

5 (Special Mention) - Special mention credits have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credits or in the Bank’s credit position at some future date. If weaknesses cannot be identified, classifying as special mention is not appropriate. Special mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification. No apparent loss of principal or interest is expected.

6 (Substandard) - Substandard credits are inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Credits so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

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7 (Doubtful) - A doubtful credit has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. Doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded Substandard. The following tables provides information with respect to the Company's credit quality indicators by loan portfolio segment on March 31, 2023, and December 31, 2022:


	Loans Secured By Real Estate										Commercial and Industrial Loans				Consumer Loans
March 31, 2023	Construction				Single-family						Commercial
(dollars in thousands)	and Land		Farmland		Residential		Multi-family		Commercial		and Industrial		SBA Guaranty		Consumer		Automobile		Total

Pass	$	4,320	$	331	$	81,395	$	5,269	$	43,205	$	10,037	$	6,076	$	1,577	$	31,328	$	183,538
Special mention		—		—		10		—		—		—		—		—		—		10
Substandard		—		—		101		—		—		299		—		—		193		593
Doubtful		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—

	$	4,320	$	331	$	81,506	$	5,269	$	43,205	$	10,336	$	6,076	$	1,577	$	31,521	$	184,141

Nonaccrual	$	—	$	—	$	100	$	—	$	—	$	296	$	—	$	—	$	72	$	468
Troubled debt restructures	$	—	$	—	$	33	$	—	$	—	$	—	$	—	$	—	$	—	$	33
Number of TDRs accounts		—		—		1		—		—		—		—		—		—		1
Non-performing TDRs	$	—	$	—	$	33	$	—	$	—	$	—	$	—	$	—	$	—	$	33
Number of non-performing TDR accounts		—		—		1		—		—		—		—		—		—		1


	Loans Secured By Real Estate										Commercial and Industrial Loans				Consumer Loans
December 31, 2022	Construction				Single-family						Commercial
(dollars in thousands)	and Land		Farmland		Residential		Multi-family		Commercial		and Industrial		SBA Guaranty		Consumer		Automobile		Total

Pass	$	4,499	$	333	$	80,147	$	5,304	$	42,936	$	8,691	$	6,158	$	1,521	$	36,363	$	185,982
Special mention		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		104		—		—		299		—		—		80		483
Doubtful		—		—		—		—		—		—		—		—		5		5
Loss		—		—		—		—		—		—		—		—		—		—

	$	4,499	$	333	$	80,251	$	5,304	$	42,936	$	8,990	$	6,158	$	1,521	$	36,448	$	186,440

Nonaccrual	$	—	$	—	$	104	$	—	$	—	$	299	$	—	$	—	$	85	$	488
Troubled debt restructures	$	—	$	—	$	34	$	—	$	—	$	—	$	—	$	—	$	—	$	34
Number of TDRs accounts		—		—		1		—		—		—		—		—		—		1
Non-performing TDRs	$	—	$	—	$	34	$	—	$	—	$	—	$	—	$	—	$	—	$	34
Number of non-performing TDR accounts		—		—		1		—		—		—		—		—		—		1

NOTE 6 – FAIR VALUE

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

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

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The Fair Value Hierarchy

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

●

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

●

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

●

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

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

Investment Securities Available-for-Sale and Interest Rate Swaps. Investment securities available-for-sale and interest rate swap contracts are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets, and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities, and interest rate swap contracts. Securities classified as Level 3 include asset-backed securities in illiquid markets.

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

Loans. Impaired loans totaled $602,843 with $170,082 of specific reserves as of March 31, 2023. These assets included single-family residential, commercial real estate and automobile loans. They have been classified as impaired and include nonaccrual, past due 90 days or more and still accruing, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs. Foreclosed real estate assets are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. The Company is predominantly a cash flow lender with real estate serving as collateral on a majority of loans. On a quarterly basis, the Company determines such fair values through a variety of data points and mostly rely on appraisals from independent appraisers. We obtain an appraisal on properties when they become impaired and conduct new appraisals at least every year. Typically, these appraisals do not include an inside inspection of the property as our loan documents do not require the borrower to allow access to the property. Therefore, the most significant unobservable inputs are the details of the amenities included within the property and the condition of the property. Further, we cannot always accurately assess the amount of time it takes to gain ownership of our collateral through the foreclosure process and the damage, as well as potential looting, of the property further decreasing our value. Thus, in determining the fair values we discount the current independent appraisals, within a range of 0% to 16%, based on individual circumstances.

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


							Fair
(dollars in thousands)	Level 1		Level 2		Level 3		Value
March 31, 2023
Recurring:
Securities available for sale
Collateralized mortgage obligations	$	—	$	14,877	$	—	$	14,877
Agency mortgage-backed securities		—		51,092		—		51,092
Municipal securities		—		33,433		—		33,433
Corporate securities		—		1,315		—		1,315
U.S. Government agency securities		—		37,179		—		37,179
U.S. Treasury securities		—		6,830		—		6,830

Non-recurring:
Impaired loans		—		—		433		433
	$	—	$	144,726	$	433	$	145,159
December 31, 2022
Recurring:
Securities available for sale
Collateralized mortgage obligations	$	—	$	15,255	$	—	$	15,255
Agency mortgage-backed securities		—		51,893		—		51,893
Municipal securities		—		32,297		—		32,297
Corporate securities		—		1,325		—		1,325
U.S. Government agency securities		—		36,580		—		36,580
U.S. Treasury securities		—		6,783		—		6,783

Non-recurring:
Impaired loans		—		—		330		330
	$	—	$	144,133	$	330	$	144,463

The estimated fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022 are summarized in the following table. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

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	March 31, 2023				December 31, 2022
(dollars in thousands)	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	1,959	$	1,959	$	2,035	$	2,035
Interest-bearing deposits in other financial institutions		12,446		12,446		22,680		22,680
Federal funds sold		187		187		5,377		5,377
Investment securities available for sale		144,726		144,726		144,133		144,133
Investments in restricted stock		191		191		221		221
Ground rents		128		128		131		131
Loans, less allowance for credit losses		181,980		173,515		184,278		177,254
Accrued interest receivable		1,259		1,259		1,159		1,159
Cash value of life insurance		8,532		8,532		8,493		8,493

Financial liabilities:
Deposits		343,014		286,655		362,947		299,773
Accrued interest payable		17		17		9		9
Unrecognized financial instruments:
Commitments to extend credit		34,570		34,570		30,718		30,718
Standby letters of credit		45		45		45		45

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments that were estimated using an exit pricing notion.


(dollars in thousands)
	Carrying		Fair
March 31, 2023	Amount		Value		Level 1		Level 2		Level 3

Financial instruments - Assets
Cash and cash equivalents	$	14,592	$	14,592	$	14,592	$	—	$	—
Loans receivable, net		181,980		173,515		—		—		173,515
Cash value of life insurance		8,532		8,532		—		8,532		—
Financial instruments - Liabilities
Deposits		343,014		286,655		—		286,655		—

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

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

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

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NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") with required effective dates. The following accounting pronouncements should be read in conjunction with "Critical Accounting Policies" of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2022 Form 10-K.

ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13") requires an entity to utilize a new impairment model known as the CECL model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2016-13, as updated, was adopted on January 1, 2021. Through the date of adoption, we held working group meetings that included individuals from various functional areas relevant to the implementation of CECL. Additionally, an assessment of our primary modeling tool was completed, which enabled us to complete parallel runs utilizing second and third quarter 2020 data, during which preliminary operational procedures and internal controls were designed. Management's working group also validated the appropriateness of, among other things, management’s decisions regarding portfolio segmentation, life of loan considerations, and reasonable and supportable forecasting methodology. The Company early adopted ASC 326 during the first quarter 2021 and based on the application of the modified retrospective method, it became effective on January 1, 2021 for all financial assets measured at amortized cost (primarily loans receivable) and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease to retained earnings of $1,472,000 as of January 1, 2021 for the cumulative effect of adopting ASC 326 as further detailed below.


			CECL
	December 31, 2020		Adoption Impact		January 1, 2021
(dollars in thousands)
Allowance for credit losses:
Loans Secured by Real Estate
Construction and land	$	9	$	17	$	26
Farmland		2		9		11
Single-family residential		513		853		1,366
Multi-family		39		63		102
Commercial		218		199		417
Total loans secured by real estate		781		1,141		1,922
Commercial and Industrial
Commercial and industrial		67		120		187
SBA guaranty		48		(6)		42
Total commercial and industrial loans		115		114		229
Consumer Loans
Consumer		11		46		57
Automobile		569		273		842
Total consumer loans		580		319		899
Total allowance for credit losses		1,476		1,574		3,050
Reserve for unfunded commitments		33		457		490
Total allowance for credit losses	$	1,509	$	2,031	$	3,540

Retained earnings
Total pre-tax impact			$	2,031
Tax effect				(559)
Decrease to retained earnings			$	1,472

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ASU No. 2020-04, “Reference Rate Reform (Topic 848).” The ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” The ASU clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining, or contract price alignment due to reference rate reform are in the scope of ASC 848. Entities may apply certain optional expedients in ASC 848 to derivative instruments that do not reference LIBOR or another rate expected to be discontinued as a result of reference rate reform if there is a change to the interest rate used for discounting, margining or contract price alignment. The ASU also clarifies other aspects of ASC 848 and provides new guidance on how to address the effects of the cash compensation adjustment that is provided as part of the above change on certain aspects of hedge accounting. The ASU is intended to reduce diversity in practice related to accounting for (1) modifications to the terms of affected derivatives; and (2) existing hedging relationships in which the affected derivatives are designated as hedging instruments. ASU 2021-01 is effective upon issuance and generally can be applied through December 31, 2022. Entities may elect to apply the guidance on contract modifications either (1) retrospectively as of any date from the beginning of any interim period that includes March 12, 2020; or (2) prospectively to new modifications from any date in an interim period that includes or is after January 7, 2021, up to the date that financial statements are available to be issued. The adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

ASU No. 2022-01, “Derivative and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The ASU clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 (released on August 28, 2017) that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. The ASU renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. The objective of the ASU is to better align the Company’s financial reporting with the results of its risk management strategy, and to improve the hedge accounting model by simplifying it. The ASU is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” The ASU eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss ("CECL") model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. It also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". The ASU is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

ASU No. 2023-01. Leases (Topic 842), “Common Control Arrangements.” The ASU is an amendment to Topic 842. The amendments in this Update clarify the accounting for leasehold improvements associated with common control leases. This Update has been issued in order to address current diversity in practice associated with the accounting for leasehold improvements associated with a lease between entities under common control. The amendments in this Update apply to all lessees that are a party to a lease between entities under common control in which there are leasehold improvements. The amendments in this Update are effective for interim and annual periods beginning after December 15, 2023. The Company is evaluating the impact of adopting the new guidance on the consolidated financial statements.

NOTE 8 – SUBSEQUENT EVENTS

None.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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

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

OVERVIEW

Glen Burnie Bancorp, a Maryland corporation (the “Company”), through its subsidiary, The Bank of Glen Burnie, a Maryland banking corporation (the “Bank”), operates a commercial bank with eight offices in Anne Arundel County Maryland. Total interest income increased $369,000 to $3.3 million for the three-month period ended March 31, 2023, as compared to the same period in 2022. The increase was driven by higher interest and dividends on securities and interest on deposits with banks and federal funds sold, partially offset by lower interest income on loans. Interest-bearing deposits in other financial institutions decreased by $15.4 million or 51.51%, during the first three months of 2023. The Bank’s loan portfolio decreased by $2.3 million or 1.25% during the first three months of 2023. As a result of minimal charge-offs, recoveries on previously charged off loans, reduction in our loan portfolio and strong credit discipline, the Company continued to release portions of its allowance for credit losses in the amount of $42,000 for the three months ended March 31, 2023. Total deposits decreased $19.9 million during the first three months of 2023. Shareholder’s equity was $18.2 million on March 31, 2023, a $2.2 million or 13.59% increase, as compared to $16.1 million on December 31, 2022. The increase was primarily due to unrealized losses, net of taxes, on securities available for sale amounting to $19.2 million on March 31, 2023, compared to $21.3 million at December 31, 2022. The Company has strong liquidity and capital positions that provide ample capacity for future growth. The Bank’s total regulatory capital to risk weighted assets were 17.57% on March 31, 2023, as compared to 17.28% on December 31, 2022.

Return on average assets for the three-month period ended March 31, 2023, was 0.47% and 0.21% for the three-month period ended March 31, 2022. Return on average equity for the three-month period ended March 31, 2023, was 9.90% compared to 2.74% for the three-month period ended March 31, 2022. Higher net income partially offset by a lower average asset balance primarily drove the higher return on average assets, while higher net income and a lower average equity balance primarily drove the higher return on average equity.

The book value per share of Bancorp’s common stock was $6.36 on March 31, 2023, as compared to $9.55 per share on March 31, 2022. The decrease primarily resulted from the unrealized losses on the Company’s available for sale securities and the continued rise in interest rates in 2023.

At March 31, 2023, the Bank remained above all “well-capitalized” regulatory requirement levels. The Bank’s estimated tier 1 risk-based capital ratio was 16.57% at March 31, 2023, compared to 16.45% at December 31, 2022.

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

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RESULTS OF OPERATIONS

Net income attributable to common stockholders for the three-month period ended March 31, 2023 was $435,000, or $0.15 per basic and diluted common share compared to $231,000, or $0.08 per basic and diluted common share for the same period of 2022. The results for the three-month period ended March 31, 2023, were higher than the same period of 2022 resulting primarily from $496,000 higher net interest income offset by, a $58,000 lower release of allowance for loan losses and $160,000 higher noninterest expense when compared to the same period of 2022.

Net Interest Income. The Company’s net interest income for the three-month period ended March 31, 2023 was $3.2 million, as compared to $2.7 million for the same period in 2022, an increase of $496,000, or 18.51%. The increase in net interest income was due to higher interest income in the amount of $3.3 million and lower interest expense in the amount of $107,000. The increase in interest income was primarily driven by higher interest and dividends on securities, and interest on deposits with banks and fed funds sold, offset by lower interest and fees on loans resulting from a $19.9 million year-over-year decrease in loan portfolio balances.

Total interest income for the first quarter of 2023 increased $369,000, or 12.63% when compared to the same period in 2022, from $2.9 million in 2022 to $3.3 million in 2023. The primary driver of the increase was a $267,000 increase in interest and dividends on investment securities and a $183,000 increase in interest on deposits with banks and federal funds sold due to higher interest rates and average balances, offset by an $81,000 decrease in interest and fees on loans due to lower average loan balances.

Interest expense for the first quarter 2023 decreased $127,000 from $234,000 for the same period in 2022 to $107,000 in 2023, a decrease of 54.27%. The primary driver for the decrease was a $110,000 net decrease in interest expense on borrowings and by a $17,000 decrease in expense on interest-bearing deposits. The decrease in interest on borrowings for the three-month period ended March 31, 2023 is attributed to the payoff of short- and long-term borrowings in the fourth quarter of 2022.

Net interest margin for the three-month period ended March 31, 2023 was 3.41% compared to 2.54% for the three-month period ended March 31, 2022. Lower average balances combined with higher yields on interest-earning assets, and lower cost of funds on interest-bearing liabilities and lower interest-bearing deposits were the primary drivers of the results. The yield on interest earning assets increased by 0.77% from 2.76% for the three-month period ended March 31, 2022 to 3.52% from the same period of 2023 due to higher interest income on average loan balances. The cost of funds was 0.12% for the three-month period ended March 31, 2023 compared to 0.23% and March 31, 2022.

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

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	Three Months Ended March 31,
	2023						2022
	Average				Yield/		Average				Yield/
(dollars in thousands)	Balance		Interest		Cost		Balance		Interest		Cost
ASSETS:
Interest-earning assets:
Interest-bearing deposits w/ banks & fed funds	$	20,698	$	215	4.22	%	$	64,837	$	26	0.17	%
Investment securities available for sale		172,519		979	2.27			155,599		712	1.85
Restricted equity securities		216		4	7.67			1,064		10	3.85
Total interest-bearing deposits/investments		193,433		1,198	2.48			221,500		748	1.35

Loans Secured by Real Estate
Construction and land		4,389		39	3.61			3,700		33	3.59
Farmland		332		4	5.05			342		4	5.03
Single-family residential		80,170		869	4.34			77,782		786	4.04
Multi-family		4,828		65	5.42			4,961		67	5.44
Commercial		43,487		591	5.51			48,802		625	5.19
Total loans secured by real estate		133,206		1,568	4.77			135,587		1,515	4.53
Commercial and Industrial
Commercial and industrial		9,828		102	4.21			9,889		76	3.11
SBA guaranty		6,071		115	7.67			6,306		93	5.95
Comm SBA PPP		—		—	—			816		2	1.00
Total commercial and industrial loans		15,899		217	5.53			17,011		171	4.08
Consumer Loans
Consumer		1,611		8	2.05			2,374		5	0.87
Automobile		34,070		294	3.46			52,349		477	3.65
Total consumer loans		35,681		302	3.43			54,723		482	3.57
Total loans		184,786		2,087	4.58			207,321		2,168	4.24
Total interest-earning assets		378,219		3,285	3.52			428,821		2,916	2.76

Cash		2,067						2,010
Allowance for credit losses		(2,106)						(2,434)
Market valuation		(28,103)						(4,040)
Other assets		22,878						17,126
Total non-earning assets		(5,264)						12,662
Total assets	$	372,955					$	441,483

LIABILITIES AND STOCKHOLDER'S EQUITY:
Interest-bearing deposits:
Interest-bearing checking and savings	$	149,765		24	0.07	%	$	145,313		17	0.05	%
Money market		16,300		2	0.05			23,410		3	0.05
Certificates of deposit		47,211		81	0.71			60,268		104	0.70
Total interest-bearing deposits		213,276		107	0.20			228,991		124	0.22

Borrowed Funds:
Federal Funds Purchased		2		—	—			1		—	—
FHLB advances		—		—	—			20,001		110	2.23
Total borrowed funds		2		—	—			20,002		110	2.24
Total interest-bearing liabilities		213,278		107	0.20			248,993		234	0.38

Non-interest-bearing deposits		140,585						155,785
Total cost of funds		353,863		107	0.12			404,778		234	0.23

Other liabilities and accrued expenses		1,965						2,639
Total liabilities		355,828						407,417

Stockholder's equity		17,127						34,066
Total liabilities and equity	$	372,955					$	441,483
Net interest income			$	3,178					$	2,682
Yield on earning assets					3.52	%					2.76	%
Cost of interest-bearing liabilities					0.20	%					0.38	%
Net interest spread					3.32	%					2.38	%
Net interest margin					3.41	%					2.54	%

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Provision for Credit Losses on Loans. The Company recognized releases of credit losses on loans in the amount of $42,000 and $100,000 for the three-month periods ended March 31, 2023 and 2022, respectively. The decrease in the allowance for the three-month period ended March 31, 2023, compared to the three-month period ended March 31,2022, resulted primarily from a $20.0 million decrease in the reservable balance of the loan portfolio.

Noninterest Income. Noninterest income decreased to $245,000 for the three-month period ended March 31, 2023, from $254,000 for the corresponding period in 2022, a decrease of $9,000, or 3.54%. The decrease was primarily due to decreases in other fees and commissions.

Noninterest Expenses. Noninterest expenses for the three-month period ended March 31, 2023 and 2022 were $2.9 million and $2.8 million, respectively, an increase of $160,000 or 5.73%. The increase was driven by increases in salary and employee benefits, data processing and item processing expenses, FDIC insurance costs, loan collection costs and other expenses, offset by decreases in legal, accounting and other professional services.

Income Taxes. During the three-month period ended March 31, 2023, the Company recorded income tax expense of $86,000 compared to $21,000 for the same period in 2022, a $66,000, or 314.29%, increase. The Company’s annualized effective tax rate at March 31, 2023 was 16.38% compared to 9.76% for the prior year. The increase in income tax expense was due to higher income before taxes at March 31, 2023, compared to March 31, 2022.

Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s portfolio of investment securities and interest rate swap contracts. For the first quarter of 2023, comprehensive income, net of tax, totaled $2.4 million compared to a loss in the amount of $8.2 million for the same period in 2022. The increase was due to lower unrealized losses on available for sale securities, offset by no net unrealized gains on interest rate swaps.

FINANCIAL CONDITION

General. The Company’s assets decreased to $363.4 million at March 31, 2023 from $381.4 million at December 31, 2022, a decrease of $18.0 million or 4.73%, primarily due to a $15.5 million decrease in cash and cash equivalents, a $0.6 million decrease in investment securities available for sale, and a $2.3 million decrease in loans, net. Loans totaled $182.0 million at March 31, 2023, a decrease of $2.3 million or 1.25%, from $184.3 million at December 31, 2022. The decrease was primarily attributable to a decrease in consumer and automobile loans, offset by increases in loans secured by real estate, and commercial and industrial loans. Investment securities available for sale as of March 31, 2023, totaled $144.7 million, an increase of $0.6 million, or 0.41% from $144.1 million on December 31, 2022. Cash and cash equivalents as of March 31, 2023, totaled $14.6 million, a decrease of $15.5 million, or 51.51% from $30.1 million on December 31, 2022.

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

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the fair value of the collateral for collateral dependent loans and at the present value of expected future cash flows using the loans’ effective interest rates for loans that are not collateral dependent.

At March 31, 2023, impaired loans totaled $0.6 million. Included in the impaired loans total were $0.4 million in loans classified as nonaccrual loans. At March 31, 2023, troubled debt restructurings included in impaired loans

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totaled $33,000. Borrowers under all other restructured loans are paying in accordance with the terms of the modified loan agreement and have been placed on accrual status after a period of performance with the restructured terms.

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


	March 31,			December 31,
(dollars in thousands)	2023			2022
Nonaccrual loans	$	468		$	488
TDR loans excluding those in nonaccrual loans		-			-
Accruing loans past due 90+ days		10			10

Total nonperforming loans		478			498

Total nonperforming assets	$	478		$	498

Nonperforming assets to total assets		0.13	%		0.13	%

Deposits as of March 31, 2023, totaled $343.0 million, a decrease of $19.9 million, or 5.49% from $362.9 million on December 31, 2022. Demand deposits as of March 31, 2023 totaled $136.3 million, a decrease of $6.9 million, or 4.84% from $143.3 million at December 31, 2022. Interest-bearing checking accounts as of March 31, 2023 totaled $37.4 million, a decrease of $2.7 million, or 6.77% from $40.1 million at December 31, 2022. Savings accounts as of March 31, 2023 totaled $108.4 million, a decrease of $4.7 million, or 4.20%, from $113.1 million at December 31, 2022. Money market accounts as of March 31, 2023 totaled $15.9 million, an increase of $0.2 million, or 0.99%, from $15.8 million at December 31, 2022. Time deposits under $100,000 totaled $27.2 million on March 31, 2023, a $3.5 million or a 11.33% decrease from $30.7 million at December 31, 2022. Time deposits over $100,000 totaled $17.8 million on March 31, 2023, a $2.2 million, or 11.07% decrease from $20.0 million at December 31, 2022.

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Deposits on March 31, 2023, and December 31, 2022, were as follows:


	March 31, 2023				December 31, 2022				2023 vs 2022
(dollars in thousands)	Amount		% of Total		Amount		% of Total		$ Change		% Change
Noninterest-bearing deposits	$	136,324	39.8	%	$	143,262	39.5	%	$	(6,938)	(4.8)	%

Interest-bearing deposits:
Checking		37,372	10.9	%		40,086	10.9	%		(2,714)	(6.8)	%
Savings		108,355	31.6	%		113,101	31.2	%		(4,746)	(4.2)	%
Money market		15,948	4.6	%		15,791	4.4	%		157	1.0	%
Total interest-bearing checking, savings and money market deposits		161,675	47.1	%		168,978	46.5	%		(7,303)	(4.3)	%

Time deposits under $100,000		27,230	7.9	%		30,708	8.5	%		(3,478)	(11.3)	%
Time deposits of $100,000 or more		17,785	5.2	%		19,999	5.5	%		(2,214)	(11.1)	%
Total time deposits		45,015	13.1	%		50,707	14.0	%		(5,692)	(11.2)	%

Total interest-bearing deposits		206,690	60.2	%		219,685	60.5	%		(12,995)	(5.9)	%

Total Deposits	$	343,014	100.0	%	$	362,947	100.0	%	$	(19,933)	(5.5)	%

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

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

Future minimum payments of the Bank’s operating leases as of March 31, 2023 are as follows:


Year ending December 31,	Amount
	(dollars in thousands)
2023	$	147
2024		192
2025		10
2026		9
2027		6
Thereafter		—
Total	$	364

Pension and Profit Sharing Plans. The Bank has a defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code that is funded through a profit sharing agreement and voluntary employee

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contributions. The plan provides for discretionary employer matching contributions to be determined annually by the Board of Directors. The plan covers substantially all employees.

For the three months ended March 31, 2023, the Bank accrued $146,000 for its projected 401(k) match contribution as well as other profit sharing benefits.

MARKET RISK AND INTEREST RATE SENSITIVITY

Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on liabilities. Our interest rate risk represents the level of exposure we have to fluctuations in interest rates and is primarily measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The Investment Committee (“IC”) 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 material financial consequences associated with changes in interest rate risk.

Interest rate risk is that risk to earnings or capital arising from movement of interest rates. It arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships across yield curves that affect bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The value of a bank’s assets, liabilities, and interest-rate related, off-balance sheet contracts is affected by a change in rates because 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 IC. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology we employ. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

We prepare a current base case and alternative simulations at least once a quarter and report the analysis to the IC 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.

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At March 31, 2023, the simulation analysis indicated that the Bank is in an asset sensitive position. Management strives to manage higher costing fixed rate funding instruments, while seeking to increase assets that are more fluid in their repricing. An asset sensitive position, theoretically, is favorable in a rising rate environment since more assets than liabilities will re-price in a given time frame as interest rates rise. Similarly, a liability sensitive position, theoretically, is favorable in a declining interest rate environment since more liabilities than assets will re-price in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.

The foregoing analysis assumes that the Company’s assets and liabilities move with rates at their earliest repricing opportunities based on final maturity. Mortgage backed securities are assumed to mature during the period in which they are estimated to prepay and it is assumed that loans and other securities are not called prior to maturity. Certificates of deposit and IRA accounts are presumed to reprice at maturity. NOW savings accounts are assumed to reprice within 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	(15)	%	(10)	%	(10)	%	(15)	%
March 31, 2023	(9)	%	(4)	%	0	%	0	%
March 31, 2022	(18)	%	(11)	%	11	%	22	%

The following table sets forth the Company’s interest-rate sensitivity at March 31, 2023.


							Over 1
				Over 3 to			Through			Over
	0-3 Months			12 Months			5 Years			5 Years			Total

	(dollars in thousands)
Assets:
Cash and due from banks	$	—		$	—		$	—		$	—		$	1,959
Federal funds and overnight deposits		12,633			—			—			—			12,633
Securities		—			6,830			19,731			118,165			144,726
Loans		289			3,619			32,945			145,127			181,980
Fixed assets		—			—			—			—			3,171
Other assets		—			—			—			—			18,944
Total assets	$	12,922		$	10,449		$	52,676		$	263,293		$	363,413

Liabilities:
Demand deposit accounts	$	—		$	—		$	—		$	—		$	136,324
NOW accounts		37,372			—			—			—			37,372
Money market deposit accounts		15,948			—			—			—			15,948
Savings accounts		108,355			—			—			—			108,355
IRA accounts		2,464			5,585			8,943			191			17,183
Certificates of deposit		3,176			13,026			11,503			127			27,832
Long-term borrowings		—			—			—			—			—
Short-term borrowings		—			—			—			—			—
Other liabilities		—			—			—			—			2,164
Stockholders’ equity:		—			—			—			—			18,235
Total liabilities and stockholders' equity	$	167,315		$	18,611		$	20,446		$	318		$	363,413

GAP	$	(154,393)		$	(8,162)		$	32,230		$	262,975
Cumulative GAP	$	(154,393)		$	(162,555)		$	(130,325)		$	132,650
Cumulative GAP as a % of total assets		(42.48)	%		(44.73)	%		(35.86)	%		36.50	%

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As shown above, measures of net interest income at risk were more favorable on March 31, 2023 than on March 31, 2022 over a 12-month modeling period. All measures remained within prescribed policy limits in the up and down interest rate scenarios.

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


	Static Balance Sheet/Immediate Change in Rates
Estimated Changes in Economic Value of Equity (EVE)	`-200 bp		`-100 bp		`+100 bp		`+200 bp
Policy Limit	(15)	%	(10)	%	(10)	%	(15)	%
March 31, 2023	6	%	4	%	(7)	%	(15)	%
March 31, 2022	(20)	%	4	%	7	%	15	%

Inasmuch as a large portion of the Company’s deposits are non-interest bearing, in an increasing interest rate environment the Company’s interest income increases at a proportionally greater rate than its total interest expense, thereby resulting in higher net interest income. Conversely, in a declining interest rate environment the decreases in the Company’s interest income will be greater than decreases in its already low interest expense, thereby resulting in lower net interest income. In a rising interest rate environment, the Company is positioned to generate less economic value of equity as asset values fall faster than funding sources because the liabilities reprice much slower than our assets, especially considering our interest earning assets are much greater than our interest bearing liabilities. The Company’s economic value of equity worsens in declining interest rate environments as the majority of our liabilities cannot continue to decrease much from their current low levels thus the economic value of liabilities and assets both worsen.

LIQUIDITY AND CAPITAL RESOURCES

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

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

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of nine months or less and money market mutual funds. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of March 31, 2023, totaled $14.6 million, a decrease of $15.5 million, or 51.51% from $30.1 million at December 31, 2022.

As of March 31, 2023, the Bank was permitted to draw on a $95.4 million line of credit from the FHLB of Atlanta. Borrowings under the line are secured by a floating lien on the Bank’s residential mortgage loans and investment securities. At December 31, 2022, there were no short-term or long-term borrowings from FHLB. As of March 31, 2023, there were no short-term or long-term borrowings. In addition, the Bank has two unsecured federal funds lines of credit in the amount of $9.0 million and $8.0 million, of which $0 was outstanding as of March 31, 2023.

The Company’s stockholders’ equity increased $2.2 million, or 13.59% during the three-month period ended March 31, 2023. The increase was primarily due to a decrease in the after-tax net unrealized holding loss on securities available for sale in the amount of $19.2 million.

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

The Bank is subject to the Basel III Capital Rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.

Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. The 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 principles. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The rules include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. The rules establish a capital conservation buffer above the regulatory minimum capital requirements. Since 2019, this capital conservation buffer is 2.5% The capital conservation buffer is designed to absorb losses during periods of economic stress and, as detailed above, effectively increases the minimum required risk-weighted capital ratios. The rules also implemented strict eligibility criteria for regulatory capital instruments.

The rules also revise the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets. The Common Equity Tier 1, Tier 1 and Total Capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, with certain exclusions, allocated by risk weight category, and certain off-balance-sheet items, among other things. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things.

The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets. At March 31, 2023, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 10.12%, a Tier 1 risk-based capital ratio of 16.57%, a common equity Tier 1 risk-based capital ratio of 16.57%, and a total risk-based capital ratio of 17.57%. The Company’s capital amounts and ratios at March 31, 2023 and December 31, 2022 were as follows:

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									To Be Well Capitalized
					To Be Considered				Under Prompt Corrective
	Actual				Adequately Capitalized				Action Provisions
March 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(dollars in thousands)
Common equity tier 1	$	37,777	16.57	%	$	10,257	4.50	%	$	14,816	6.50	%
Total capital	$	40,052	17.57	%	$	18,234	8.00	%	$	22,793	10.00	%
Tier 1 capital	$	37,777	16.57	%	$	13,676	6.00	%	$	18,234	8.00	%
Tier 1 leverage	$	37,777	10.12	%	$	14,933	4.00	%	$	18,666	5.00	%


									To Be Well Capitalized
					To Be Considered				Under Prompt Corrective
	Actual				Adequately Capitalized				Action Provisions
December 31, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(dollars in thousands)
Common equity tier 1	$	37,963	16.45	%	$	10,383	4.50	%	$	14,998	6.50	%
Total capital	$	39,866	17.28	%	$	18,459	8.00	%	$	23,074	10.00	%
Tier 1 capital	$	37,963	16.45	%	$	13,845	6.00	%	$	18,459	8.00	%
Tier 1 leverage	$	37,963	9.53	%	$	15,938	4.00	%	$	19,922	5.00	%

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s accounting policies are fully described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the variables most important in the estimation process:

Allowance for Credit Losses. The 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 Company early adopted ASC 326 during the first fiscal quarter 2021 and based on the application of the modified retrospective method it became effective on January 1, 2021 for all financial assets measured at amortized cost primarily loans receivable and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease to retained earnings of $1,472,000 as of January 1, 2021 for the cumulative effect of adopting ASC 326.

As a result of our adoption of ASC 326, our methodology for estimating the ACL changed significantly from December 31, 2020. The standard replaced the “incurred loss” approach with an “expected loss” approach known as current expected credit loss (“CECL”). The CECL methodology requires an estimate of the credit losses expected over

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the life of an exposure (or pool of exposures) and it removes the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was deemed to be “incurred.”

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”, above.

Valuation of the Securities Portfolio. The Company early adopted ASC 326 during the first fiscal quarter 2021 and based on the application of the modified retrospective method it became effective on January 1, 2021 for all financial assets measured at amortized cost. Under ASC 326, the Company is required to use an allowance approach when recognizing credit loss for its Available-For-Sale (“AFS”) debt securities. This is measured as the difference between the investment security’s amortized cost basis and the amount expected to be collected over the investment security’s lifetime. Specifically, the length of time the security has been in an unrealized loss position will no longer be used to determine whether a credit loss exists. Impairment must be evaluated at the individual security level during each reporting period, through a comparison of the present value of expected cash flows from the security with the amortized cost basis of the security.

The Company conducts its assessment at the individual security level. When an AFS investment security is considered impaired, the Company determines whether the decline is credit loss related or due to other factors. To evaluate the nature of the impairment, the Company compares, at the reporting date, the present value of future cash flows expected to be received to the amortized cost basis. An impairment more than the calculated allowance related to credit losses is then recorded through other comprehensive income in equity, net of applicable taxes.

AFS investment securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Municipal bonds are considered to have issuer(s) of high credit quality (rated A or higher) and the decline in fair value is due to changes in interest rates and other market conditions.

Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating. The absence of a rating does not imply substandard quality. Non-rated corporate securities may be purchased from issuers operating in and around the Company’s operating footprint.

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

Deferred Income Taxes. Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when

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such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not that such amount will be realized based on consideration of available evidence.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.

CONTROLS AND PROCEDURES

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6.

EXHIBITS


Exhibit No.
3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)

3.2	Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended 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)

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)

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

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

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

101.INS	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 104	Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

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


		GLEN BURNIE BANCORP
		(Registrant)

Date: May 11, 2023	By:		/s/ John D. Long
			John D. Long
			President, Chief Executive Officer

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