Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of presentation

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, 2020 and December 31, 2019, the results of operations for the three-month period ended March 31, 2020 and 2019, and the statements of cash flows for the three-month period ended March 31, 2020 and 2019.  The operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020 or any future interim period.  The consolidated balance sheet at December 31, 2019 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 27, 2020.  The unaudited consolidated financial statements for March 31, 2020 and 2019, the consolidated balance sheet at December 31, 2019, 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, 2019.

Principles of Consolidation

Principles of Consolidation

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

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

Cash Flow Presentation

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

Reclassifications

Certain items in the 2019 consolidated financial statements have been reclassified to conform to the 2020 classifications.  The reclassifications had no effect on previously reported results of operations or retained earnings.

Use of Estimates

Use of Estimates

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

Recent Accounting Pronouncements and Developments

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") as of the 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 2019 Form 10-K.

ASU 2016‑02, “Leases (Topic 842).”  In February 2016, the FASB issued ASU No. 2016-02.  This guidance provides that lessees will be required to recognize the following for all operating leases (with the exception of short-term leases):  1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term.  Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.  The Company adopted the provisions of ASU No. 2016-02 on January 1, 2019 and elected several practical expedients made available by the FASB.  Specifically, the Company elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance.  In addition, the Company elected the package of practical expedients which among other things, requires no reassessment of whether existing contracts are or contain leases as well as no reassessment of lease classification for existing leases and the practical expedient which permits the Company to not separate non-lease components from lease components in determining the consideration in the lease agreement when the Company is a lessee and a lessor.  The Company identified the primary lease agreements in scope of this new guidance as those relating to branch premises.  As a result, the Company recognized a lease liability of $0.8 million and a related right-of-use asset of $0.8 million on its consolidated balance sheet on January 1, 2019.

ASU No. 2016‑13, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.”  This update, commonly referred to as the current expected credit losses methodology (“CECL”), will change the accounting for credit losses on loans and debt securities.  Under the new guidance, the Company’s measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.  For loans, this measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.  This differs significantly from the “incurred loss” model previously required, but still permitted, under GAAP, which delays recognition until it is probable a loss has been incurred.  In addition, the guidance will modify the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which will allow for reversal of credit impairments in future periods.  At the FASB's October 16, 2019 meeting, the Board affirmed its decision to amend the effective date of this ASU for many companies.  Public business entities that are SEC filers, excluding those meeting the smaller reporting company definition, will retain the initial required implementation date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  All other entities will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 31, 2022.  The Company is currently evaluating the implementation of ASU 2016-13 due to the change in implementation dates for smaller reporting companies included in the FASB's Exposure Draft.  While the Company generally expects that the implementation of ASU 2016-13 will increase the allowance for loan losses balance, the Company is continuing to evaluate the potential impact on the Company’s financial statements.

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

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

ASU No. 2017-12, “Derivatives and Hedging (Topic 815):  Targeted Improvements to Accounting for Hedging Activities.”  This standard better aligns an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedge instruments and the hedged item in the financial statements.  Adoption for this ASU is required for fiscal years and interim periods beginning after December 15, 2018 and early adoption was permitted.  ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on our financial statements.

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

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

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

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

ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” was issued in April 2019 by the FASB.  With respect to Topic 815, Derivatives and Hedging, ASU 2019-04 clarifies that the reclassification of a debt security from held-to-maturity (“HTM”) to available-for-sale (“AFS”) under the transition guidance in ASU 2017-12 would not (1)  call into question the classification of other HTM securities, (2)  be required to actually designate any reclassified security in a last-of-layer hedge, or (3)  be restricted from selling any reclassified security.  As part of the transition of ASU 2019-04, entities may reclassify securities that would qualify for designation as the hedged item in a last-of-layer hedging relationship from HTM to AFS; however, entities that already made such a reclassification upon their adoption of ASU 2017-12 are precluded from reclassifying additional securities.  All Company securities were AFS at March 31, 2020.

ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326):  Targeted Transition Relief” was issued on May 15, 2019. The ASU amends the transition guidance in the new credit losses standard, ASC 326, Financial Instruments—Credit Losses.  The amendment provides entities with an option upon adoption of ASC 326-20, to irrevocably elect the fair value option for certain financial instruments that are both:  (a)  within the scope of ASC 326-20 (the current expected credit loss or “CECL” model) and (b)  eligible for the fair value option in ASC 825-10, Financial Instruments—Overall.  This election should be applied on an instrument-by-instrument basis for eligible financial assets.  The fair value option election is not applicable to debt securities classified as available for sale or held to maturity.  In addition, the amendment does not provide the option to discontinue or “unelect” the fair value option on instruments when an entity previously elected to apply it.  If the fair value option is elected, an entity would recognize the difference between the carrying amount and the fair value of the financial instrument as part of the cumulative effect adjustment associated with the adoption of ASC 326.  Subsequently, the financial instrument would be measured at fair value with changes in fair value reported in current earnings.  The updated guidance is effective for interim and annual reporting periods beginning after December 31, 2022, with early adoption permitted.  The Company is continuing to evaluate the extent of the potential impact upon adoption to the Company’s financial statements in January of 2023.

ASU 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740).”  Was issued in December 2019.  The amendments in this Update are meant to simplify the accounting for income taxes by removing certain exceptions to GAAP.  The amendments also improve consistent application of and simplify GAAP by modifying and/or revising the accounting for certain income tax transactions and by clarifying certain existing codification.  The amendments in the update are effective for public business entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.  The Company is currently assessing the impact of adoption of this guidance, but does not expect the update to have a material impact upon its financial position and results of operations.

ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force).”  The ASU clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments.  ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs.  ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method.  In addition, the new ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise.  The amendments in this update become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.  Early adoption is permitted, and the amendments are to be applied prospectively.  The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.