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 September 30, 2020

OR

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 November 4, 2020 was 2,842,039.


GLEN BURNIE BANCORP AND SUBSIDIARY

TABLE OF CONTENTS

Page

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements:

Consolidated Balance Sheets: As of September 30, 2020 (unaudited) and December 31, 2019 (audited)

3

Consolidated Statements of Income (Loss): Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

4

Consolidated Statements of Comprehensive Income (Loss): Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

5

Consolidated Statements of Changes in Stockholders’ Equity: Nine Months Ended September 30, 2020 and 2019 (unaudited)

6

Consolidated Statements of Cash Flows: Nine Months Ended September 30, 2020 and 2019 (unaudited)

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

Item 4.

Controls and Procedures

41

Part II.

OTHER INFORMATION

41

Item 1.

Legal Proceedings

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

43

SIGNATURES

44

- 2 -


PART I – FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

September 30, 

December 31, 

2020

2019

(unaudited)

(audited)

ASSETS

Cash and due from banks

$

2,196

$

2,420

Interest-bearing deposits in other financial institutions

 

24,857

 

10,870

Cash and Cash Equivalents

 

27,053

 

13,290

Investment securities available for sale, at fair value

 

114,461

 

71,486

Restricted equity securities, at cost

1,624

1,437

Loans, net of deferred fees and costs

 

274,082

 

284,738

Less: Allowance for loan losses

(1,663)

(2,066)

Loans, net

272,419

282,672

Real estate acquired through foreclosure

705

705

Premises and equipment, net

 

3,878

 

3,761

Bank owned life insurance

 

8,141

 

8,023

Deferred tax assets, net

499

672

Accrued interest receivable

 

1,367

 

961

Accrued taxes receivable

 

 

1,221

Prepaid expenses

 

393

 

406

Other assets

 

382

 

308

Total Assets

$

430,922

$

384,942

LIABILITIES

Noninterest-bearing deposits

$

129,745

$

107,158

Interest-bearing deposits

 

214,195

 

214,282

Total Deposits

 

343,940

 

321,440

Short-term borrowings

 

37,367

 

25,000

Long-term borrowings

10,000

Defined pension liability

282

317

Accrued Taxes Payable

284

Accrued expenses and other liabilities

 

2,544

 

2,505

Total Liabilities

394,417

349,262

STOCKHOLDERS' EQUITY

Common stock, par value $1, authorized 15,000,000 shares, issued and outstanding 2,838,357 and 2,827,473 shares as of September 30, 2020 and December 31, 2019, respectively.

 

2,839

 

2,827

Additional paid-in capital

 

10,610

 

10,525

Retained earnings

 

22,810

 

22,537

Accumulated other comprehensive gain (loss)

 

246

(209)

Total Stockholders' Equity

36,505

35,680

Total Liabilities and Stockholders' Equity

$

430,922

$

384,942

See accompanying notes to unaudited consolidated financial statements.

- 3 -


GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts)

(unaudited)

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

INTEREST INCOME

 

  

 

  

 

  

 

  

 

Interest and fees on loans

$

2,924

$

3,176

$

8,974

$

9,543

Interest and dividends on securities

404

326

1,103

1,061

Interest on deposits with banks and
federal funds sold

 

21

 

88

 

107

 

270

Total Interest Income

 

3,349

 

3,590

 

10,184

 

10,874

INTEREST EXPENSE

 

  

 

  

 

  

 

  

Interest on deposits

 

237

 

336

 

851

 

1,001

Interest on short-term borrowings

 

110

 

110

 

345

 

465

Interest on long-term borrowings

 

6

 

 

6

 

Total Interest Expense

 

353

 

446

 

1,202

 

1,466

Net Interest Income

 

2,996

 

3,144

 

8,982

 

9,408

(Negative provision)/provision for loan losses

 

(669)

 

(139)

 

(263)

 

65

Net interest income after provision
for loan losses

 

3,665

 

3,283

 

9,245

 

9,343

NONINTEREST INCOME

 

  

 

  

 

  

 

  

Service charges on deposit accounts

 

37

 

62

 

132

 

187

Other fees and commissions

 

179

 

287

 

489

 

643

Gain on securities sold

 

4

 

4

 

3

Income on life insurance

 

40

 

42

 

118

 

122

Total Noninterest Income

 

260

 

391

 

743

 

955

NONINTEREST EXPENSE

 

  

 

  

 

  

 

  

Salary and benefits

 

1,595

 

1,685

 

4,897

 

5,140

Occupancy and equipment expenses

283

340

909

1,040

Legal, accounting and other professional fees

233

259

737

794

Data processing and item processing services

234

109

651

328

FDIC insurance costs

41

141

116

Advertising and marketing related expenses

22

27

65

79

Loan collection costs

5

22

92

62

Telephone costs

 

56

 

62

 

146

 

183

Other expenses

 

224

 

352

 

901

 

1,181

Total Noninterest Expenses

 

2,693

 

2,856

 

8,539

 

8,923

Income before income taxes

 

1,232

 

818

 

1,449

 

1,375

Income tax expense

 

283

 

212

 

326

 

315

NET INCOME

$

949

$

606

$

1,123

$

1,060

Basic and diluted net income per share of common stock

$

0.33

$

0.21

$

0.40

$

0.38

See accompanying notes to unaudited consolidated financial statements.

- 4 -


GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Net income

$

949

$

606

$

1,123

$

1,060

Other comprehensive (loss) income:

 

  

 

  

 

  

 

  

Net unrealized (loss) gain on securities available for sale:

 

 

Net unrealized (loss) gain on securities during the period

(160)

301

1,325

2,132

Income tax benefit (expense) relating to item above

 

44

 

(83)

 

(364)

 

(586)

Reclassification adjustment for gain on sales of securities included in net income

 

(3)

 

 

(3)

 

(2)

Net effect on other comprehensive (loss) income

 

(119)

 

218

 

958

 

1,544

Net unrealized gain (loss) on interest rate swap:

Net unrealized gain (loss) on interest rate swap during the period

77

(134)

(695)

(753)

Income tax (expense) benefit relating to item above

(21)

37

192

208

Net effect on other comprehensive income (loss)

56

(97)

(503)

(545)

Other comprehensive (loss) income

(63)

121

455

999

Comprehensive income

$

886

$

727

$

1,578

$

2,059

See accompanying notes to unaudited consolidated financial statements.

- 5 -


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, 2018

 

$

2,814

$

10,401

$

22,066

$

(1,230)

$

34,051

Net income

 

 

 

 

1,060

 

 

1,060

Cash dividends, $0.30 per share

 

 

 

 

(846)

 

 

(846)

Dividends reinvested under

dividend reinvestment plan

 

 

10

 

94

 

 

 

104

Other comprehensive income

 

 

 

 

 

999

 

999

Balance, September 30, 2019

 

$

2,824

$

10,495

$

22,280

$

(231)

$

35,368

Accumulated

Additional

Other

Common

Paid-in

Retained

Comprehensive

Stock

Capital

Earnings

(Loss) Gain

Total

Balance, December 31, 2019

 

$

2,827

$

10,525

$

22,537

$

(209)

$

35,680

Net income

 

 

 

 

1,123

 

 

1,123

Cash dividends, $0.30 per share

 

 

 

 

(850)

 

 

(850)

Dividends reinvested under

dividend reinvestment plan

 

 

12

 

85

 

 

 

97

Other comprehensive income

 

 

 

 

 

455

 

455

Balance, September 30, 2020

 

$

2,839

$

10,610

$

22,810

$

246

$

36,505

See accompanying notes to unaudited consolidated financial statements.

- 6 -


GLEN BURNIE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

    

    

Nine Months Ended September 30, 

    

2020

    

2019

Cash flows from operating activities:

 

  

 

  

 

Net income

$

1,123

$

1,060

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

Depreciation, amortization, and accretion of premises and equipment

 

212

 

320

Depreciation, amortization, and accretion of investment securities available for sale

(511)

437

(Negative provision) provision for loan losses

 

(262)

 

65

Increase in cash surrender value of bank owned life insurance

 

(118)

 

(122)

Loss on write-down of MFB stock

1

Decrease in ground rents

 

3

 

(Increase) decrease in accrued interest receivable

 

(407)

 

223

Net (increase) decrease in other assets

 

(63)

 

157

Net increase in accrued expenses and other liabilities

 

892

 

16

Net cash provided by operating activities

 

869

 

2,157

Cash flows from investing activities:

 

  

 

  

Redemptions and maturities of investment securities available for sale

 

17,632

 

7,322

Proceeds from sales of available for sale debt securities

20,770

Purchases of investment securities available for sale

 

(58,771)

 

(9,641)

Net (purchase) sale of Federal Home Loan Bank stock

 

(187)

 

1,254

Net decrease in loans

 

10,516

 

14,932

Purchases of premises and equipment

(410)

(249)

Net cash (used in) provided by investing activities

 

(31,220)

 

34,388

Cash flows from financing activities:

 

  

 

  

Net increase in deposits

 

22,500

 

2,814

Increase (decrease) in short term borrowings

12,367

(35,000)

Increase in long term borrowings

 

10,000

 

Cash dividends paid

 

(850)

 

(846)

Common stock dividends reinvested

 

97

 

104

Net cash provided by (used in) financing activities

 

44,114

 

(32,928)

Net increase in cash and cash equivalents

 

13,763

 

3,617

Cash and cash equivalents at beginning of year

 

13,290

 

15,954

Cash and cash equivalents at end of year

$

27,053

$

19,571

Supplemental Disclosures of Cash Flow Information:

 

  

 

  

Interest paid on deposits and borrowings

$

1,263

$

1,498

Net income taxes (refunded) paid

(1,176)

120

Net increase in unrealized appreciation on available for sale securities

 

1,325

 

2,132

Net increase in unrealized depreciation on swaps

(697)

(754)

See accompanying notes to unaudited consolidated financial statements.

- 7 -


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 September 30, 2020 and December 31, 2019, the results of operations for the three- and nine-month period ended September 30, 2020 and 2019, and the statements of cash flows for the nine-month period ended September 30, 2020 and 2019. The operating results for the three-and nine-month period ended September 30, 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 September 30, 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

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

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 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.

- 8 -


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.

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

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

    

Basic and diluted earnings per share:

Net income

$

949,027

$

605,522

$

1,122,820

$

1,059,823

Weighted average common shares outstanding

 

2,836,998

 

2,823,271

 

2,833,130

 

2,819,952

Basic and dilutive net income per share

$

0.33

$

0.21

$

0.40

$

0.38

Diluted earnings per share calculations were not required for the three- and nine-month period ended September 30, 2020 and 2019, 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 September 30, 2020 or December 31, 2019. 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 September 30, 2020 or December 31, 2019.

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.

- 9 -


The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at September 30, 2020 and December 31, 2019:

    

At September 30, 2020

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

(dollars in thousands)

Cost

Gains

Losses

Value

Collateralized mortgage obligations

$

26,868

$

412

$

(25)

$

27,255

Agency mortgage-backed securities

29,684

921

(10)

30,595

Municipal securities

24,975

399

(73)

25,301

U.S. Government agency securities

31,559

20

(269)

31,310

Total securities available for sale

$

113,086

$

1,752

$

(377)

$

114,461

    

At December 31, 2019

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

(dollars in thousands)

Cost

Gains

Losses

Value

Collateralized mortgage obligations

$

27,618

$

52

$

(187)

$

27,483

Agency mortgage-backed securities

27,823

 

149

 

(135)

 

27,837

Municipal securities

12,301

191

(17)

12,475

U.S. Government agency securities

3,195

1

(5)

3,191

U.S. Treasury securities

 

500

 

 

 

500

Total securities available for sale

$

71,437

$

393

$

(344)

$

71,486

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 September 30, 2020 and December 31, 2019 are as follows:

September 30, 2020

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

 

$

1,899

 

$

(3)

 

$

2,131

$

(22)

 

$

4,030

 

$

(25)

Agency mortgage-backed securities

596

(10)

596

(10)

Municipal securities

15,271

(71)

544

(2)

15,815

(73)

U.S. Government agency securities

23,496

(269)

23,496

(269)

 

$

40,666

 

$

(343)

 

$

3,271

$

(34)

 

$

43,937

 

$

(377)

December 31, 2019

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

 

$

11,792

$

(65)

$

7,330

$

(122)

$

19,122

$

(187)

Agency mortgage-backed securities

4,577

(20)

10,918

(115)

15,495

(135)

Municipal securities

1,806

(7)

864

(10)

2,670

(17)

U.S. Government agency securities

591

(5)

591

(5)

 

$

18,766

 

$

(97)

 

$

19,112

$

(247)

 

$

37,878

 

$

(344)

- 10 -


Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary-impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At September 30, 2020, the Company recorded unrealized losses in its portfolio of debt securities totaling $377,000 related to 58 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 be other-than-temporarily impaired.

At December 31, 2019, the Company recorded unrealized losses in its portfolio of debt securities totaling $344,000 related to 97 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 be other-than-temporarily impaired.

Shown below are contractual maturities of debt securities at September 30, 2020. 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 September 30, 2020

Amortized

Fair

Yield

(dollars in thousands)

    

Cost

Value

    

(1), (2)

Available for sale securities maturing:

 

 

  

 

  

Within one year

$

1,818

$

1,825

1.85

%

Over one to five years

1,621

1,660

2.34

%

Over five to ten years

 

10,928

 

11,061

 

1.39

%

Over ten years

 

98,719

 

99,915

 

1.81

%

Total debt securities

$

113,086

$

114,461

 

_____________________

(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 LOAN 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.