GLEN BURNIE BANCORP - Annual Report: 2002 (Form 10-K)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2002 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______to ______.

Commission file number: 0-24047

GLEN BURNIE BANCORP
(Exact name of registrant as specified in its charter)


MARYLAND		52-1782444
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)
101 Crain Highway, S.E., Glen Burnie, Maryland		21061
(Address of principal executive offices)		(Zip Code)


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

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


Title of Class		Name of Each Exchange on Which Registered
None		None

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

Title of Class
Common Stock, $1.00 par value
Common Stock Purchase Rights

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 X No______

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X

The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 27, 2003 was $25,037,865.

The number of shares of common stock outstanding as of February 27, 2003 was 1,677,174.

DOCUMENTS INCORPORATED BY REFERENCE

To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant’s definitive proxy statement for its 2003 Annual Meeting of Shareholders (to be filed).

GLEN BURNIE BANCORP
2003 ANNUAL REPORT ON FORM 10-K

Table of Contents


		Page

	PART I
Item 1.	Business	3
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security-Holders	17
	Executive Officers of the Registrant	17
	PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	18
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	20
Item 7A.	Quantitative And Qualitative Disclosures About Market Risk	27
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountant on Accounting and Financial Disclosures	27
	PART III
Item 10.	Directors and Executive Officers of the Registrant	28
Item 11.	Executive Compensation	28
Item 12.	Security Ownership of Certain Beneficial Owners and Management	28
Item 13.	Certain Relationships and Related Transactions	28
Item 14.	Controls and Procedures	28
Item 15.	Principal Accountant Fees and Services	28
	PART IV
Item 16.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	29
Signatures		30
Certifications		32

PART I

ITEM 1. BUSINESS

General

Glen Burnie Bancorp (the “Company”) is a bank holding company organized in 1990 under the laws of the State of Maryland. It presently owns all the outstanding shares of capital stock of The Bank of Glen Burnie (the “Bank”), a commercial bank organized in 1949 under the laws of the State of Maryland, serving northern Anne Arundel County and surrounding areas from its main office and branch in Glen Burnie, Maryland and branch offices in Glen Burnie (South Crain location) Odenton, Riviera Beach, Crownsville, Severn and Severna Park, Maryland. The Bank also maintains four remote Automated Teller Machine (“ATM”) locations in Ferndale, Gambrills, Jessup and Pasadena, Maryland. The Bank maintains a website at www.thebankofglenburnie.com. The Bank is the oldest independent commercial bank in Anne Arundel County. The Bank is engaged in the commercial and retail banking business as authorized by the banking statutes of the State of Maryland, including the acceptance of demand and time deposits, and the origination of loans to individuals, associations, partnerships and corporations. The Bank’s real estate financing consists of residential first and second mortgage loans, home equity lines of credit and commercial mortgage loans. Commercial lending consists of both secured and unsecured loans. The Bank also originates automobile loans through arrangements with local automobile dealers. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”).

The Company’s principal executive office is located at 101 Crain Highway, S.E., Glen Burnie, Maryland 21061. Its telephone number at such office is (410) 766-3300.

Market Area

The Bank considers its principal market area for lending and deposit products to consist of Northern Anne Arundel County, Maryland, which consists of those portions of the county north of U.S. Route 50. Northern Anne Arundel County includes mature suburbs of the City of Baltimore, which in recent years have experienced modest population growth and are characterized by an aging population. Management believes that the majority of the working population in its market area either commutes to Baltimore or is employed at businesses located at or around the nearby Baltimore Washington International Airport. Anne Arundel County is generally considered to have more affordable housing than other suburban Baltimore areas and has begun to attract younger persons and minorities on this basis. This inflow, however, has not been sufficient to affect current population trends.

Lending Activities

The Bank offers a full range of consumer and commercial loans. The Bank’s lending activities include residential and commercial real estate loans, construction loans, land acquisition and development loans, commercial loans and consumer installment lending including indirect automobile lending. Substantially all of the Bank’s loan customers are residents of Anne Arundel County and surrounding areas of Central Maryland. The Bank solicits loan applications for commercial loans from small to medium sized businesses located in its market area. The Bank believes that this is a market in which a relatively small community bank, like the Bank, has a competitive advantage in personal service and flexibility. The Bank’s consumer lending currently consists primarily of automobile loans originated through local dealers. The Bank has expanded its indirect automobile loans by entering into arrangements with individual automobile dealers.

The Company’s total loan portfolio increased during the 2000, 1999 and 1998 fiscal years, primarily as a result of the introduction of an indirect automobile lending program in 1998. The commercial mortgage portfolio, which had been slowly declining over the last several years, declined in 2002 and 2001 as a result of softening loan demand. In contrast, the residential mortgage portfolio achieved large increases during 2002 and 2001 in a strong housing market environment.

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The following table provides information on the composition of the loan portfolio at the indicated dates.


															At December 31,
			2002						2001						2000						1999						1998

(Dollars in Thousands)			$			%			$			%			$			%			$			%			$			%

Mortgage:
	Residential		$	49,572			30.67	%	$	44,293			26.32	%	$	36,187			21.74	%	$	34,099			22.03	%	$	33,931			26.28	%
	Commercial			31,584			19.54			36,920			21.94			40,169			24.13			42,342			27.36			43,915			34.02
	Construction and land development			2,338			1.45			2,355			1.40			5,257			3.16			6,095			3.94			2,383			1.85
Consumer:
	Installment			19,758			12.22			20,063			11.92			19,119			11.49			16,203			10.47			17,119			13.26
	Credit card			228			.14			272			0.16			281			0.16			1,348			0.88			1,398			1.08
	Indirect automobile			52,795			32.66			59,308			35.24			61,725			37.08			50,967			32.93			24,630			19.08
Commercial				5,374			3.32			5,083			3.02			3,726			2.24			3,701			2.39			5,714			4.43

		Gross loans		161,649			100.00	%		168,294			100.00	%		166,464			100.00	%		154,755			100.00	%		129,090			100.00	%

Unearned income on loans				(847	)					(786	)					(705	)					(727	)					(748	)

		Gross loans net of unearned income		160,802						167,508						165,759						154,028						128,342
Allowance for credit losses				(2,515	)					(2,939	)					(3,385	)					(2,922	)					(2,841	)

Loans, net			$	158,287					$	164,569					$	162,374					$	151,106					$	125,501

The following table sets forth the maturities for various categories of the loan portfolio at December 31, 2002. Demand loans and loans, which have no stated maturity, are treated as due in one year or less. At December 31, 2002, the Bank had $12,264,870 in loans due after one year with variable rates and $133,029,911 in such loans with fixed rates. The Bank’s long-term real estate loans allow the Bank to call the loan after three years in order to adjust the interest rate if necessary. The Bank has generally not exercised its call option and the following table assumes no exercise of the Bank’s call option.


		Due Within		Due Over One To		Due Over
		One Year		Five Years		Five Years		Total

		(In Thousands)
Real Estate – mortgage:
	Residential	$	3,851	$	1,589	$	44,132	$	49,572
	Commercial		2,065		9,743		19,776		31,584
Real Estate — construction			—		740		1,598		2,338
Installment			2,224		12,960		4,574		19,758
Credit Card			198		—		30		228
Indirect automobile			1,541		49,124		2,130		52,795
Commercial			5,301		39		34		5,374

		$	15,180	$	74,195	$	72,274	$	161,649

Real Estate Lending. The Bank offers long-term mortgage financing for residential and commercial real estate as well as shorter term construction and land development loans. Residential mortgage and residential construction loans are originated with fixed rates while commercial mortgages may be originated on either a fixed or variable rate basis. Commercial construction loans are generally originated on a variable rate basis. The Bank’s long-term, fixed-rate mortgages include a provision allowing the Bank to call the loan after three years in order to adjust the interest rate. The Bank, however, has never exercised this right. Substantially all of the Bank’s real estate loans are secured by properties in northern Anne Arundel County, Maryland. Under the Bank’s loan policies, the maximum permissible loan-to-value ratio for owner-occupied residential mortgages is 80% of the lesser of the purchase price or appraised value. The Bank, however, will make loans secured by owner-occupied residential real estate with loan-to-value ratios up to 95% provided the borrower obtains private mortgage insurance for the portion of the loan in excess of 80%. For residential investment properties, the maximum loan-to-value ratio is 75%. The maximum permissible loan-to-value ratio for residential and commercial construction loans is 80%. The maximum loan-to-value ratio for permanent commercial mortgages is 75%. The maximum loan-to-value ratio for land development loans is 70% and for unimproved land is 65%. The Bank also offers home equity loans secured by the borrower’s primary residence provided that the aggregate indebtedness on the property does not exceed 80% of its value.

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Commercial Lending. The Bank’s commercial loan portfolio consists principally of demand and time loans for commercial purposes. The Bank’s business demand and time lending includes various working capital loans, lines of credit and letters of credit for commercial customers. Demand loans require the payment of interest until called, while time loans require a single payment of principal and interest at maturity. Such loans may be made on a secured or an unsecured basis. All such loans are underwritten on the basis of the borrower’s creditworthiness rather than the value of the collateral.

Installment Lending. The Bank makes consumer and commercial installment loans for the purchase of automobiles, boats, other consumer durable goods, capital goods and equipment. Such loans provide for repayment in regular installments and are secured by the goods financed. Also included in installment loans are overdraft loans and other credit repayable in installments. As of December 31, 2002, approximately 69.8% of the installment loans in the Bank’s portfolio (other than indirect automobile lending) had been originated for commercial purposes and 30.2% had been originated for consumer purposes.

Indirect Automobile Lending. The Bank commenced its indirect automobile lending program in January 1998. The Bank finances new and used automobiles for terms of up to 60 months. Used vehicles must be no more than five years old and the maximum loan term is reduced for higher mileage vehicles. The Bank does not lend more than the invoice price on new vehicles and on used vehicles will not lend more than the fair market value as published in a nationally recognized used vehicle pricing guide. The Bank requires all borrowers to obtain vendor’s single interest coverage protecting the Bank against loss. The Bank originates indirect loans through a network of 21 dealers which are primarily new car dealers located in Anne Arundel County. Participating dealers take loan applications from their customers and transmit them to the Bank for approval. If the loan is approved, the Bank will immediately fund the principal of the loan and credit the dealer’s reserve account for the premium due to the dealer. Funds are disbursed from the dealer reserve account on a monthly basis net of any unpaid interest resulting from borrower prepayments or defaults on other loans purchased from the dealer. The Bank does not offer dealer floor plan financing.

Credit Card and Related Loans. Credit card and related loans consist of outstanding balances on credit cards and overdraft lines of credit. The Bank offered no annual fee VISA® and MasterCard® credit cards to qualified customers. Credit card billing and payment processing was done for the Bank by an unaffiliated third party which received a fee for such services. In February, 2000, however, the Bank sold its portfolio of credit card loans. The Bank’s overdraft protection line of credit is offered as a convenience to qualified customers.

Although the risk of non-payment for any reason exists with respect to all loans, certain other specific risks are associated with each type of loan. The primary risks associated with commercial loans, including commercial real estate loans, are the quality of the borrower’s management and a number of economic and other factors which induce business failures and depreciate the value of business assets pledged to secure the loan, including competition, insufficient capital, product obsolescence, changes in the cost of production, environmental hazards, weather, changes in laws and regulations and general changes in the marketplace. Primary risks associated with residential real estate loans include fluctuating land and property values and rising interest rates with respect to fixed-rate, long-term loans. Residential construction lending exposes the Company to risks related to builder performance. Consumer loans, including indirect automobile loans, are affected primarily by domestic instability and a variety of factors that may lead to the borrower’s unemployment, including deteriorating economic conditions in one or more segments of a local or broader economy. Because the Bank deals with borrowers through an intermediary on indirect automobile loans, this form of lending potentially carries greater risks of defects in the application process for which claims may be made against the Bank. Indirect automobile lending may also involve the Bank in consumer disputes under state “lemon” or other laws. The Bank seeks to control these risks by following strict underwriting and documentation guidelines and by only dealing with well-established dealerships who are contractually obligated to indemnify the Bank for such losses.

The Bank’s lending activities are conducted pursuant to written policies approved by the Board of Directors intended to ensure proper management of credit risk. Loans are subject to a well defined credit process that includes credit evaluation of borrowers, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Regular portfolio reviews are performed by the Senior Credit Officer to identify potential underperforming credits, estimate loss exposure and to ascertain compliance with the

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Bank’s policies. On a quarterly basis, the internal auditor performs an independent loan review in accordance with the Bank’s loan review policy. For significant problem loans, management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral, and the effects of economic conditions.

The Bank’s loan approval policy provides for various levels of individual lending authority. The maximum lending authority granted by the Bank to any one individual is $500,000. A combination of approvals from certain officers may be used to lend up to an aggregate of $750,000. The Bank’s Executive Committee is authorized to approve loans up to $1.0 million. Larger loans must be approved by the full Board of Directors.

Under Maryland law, the maximum amount which the Bank is permitted to lend to any one borrower and their related interests may generally not exceed 10% of the Bank’s unimpaired capital and surplus which is defined to include the Bank’s capital, surplus, retained earnings and 50% of its reserve for possible loan losses. Under this authority, the Bank would have been permitted to lend up to $2.59 million to any one borrower at December 31, 2002. By interpretive ruling of the Commissioner of Financial Regulation, Maryland banks have the option of lending up to the amount that would be permissible for a national bank which is generally 15% of unimpaired capital and surplus (defined to include a bank’s total capital for regulatory capital purposes plus any loan loss allowances not included in regulatory capital). Under this formula, the Bank would have been permitted to lend up to $4.08 million to any one borrower at December 31, 2002. It is currently the Bank’s policy to limit its exposure to any one borrower to no more than $2.2 million in the aggregate unless the loan is approved by a 75% vote of the Board of Directors with respect to new borrowings. At December 31, 2002, the largest amount outstanding to any one borrower and their related interests was $2,219,104 which was within the Bank’s lending limit at the time when made.

Non-Performing Loans

It is the policy of the Bank to discontinue the accrual of interest when a loan becomes 90 days or more delinquent and circumstances indicate that collection is doubtful.

The Bank seeks to control delinquencies through diligent collection procedures. For consumer loans, the Bank sends out payment reminders on the seventh and twelfth days after a payment is due. If a consumer loan becomes 15 days past due, the account is transferred to the Bank’s collections department, which will contact the borrower by telephone and letter before the account becomes 30 days past due. If a consumer loan becomes more than 30 days past due, the Bank will continue its collection efforts and will move to repossession or foreclosure by the 45th day if the Bank has reason to believe that the collateral may be in jeopardy or the borrower has failed to respond to prior communications. The Bank will move to repossess or foreclose in all instances in which a consumer loan becomes more than 60 days delinquent. After repossession of a motor vehicle, the borrower has a 15-day statutory right to redeem the vehicle and is entitled to 10 days’ notice before the sale of a repossessed vehicle. The Bank sells the vehicle as promptly as feasible after the expiration of these periods. If the amount realized from the sale of the vehicle is less than the loan amount, the Bank will seek a deficiency judgment against the borrower. The Bank follows similar collection procedures with respect to commercial loans.

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The following table sets forth the amount of the Bank’s restructured loans, non-accrual loans and accruing loans 90 days or more past due at the dates indicated:


				At December 31,

				2002			2001			2000			1999			1998

				(Dollars In Thousands)
Restructured Loans				$	41		$	—		$	370		$	243		$	137

Non-accrual loans:
	Real estate – mortgage:
	Residential			$	264		$	284		$	120		$	237		$	336
	Commercial				178			189			77			135			505
	Real estate — construction				7			—			—			280			316
	Installment				112			88			72			315			463
	Commercial				10			40			101			45			105

		Total non-accrual loans			571			601			370			1,012			1,725
Accruing loans past due 90 days or more
	Real estate – mortgage:
	Residential				1			45			34			43			—
	Commercial				—			—			—			—			—
	Real estate — construction				—			—			—			—			—
	Installment				13			13			—			—			—
	Credit card & related				—			1			—			—			18
		Total accruing loans past due
			90 days or more		15			59			34			43			18

		Total non-accrual and past due loans		$	586		$	660		$	404		$	1,055		$	1,743

		Non-accrual and past due loans to gross loans			0.36	%		0.39	%		0.24	%		0.68	%		1.36	%

		Allowance for credit losses to non-accrual and past due loans			429.13	%		445.30	%		837.87	%		276.97	%		162.99	%

For the year ended December 31, 2002, interest of approximately $9,188, would have been accrued on non-accrual loans if such loans had been current in accordance with their original terms. During such period there was no interest on such loans included in income. Approximately $526,402 or 92.2%, of the Bank’s non-accrual loans at December 31, 2002 were attributable to 9 borrowers. No charge-offs have previously been taken on these loans. Seven of these borrowers with loans totaling $466,111 were in bankruptcy at that date. Because of the legal protections afforded to borrowers in bankruptcy, collections on such loans are difficult and the Bank anticipates that such loans may remain delinquent for an extended period of time. Each of these loans is secured by collateral with a value well in excess of the current active balance of the Bank’s loan.

At December 31, 2002, there were no loans outstanding not reflected in the above table as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors.

At December 31, 2002, the Company had $413,373 in real estate acquired in partial or total satisfaction of debt compared to $420,162 and $484,148 in such properties at December 31, 2001 and 2000, respectively. All such properties are recorded at the lower of cost or fair value at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in non-interest expense. Gains and losses realized from the sale of other real estate owned are included in non-interest income or expense. For a description of the properties comprising other real estate owned at December 31, 2002, see “Item 2. — Properties.”

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Allowance For Credit Losses

The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrower’s ability to pay.

Transactions in the allowance for credit losses during the last five fiscal years were as follows:


				Year Ended December 31,

				2002			2001			2000			1999			1998

				(Dollars In Thousands)
Beginning Balance				$	2,939		$	3,385		$	2,922		$	2,841		$	4,139
Loans charged off
	Real estate — mortgage:
		Residential			1			—			19			—			51
		Commercial			—			4			4			50			—
	Real estate — construction				—			—			—			(27	)		189
	Installment				594			498			470			477			473
	Credit card & related				95			89			101			92			—
	Commercial				80			96			167			81			382

			Total		730			687			761			673			1,095

Recoveries
	Real estate — mortgage:
		Residential			1			—			52			32			51
		Commercial			1			—			—			16			26
	Real estate — construction				—			—			470			36			1
	Installment				215			310			111			259			116
	Credit card & related				30			53			41			4			4
	Commercial				59			28			550			107			99

			Total		306			391			1,224			454			297

Net charge offs/(recoveries)					424			296			(463	)		219			798
Provisions charged to operations					—			(150	)		—			300			(500	)

Ending balance				$	2,515		$	2,939		$	3,385		$	2,922		$	2,841

Average loans				$	164,818		$	163,695		$	159,810		$	142,077		$	118,372
Net charge-offs to average loans					0.26	%		0.18	%		(0.28	)%		0.15	%		0.67	%

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The following table shows the allowance for credit losses broken down by loan category as of December 31, 2002, 2001, 2000, 1999 and 1998:


			At December 31,

			2002					2001

					Percentage Of Loans					Percentage Of Loans
			Allowance For		In Each Category To			Allowance For		In Each Category To
Portfolio			Each Category		Total Loans			Each Category		Total Loans

			(Dollars In Thousands)
Real Estate — mortgage:
	Residential		$	131		27.60	%	$	164		26.32	%
	Commercial			349		21.02			456		21.94
Real Estate — construction				48		1.33			71		1.40
Installment				152		5.83			237		11.92
Credit Card				—		—			—		0.16
Indirect automobile				1,461		33.00			1,390		35.24
Commercial				168		11.22			300		3.02
Unallocated				206		—			321		—

		Total	$	2,515		100.00	%	$	2,939		100.00	%


			At December 31,

			2000					1999					1998

					Percentage Of Loans In					Percentage Of Loans In					Percentage Of Loans
			Allowance For		Each Category To			Allowance For		Each Category To			Allowance For		In Each Category To
Portfolio			Each Category		Total Loans			Each Category		Total Loans			Each Category		Total Loans

			(Dollars In Thousands)
Real Estate – mortgage:
	Residential		$	199		21.74	%	$	200		22.03	%	$	273		26.28	%
	Commercial			506		24.13			613		27.36			311		34.02
Real Estate – construction				292		3.16			296		3.94			335		1.85
Installment				221		11.49			177		10.47			143		13.26
Credit Card				—		0.16			92		0.88			60		1.08
Indirect automobile				1,486		37.08			793		32.93			312		19.08
Commercial				288		2.24			526		2.39			966		4.43
Unallocated				393		—			225		—			441		—

		Total	$	3,385		100.00	%	$	2,922		100.00	%	$	2,841		100.00	%

Investment Securities

The Bank maintains a substantial portfolio of investment securities to provide liquidity as well as a source of earnings. The Bank’s investment securities portfolio consists primarily of U.S. Treasury securities, securities issued by U.S. Government agencies including mortgage-backed securities, securities issued by certain states and their political subdivisions, and corporate trust preferred securities. The portfolio of securities issued by certain states and their political subdivisions has recently been increased due to a change in the Company’s deferred tax position allowing the Company to use the full tax advantage of this portfolio.

The following table presents at amortized cost the composition of the investment portfolio by major category at the dates indicated.


		At December 31,

		2002		2001		2000

		(In Thousands)
U.S. Treasury securities		$	499	$	1,248	$	1,746
U.S. Government agencies and mortgage backed securities			51,916		45,603		39,057
Obligations of states and political subdivisions			31,899		20,659		8,721
Corporate trust preferred			5,057		4,820		2,821

	Total investment securities	$	89,371	$	72,330	$	52,345

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The following table sets forth the scheduled maturities, book values and weighted average yields for the Company’s investment securities portfolio at December 31, 2002:


	One Year Or Less					One To Five Years					Five to Ten Years					More Than Ten Years					Total

			Weighted					Weighted					Weighted					Weighted					Weighted
	Book		Average			Book		Average			Book		Average			Book		Average			Book		Average
	Value		Yield			Value		Yield			Value		Yield			Value		Yield			Value		Yield

U.S. Treasury securities	$	499		5.75	%	$	—		—	%	$	—		—	%	$	—		—	%	$	499		5.75	%
U.S. Government agencies and mortgage backed securities		—		—			8,166		5.52			10,617		5.96			33,166		6.31	%		51,916		6.11
Obligations of states and political subdivisions		80		4.60	%		3,852		3.27			3,237		4.19			24,730		5.03			31,899		4.73
Corporate trust preferred		—		—			—		—			—		—			5,057		6.95	%		5,057		6.95

Total investment securities	$	579		5.60	%	$	12,018		4.80	%	$	13,854		5.55	%	$	62,920		5.86	%	$	89,371		5.66	%

At December 31, 2002, the Bank had no investments in securities of a single issuer (other than the U.S. Government securities and securities of federal agencies and government-sponsored enterprises, which aggregated more than 10% of stockholders’ equity.

Deposits And Other Sources Of Funds

The funds needed by the Bank to make loans are primarily generated by deposit accounts solicited from the communities surrounding its main office and six branches in northern Anne Arundel County. Consolidated total deposits were $241,419,607 as of December 31, 2002. The Bank uses borrowings from the Federal Home Loan Bank (“FHLB”) of Atlanta to supplement funding from deposits. The Bank was permitted to borrow up to $33.4 million under a line of credit from the FHLB of Atlanta as of December 31, 2002.

Deposits. The Bank’s deposit products include regular savings accounts (statements), money market deposit accounts, demand deposit accounts, NOW checking accounts, IRA and SEP accounts, Christmas Club accounts and certificates of deposit. Variations in service charges, terms and interest rates are used to target specific markets. Ancillary products and services for deposit customers include safe deposit boxes, money orders and travelers checks, night depositories, automated clearinghouse transactions, wire transfers, ATMs, telephone banking, and a customer call center. The Bank is a member of the Cirrus® and Star® ATM networks.

The Bank obtains deposits principally through its network of seven offices. The Bank does not solicit brokered deposits. At December 31, 2002, the Bank had approximately $22 million in certificates of deposit and other time deposits of $100,000 or more, including IRA accounts. The following table provides information as to the maturity of all time deposits of $100,000 or more at December 31, 2002:


	Amount
	(In Thousands)
Three months or less	$	2,752
Over three through six months		8,650
Over six through 12 months		5,737
Over 12 months		5,059

Total	$	22,198

Borrowings. In addition to deposits, the Bank from time to time obtains advances from the FHLB of Atlanta of which it is a member. FHLB of Atlanta advances may be used to provide funds for residential housing finance, for small business lending, and to meet specific and anticipated needs. The Bank may draw on a $33.4 million line of credit from the FHLB of Atlanta, which is secured by a floating lien on the Bank’s residential first mortgage loans and various federal and agency securities. There was $7 million in a long-term convertible advance under this credit arrangement at December 31, 2002. The advance matures in September 2010 and bears a 5.84% rate of interest. On September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a Connecticut statutory trust wholly owned by the Company.

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The Trust, in turn, issued $5 million of its 10.6% capital securities to institutional investors. The debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010. The Bank also has a secured line of credit in the amount of $5 million from another commercial bank but has not drawn on this line. The Bank has a mortgage note on the 103 Crain Highway address with a balance of $251,489 as of December 31, 2002. This note is payable monthly through October 2010 and has a 7% interest rate.

Competition

The Bank faces competition from other community banks and financial institutions and larger intra- and inter- state banks and financial institutions, which compete vigorously (currently, sixteen FDIC-insured depository institutions operate within two miles of the Bank’s headquarters). In 1996, former directors of the Bank, including a former Chief Executive Officer, established a new bank with a main office in Glen Burnie close to the Bank’s headquarters which has solicited business from many Bank customers. With respect to indirect lending, the Bank faces competition from other banks and the financing arms of automobile manufacturers. The Bank competes in this area by offering competitive rates and responsive service to dealers.

The Bank’s interest rates, loan and deposit terms, and offered products and services are impacted, to a large extent, by such competition. The Bank attempts to provide superior service within its community and to know, and facilitate services to, its customers. It seeks commercial relationships with small to medium size businesses, which the Bank believes would welcome personal service and flexibility. While the Bank believes it is the ninth largest deposit holder in Anne Arundel County, Maryland, with an estimated 4.55% market share as of June 30, 2002 (the latest date for which relevant data is available from the FDIC), it believes its greatest competition comes from smaller community banks which offer similar personalized services.

Other Activities

The Company also owns all outstanding shares of capital stock of GBB Properties, Inc. (“GBB”), another Maryland corporation which was organized in 1994 and which is engaged in the business of acquiring, holding and disposing of real property, typically acquired in connection with foreclosure proceedings (or deeds in lieu of foreclosure) instituted by the Bank or acquired in connection with branch expansions by the Bank.

Employees

At December 31, 2002, the Bank had 123 full-time equivalent employees. Neither the Company nor GBB currently has any employees.

Regulation of the Company

General. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHCA”). As such, the Company is registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and subject to Federal Reserve Board regulation, examination, supervision and reporting requirements. As a bank holding company, the Company is required to furnish to the Federal Reserve Board annual and quarterly reports of its operations at the end of each period and to furnish such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Company is also subject to regular inspection by Federal Reserve Board examiners.

Under the BHCA, a bank holding company must obtain the prior approval of the Federal Reserve Board before: (1) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.

Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency of 1994 (the “Riegle-Neal Act”) authorized the Federal Reserve Board to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company’s home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of a bank that has

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not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Riegle-Neal Act also prohibits the Federal Reserve Board from approving such an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank’s home state or in any state in which the target bank maintains a branch. The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the Riegle-Neal Act. Under Maryland law, a bank holding company is prohibited from acquiring control of any bank if the bank holding company would control more than 30% of the total deposits of all depository institutions in the State of Maryland unless waived by the Commissioner of Financial Regulation.

Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. The State of Maryland did not pass such a law during this period. Interstate acquisitions of branches will be permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions will also be subject to the nationwide and statewide insured deposit concentration amounts described above.

The BHCA also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The activities of the Company are subject to these legal and regulatory limitations under the BHCA and the Federal Reserve Board’s regulations thereunder. Notwithstanding the Federal Reserve Board’s prior approval of specific nonbanking activities, the Federal Reserve Board has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company.

Effective with the enactment of the Gramm-Leach-Bliley Act (“G-L-B”) on November 12, 1999, bank holding companies whose financial institution subsidiaries are well capitalized and well managed and have satisfactory Community Reinvestment Act records can elect to become “financial holding companies” which will be permitted to engage in a broader range of financial activities than are currently permitted to bank holding companies. Financial holding companies are authorized to engage in, directly or indirectly, financial activities. A financial activity is an activity that is: (i) financial in nature; (ii) incidental to an activity that is financial in nature; or (iii) complementary to a financial activity and that does not pose a safety and soundness risk. The G-L-B Act includes a list of activities that are deemed to be financial in nature. Other activities also may be decided by the Federal Reserve Board to be financial in nature or incidental thereto if they meet specified criteria. A financial holding company that intends to engage in a new activity to acquire a company to engage in such an activity is required to give prior notice to the Federal Reserve Board. If the activity is not either specified in the G-L-B Act as being a financial activity or one that the Federal Reserve Board has determined by rule or regulation to be financial in nature, the prior approval of the Federal Reserve Board is required.

The Maryland Financial Institutions Code prohibits a bank holding company from acquiring more than 5% of any class of voting stock of a bank or bank holding company without the approval of the Commissioner of Financial Regulation except as otherwise expressly permitted by federal law or in certain other limited situations. The Maryland Financial Institutions Code additionally prohibits any person from acquiring voting stock in a bank or bank holding company without 60 days’ prior notice to the Commissioner if such acquisition will give the person control of 25% or more of the voting stock of the bank or bank holding company or will affect the power to direct or to cause the direction of the policy or management of the bank or bank holding company. Any doubt whether the stock acquisition will affect the power to direct or cause the direction of policy or management shall be resolved in favor of reporting to the Commissioner. The Commissioner may deny approval of the acquisition if the

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Commissioner determines it to be anti-competitive or to threaten the safety or soundness of a banking institution. Voting stock acquired in violation of this statute may not be voted for five years.

Capital Adequacy. The Federal Reserve Board has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See “Regulation of the Bank — Capital Adequacy.”

Dividends and Distributions. The Federal Reserve Board has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the company’s capital needs, asset quality, and overall financial condition.

Bank holding companies are required to give the Federal Reserve Board notice of any purchase or redemption of their outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve Board order, directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Bank holding companies whose capital ratios exceed the thresholds for “well capitalized” banks on a consolidated basis are exempt from the foregoing requirement if they were rated composite 1 or 2 in their most recent inspection and are not the subject of any unresolved supervisory issues.

Regulation of the Bank

General. As a state-chartered bank with deposits insured by the FDIC but which is not a member of the Federal Reserve System (a “state non-member bank”), the Bank is subject to the supervision of the Commissioner of Financial Regulation and the FDIC. The Commissioner and FDIC regularly examine the operations of the Bank, including but not limited to capital adequacy, reserves, loans, investments and management practices. These examinations are for the protection of the Bank’s depositors and not its stockholders. In addition, the Bank is required to furnish quarterly and annual call reports to the Commissioner and FDIC. The FDIC’s enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.

The Bank’s deposits are insured by the FDIC to the legal maximum of $100,000 for each insured depositor. Some of the aspects of the lending and deposit business of the Bank that are subject to regulation by the Federal Reserve Board and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and savings deposit accounts. In addition, the Bank is subject to numerous Federal and state laws and regulations which set forth specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms and discrimination in credit transactions.

Capital Adequacy. The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets.

The regulations of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain a minimum leverage ratio of “Tier 1 capital” (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the capital regulations state that only the strongest bank holding companies and banks, with composite examination ratings of 1 under the rating system used by the Federal bank regulators, would be permitted to operate at or near such minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization’s capital adequacy by its primary regulator. Any bank or bank holding company

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experiencing or anticipating significant growth would be expected to maintain capital well above the minimum levels. In addition, the Federal Reserve Board has indicated that whenever appropriate, and in particular when a bank holding company is undertaking expansion, seeking to engage in new activities or otherwise facing unusual or abnormal risks, it will consider, on a case-by-case basis, the level of an organization’s ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital.

The risk-based capital rules of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. Risk-based capital is composed of two elements: Tier 1 capital and Tier 2 capital. Tier 1 capital consists primarily of common stockholders’ equity, certain perpetual preferred stock (which must be noncumulative in the case of banks), and minority interests in the equity accounts of consolidated subsidiaries; less all intangible assets, except for certain purchased mortgage servicing rights and credit card relationships. Tier 2 capital elements include, subject to certain limitations, the allowance for losses on loans and leases; perpetual preferred stock that does not qualify as Tier 1 capital and long-term preferred stock with an original maturity of at least 20 years from issuance; hybrid capital instruments, including perpetual debt and mandatory convertible securities; and subordinated debt and intermediate-term preferred stock.

The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of 8%, with at least 4% as Tier 1 capital. For the purpose of calculating these ratios: (i) Tier 2 capital is limited to no more than 100% of Tier 1 capital; and (ii) the aggregate amount of certain types of Tier 2 capital is limited. In addition, the risk-based capital regulations limit the allowance for loan losses includable as capital to 1.25% of total risk-weighted assets.

FDIC regulations and guidelines additionally specify that state non-member banks with significant exposure to declines in the economic value of their capital due to changes in interest rates may be required to maintain higher risk-based capital ratios. The Federal banking agencies, including the FDIC, have proposed a system for measuring and assessing the exposure of a bank’s net economic value to changes in interest rates. The Federal banking agencies, including the FDIC, have stated their intention to propose a rule establishing an explicit capital charge for interest rate risk based upon the level of a bank’s measured interest rate risk exposure after more experience has been gained with the proposed measurement process. Federal Reserve Board regulations do not specifically take into account interest rate risk in measuring the capital adequacy of bank holding companies.

The FDIC has issued regulations which classify state non-member banks by capital levels and which authorize the FDIC to take various prompt corrective actions to resolve the problems of any bank that fails to satisfy the capital standards. Under such regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has or exceeds the following capital levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of 5%. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite examination rating. A bank not meeting these criteria is treated as undercapitalized, significantly undercapitalized, or critically undercapitalized depending on the extent to which the bank’s capital levels are below these standards. A state non-member bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation will be subject to severe regulatory sanctions. As of December 31, 2002, the Bank was well capitalized as defined by the FDIC’s regulations.

Branching. Maryland law provides that, with the approval of the Commissioner, Maryland banks may establish branches within the State of Maryland without geographic restriction and may establish branches in other states by any means permitted by the laws of such state or by federal law. The Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by state banks, only in states that specifically allow for such branching. The Riegle-Neal Act also requires the appropriate federal banking agencies to prescribe regulations by June 1, 1997 that prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production. These regulations must include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to meet the credit needs of the communities that they serve.

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Dividend Limitations. Pursuant to the Maryland Financial Institutions Code, Maryland banks may only pay dividends from undivided profits or, with the prior approval of the Commissioner, their surplus in excess of 100% of required capital stock. The Maryland Financial Institutions Code further restricts the payment of dividends by prohibiting a Maryland bank from declaring a dividend on its shares of common stock until its surplus fund equals the amount of required capital stock or, if the surplus fund does not equal the amount of capital stock, in an amount in excess of 90% of net earnings. In addition, the Bank is prohibited by federal statute from paying dividends or making any other capital distribution that would cause the Bank to fail to meet its regulatory capital requirements. Further, the FDIC also has authority to prohibit the payment of dividends by a state non-member bank when it determines such payment to be an unsafe and unsound banking practice.

Deposit Insurance. The Bank is required to pay semi-annual assessments based on a percentage of its insured deposits to the FDIC for insurance of its deposits by the Bank Insurance Fund (“BIF”). Under the Federal Deposit Insurance Act, the FDIC is required to set semi-annual assessments for BIF-insured institutions to maintain the designated reserve ratio of the BIF at 1.25% of estimated insured deposits or at a higher percentage of estimated insured deposits that the FDIC determines to be justified for that year by circumstances raising a significant risk of substantial future losses to the BIF.

Under the risk-based deposit insurance assessment system adopted by the FDIC, the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC, which is determined by the institution’s capital level and supervisory evaluations. Based on the data reported to regulators for the date closest to the last day of the seventh month preceding the semi-annual assessment period, institutions are assigned to one of three capital groups — “well capitalized, adequately capitalized or undercapitalized.” Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution’s primary supervisory authority and such other information as the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance fund. Under the current assessment schedule, well-capitalized banks with the best supervisory ratings are not required to pay any premium for deposit insurance. All BIF-insured banks, however, will be required to begin paying an assessment to the FDIC in an amount equal to 2.12 basis points times their assessable deposits to help fund interest payments on certain bonds issued by the Financing Corporation, an agency established by the federal government to finance takeovers of insolvent thrifts.

Transactions With Affiliates. A state non-member bank or its subsidiaries may not engage in “covered transactions” with any one affiliate in an amount greater than 10% of such bank’s capital stock and surplus, and for all such transactions with all affiliates a state non-member bank is limited to an amount equal to 20% of capital stock and surplus. All such transactions must also be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. An affiliate of a state non-member bank is any company or entity which controls or is under common control with the state non-member bank and, for purposes of the aggregate limit on transactions with affiliates, any subsidiary that would be deemed a financial subsidiary of a national bank. In a holding company context, the parent holding company of a state non-member bank (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the state non-member bank. The BHCA further prohibits a depository institution from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain limited exceptions.

Loans To Directors, Executive Officers and Principal Stockholders. Loans to directors, executive officers and principal stockholders of a state non-member bank must be made on substantially the same terms as those prevailing for comparable transactions with persons who are not executive officers, directors, principal stockholders or employees of the Bank unless the loan is made pursuant to a compensation or benefit plan that is widely available to employees and does not favor insiders. Loans to any executive officer, director and principal stockholder together with all other outstanding loans to such person and affiliated interests generally may not exceed 15% of the bank’s unimpaired capital and surplus and all loans to such persons may not exceed the institution’s unimpaired capital and unimpaired surplus. Loans to directors, executive officers and principal stockholders, and their respective affiliates, in excess of the greater of $25,000 or 5% of capital and surplus (up to $500,000) must be approved in advance by a majority of the board of directors of the bank with any “interested” director not

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participating in the voting. State non-member banks are prohibited from paying the overdrafts of any of their executive officers or directors. In addition, loans to executive officers may not be made on terms more favorable than those afforded other borrowers and are restricted as to type, amount and terms of credit.

ITEM 2. PROPERTIES

The following table sets forth certain information with respect to the Bank’s offices:


	Year	Owned/		Approximate
	Opened	Leased	Book Value	Square Footage	Deposits

Main Office:
101 Crain Highway, S.E. Glen Burnie, MD 21061	1953	Owned	$927,025	10,000	$85,432,943
Branches:
Odenton 1405 Annapolis Road Odenton, MD 21113	1969	Owned	112,148	6,000	33,879,330
Riviera Beach 8707 Ft. Smallwood Road Pasadena, MD 21122	1973	Owned	179,988	2,500	29,122,617
Crownsville 1221 Generals Highway Crownsville, MD 21032	1979	Owned	355,499	3,000	41,461,329
Severn 811 Reece Road Severn, MD 21144	1984	Owned	285,445	2,500	23,694,659
South Crain 7984 Crain Highway Glen Burnie, MD 21061	1995	Leased	53,669	2,600	19,871,033
Severna Park 790 Ritchie Highway Severna Park, MD 21146	1999	Leased	31,809	1,250	6,958,081
Severna Park(1) 534 Ritchie Highway Severna Park, MD 21146	2002	Leased	—	2,184	—
Operations Centers:
106 Padfield Blvd. Glen Burnie, MD 21061	1991	Owned	1,160,727	16,200	N/A
103 Crain Highway, S.E. Glen Burnie, MD 21061	2000	Owned	303,636	3,727	N/A

(1) This property was under lease as of December 31, 2002 in preparation for a transfer of the 790 Ritchie Highway branch office to this new location. The transfer was completed in February, 2003.

At December 31, 2002, the Bank owned 2 foreclosed real estate properties with a total book value of $413,373. The Bank is holding these commercial properties for sale.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company and the Bank are involved in various legal actions relating to their business activities. At December 31, 2002, there were no actions to which the Company or the Bank was a party which involved claims for money damages exceeding 10% of the Company’s consolidated current assets in any one case or in any group of proceedings presenting in large degree the same legal and factual issues.

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ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information about the Company’s executive officers.


NAME	AGE		POSITIONS

F. William Kuethe, Jr.		70	President and Chief Executive Officer
John I. Young		65	Executive Vice President and Chief Operating Officer
Michael G. Livingston		49	Senior Vice President and Chief Lending Officer
John E. Porter		49	Senior Vice President and Chief Financial Officer

F. WILLIAM KUETHE, JR. has been President and Chief Executive Officer of the Company and the Bank since 1995. He also was director of the Bank from 1963 through 1989. He was President of Glen Burnie Mutual Savings Bank from 1960 through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker with banking experience from 1960 to present, at all levels. He is the father of Frederick W. Kuethe, III, a director of the Company.

JOHN I. YOUNG was appointed Executive Vice President and Chief Operating Officer of the Bank in December 1999 after joining the Bank as Senior Vice President in March 1999. Prior to joining the Bank, he had been president of Young-Harris, Inc., a financial industry consulting company since 1980. Mr. Young was president of American Bank Services Corp. from January 1977 to 1980 and was Senior Vice President of Operations of Equitable Trust Bank from 1958 until December 1976. Mr. Young is a member of the Independent Bankers Association of America, the Maryland Bankers Association and an associate member of the Robert Morris Association. He is also the President of the St. Andrew’s Society of Baltimore.

MICHAEL G. LIVINGSTON was appointed Senior Vice President in January 1998 and has been Chief Lending Officer of the Bank since 1996. He was Regional Vice President and commercial loan officer with Citizens Bank from March 1993 until April 1996.

JOHN E. PORTER was appointed Senior Vice President in January 1998. He has been Treasurer and Chief Financial Officer of the Company since 1995 and Vice President, Treasurer and Chief Financial Officer of the Bank since 1990. He has been Secretary/Treasurer of GBB since 1995.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Prior to June 22, 2001, the Company’s common stock, par value $1.00 per share (the “Common Stock”), was traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol “GLBZ”. Since that date, the Common Stock is traded on the Nasdaq SmallCap Market under the same symbol. As of February 11, 2003, there were 475 record holders of the Common Stock. The closing price for the Common Stock on that date was $19.48

The following table sets forth the high and low sales prices for the Common Stock for each full quarterly period during 2002 and 2001 as reported by Nasdaq and as available through the OTC market. The quotations represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. Also shown are dividends declared per share for these periods. Data has been adjusted to give retroactive effect to a three-for-two stock split effected through a stock dividend paid on June 21, 2001.


	2002						2001

Quarter Ended	High		Low		Dividends		High		Low		Dividends


March 31,	$	22.40	$	13.80	$	0.10	$	10.50	$	8.25	$	0.10
June 30,		20.90		18.70		0.10		14.00		10.00		0.10
September 30		18.49		16.65		0.12		17.20		12.25		0.10
December 31		17.93		16.27		0.18		15.00		13.15		0.15

A regular dividend of $0.12 and a bonus dividend of $0.06 were declared for stockholders’ of record on December 26, 2002, payable on January 7, 2003 and January 14, 2003, respectively.

The Company intends to pay dividends equal to forty percent (40%) of its profits for each quarter. However, dividends remain subject to declaration by the Board of Directors in its sole discretion and there can be no assurance that the Company will be legally or financially able to make such payments. Payment of dividends may be limited by federal and state regulations which impose general restrictions on a bank’s and bank holding company’s right to pay dividends (or to make loans or advances to affiliates which could be used to pay dividends). Generally, dividend payments are prohibited unless a bank or bank holding company has sufficient net (or retained) earnings and capital as determined by its regulators. See “Item 1. Business — Supervision and Regulation — Regulation of the Company — Dividends and Distributions” and “Item 1. Business — Supervision and Regulation — Regulation of the Bank - Dividend Limitations.” The Company does not believe that those restrictions will materially limit its ability to pay dividends.

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents consolidated selected financial data for the Company and its subsidiaries for each of the periods indicated. Dividends and earnings per share have been adjusted to give retroactive effect to a six-for-five stock split effected through a stock dividend paid on January 11, 2000 and a three-for-two stock split effected through a stock dividend paid on June 21, 2001.


		Year Ended December 31,

		2002			2001			2000			1999			1998

		(Dollars In Thousand Except Per Share Data)
Operations Data:
Net Interest Income		$	11,368		$	10,674		$	10,801		$	9,925		$	9,794
Provision for Credit Losses			—			(150	)		—			300			(500	)
Other Income			2,485			1,821			3,658			2,828			3,122
Other Expense			9,957			10,332			10,746			9,822			11,776
Net Income			2,811			1,725			2,275			1,455			833

Share Data:
Basic Net Income (Loss) Per Share		$	1.68		$	1.04		$	1.38		$	0.88		$	0.46
Diluted Net Income (Loss) Per Share			1.68			1.04			1.38			0.88			0.46
Cash Dividends Declared Per Common Share			0.50			0.45			0.449			0.28			0.28
Weighted Average Common Shares Outstanding:
	Basic		1,668,335			1,656,904			1,652,001			1,636,275			1,804,472
	Diluted		1,671,155			1,656,904			1,652,001			1,636,275			1,804,834

Financial Condition Data:
Total Assets		$	279,406		$	263,362		$	239,211		$	213,439		$	217,571
Loans Receivable, Net			158,287			164,569			162,373			151,107			125,501
Total Deposits			241,420			229,307			205,968			194,090			199,611
Long Term Borrowings			7,251			7,275			7,297			—			—
Junior Subordinated Debentures			5,155			5,155			5,155			—			—
Total Stockholders’ Equity			21,789			17,862			17,181			15,102			14,169

Performance Ratios:
Return on Average Assets			1.05	%		0.69	%		1.02	%		0.66	%		0.38	%
Return on Average Equity			14.49			9.77			12.94			9.97			4.54
Net Interest Margin (1)			4.76			4.80			5.27			4.96			4.94
Dividend Payout Ratio			29.70			43.27			32.61			43.48			75.75

Capital Ratios:
Average Equity to Average Assets			9.03	%		9.08	%		8.59	%		6.67	%		8.40	%
Leverage Ratio			9.07			8.79			9.30			6.87			5.96
Total Risk-Based Capital Ratio			15.28			13.92			13.99			10.80			10.50

Asset Quality Ratios:
Allowance for Credit Losses to Gross Loans			1.56	%		1.75	%		2.04	%		1.89	%		2.21	%
Non-accrual and Past Due Loans to Gross Loans			0.36	%		0.39	%		0.24	%		0.68	%		1.36	%
Allowance for Credit Losses to Non- Accrual and Past Due Loans			429.13	%		445.30	%		837.87	%		276.97	%		162.99	%
Net Loan Charge-offs (Recoveries) to Average Loans			0.26	%		0.18	%		(0.28	)%		0.15	%		0.67	%

(1) Presented on a tax-equivalent basis

-19-

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

During 2002, the Company continued many favorable operating trends. Most notably, the Bank’s net income grew from $1,725,000 in 2001 to $2,811,000 in 2002, a 62.9% increase in net income. In addition, 2002 saw significant growth in both the Bank’s deposits and investment portfolio. Deposit growth in 2002 was strong with increases of $8,736,020 in interest bearing deposits and $3,376,869 in non-interest bearing demand deposits. Investment portfolio growth was due primarily to the increase in the Bank’s investment in state and municipal bonds which had grown to $31,899,000 by the end of 2002.

Forward-Looking Statements

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including regional and national economic conditions, unfavorable judicial decisions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

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

Comparison of Results of Operations for the Years Ended December 31, 2002, 2001 and 2000

General. For the year ended December 31, 2002, the Company reported consolidated net income of $2,811,083 ($1.68 basic and diluted earnings per share) compared to consolidated net income of $1,725,236 ($1.04 basic and diluted earnings per share) for the year ended December 31, 2001 and consolidated net income of $2,274,866 ($1.38 basic and diluted earnings per share) for the year ended December 31, 2000. (All per share amounts throughout this report have been adjusted to give retroactive effect to a six-for-five stock split effected through a stock dividend paid on January 11, 2000 and a three-for-two stock split effected through a stock dividend paid on June 21, 2001.) Income for 2000 included a $490,000 gain on foreclosed real estate and a non-recurring settlement gain of $1,600,126 on the termination of the Bank’s pension plan. Net income for 2000, adjusted to remove the effects of these items, net of taxes, was $991,947. Income for 2002 included a $763,644 curtailment gain on a post retirement benefit plan amendment. Net income for 2002, adjusted to remove the effects of this item, net of taxes, was $2,342,358.

Net Interest Income. The primary component of the Company’s net income is its net interest income, which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them. Net interest income is determined by the spread between the yields earned on the Company’s interest-earning assets and the rates paid on interest-bearing liabilities as well as the relative amounts of such assets and liabilities. Net interest income, divided by average interest-earning assets, represents the Company’s net interest margin.

Consolidated net interest income for the year ended December 31, 2002 was $11,368,150 compared to $10,673,730 for the year ended December 31, 2001 and $10,801,098 for the year ended December 31, 2000. The $694,420 increase for the most recent year was due to a decrease in the interest expense on deposits combined with an increase in interest income on state and municipal securities, partially offset by a decrease in interest income on loans. The $127,368 decrease in net interest income for 2001 as compared to 2000 was due to a decline in interest income on loans combined with an increase in interest expense for long-term borrowings and junior subordinated debentures, partially offset by increased interest income on state and municipal securities and corporate trust preferred securities. Since a large portion of the Company’s portfolio is invested in state and municipal securities,

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which are tax advantaged, the after tax net interest income for 2002 was $11,886,144, a $827,939 or 7.49% increase over the $11,058,205 after tax net interest income for 2001. The after tax net interest income for 2001 was $11,058,205, compared to $10,884,430 for 2000, an increase of $173,775 or 1.60%.

Interest expense decreased from $6,533,274 in 2001 to $5,202,132 in 2002, a $1,331,142, or 20.4% decrease, primarily due to decreases in interest rates. Interest expense increased from $5,901,617 in 2000 to $6,533,274 in 2001, a $631,657 or 10.7% increase, primarily due to the trust preferred issuance and the FHLB long-term borrowing in September, 2000. Net interest margin for the year ended December 31, 2002 was 4.76% compared to 4.80% and 5.27% for the years ended December 31, 2001 and 2000, respectively.

The following table allocates changes in income and expense attributable to the Company’s interest-earning assets and interest-bearing liabilities for the periods indicated between changes due to changes in rate and changes in volume. Changes due to rate/volume are allocated to changes due to volume.


			Year Ended December 31,

			2002			VS.			2001			2001			VS.			2000

						Change Due To:									Change Due To:

			Increase/									Increase/
			Decrease			Rate			Volume			Decrease			Rate			Volume

			(In Thousands)
ASSETS
Interest-earning assets:
	Federal funds sold		$	(192	)	$	(157	)	$	(35	)	$	85		$	(139	)	$	224

	Interest-bearing deposits			(185	)		(18	)		(167	)		185			(34	)		219

Investment securities:
	U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities			75			(717	)		792			(296	)		(126	)		(170	)
Obligations of states and political subdivisions(1)				616			(183	)		799			579			(52	)		631
All other investment securities				17			(78	)		95			242			43			199

		Total investment securities		708			(978	)		1,686			525			(135	)		660

Loans, net of unearned income:
	Demand, time and lease			(78	)		(127	)		49			(39	)		(116	)		77
	Mortgage and construction			(74	)		(359	)		285			(745	)		(607	)		(138	)
	Installment and credit card			(685	)		(239	)		(446	)		493			114			379

		Total gross loans(2)		(837	)		(725	)		(112	)		(291	)		(609	)		318

	Allowance for credit losses			—			—			—			—			—			—

		Total net loans		(837	)		(725	)		(112	)		(291	)		(609	)		318

Total interest-earning assets			$	(506	)	$	(1,878	)	$	1,372		$	504		$	(917	)	$	1,421


LIABILITIES:
Interest-bearing deposits:
	Savings and NOW		$	(255	)	$	(323	)	$	68		$	(430	)	$	(438	)	$	8
	Money market			(171	)		(190	)		19			(93	)		(140	)		47
	Other time deposits			(889	)		(1,147	)		258			488			(36	)		524

		Total interest-bearing deposits		(1,315	)		(1,160	)		345			(35	)		(614	)		579
Non-interest-bearing deposits				—			—			—			—			—			—
Borrowed funds				(17	)		(32	)		15			666			382			284

Total interest-bearing liabilities			$	(1,332	)	$	(1,692	)	$	360		$	631		$	(232	)	$	863

(1)		Tax equivalent basis.

(2)		Non-accrual loans included in average balances.

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The following table provides information for the designated periods with respect to the average balances, income and expense and annualized yields and costs associated with various categories of interest-earning assets and interest-bearing liabilities.


				Year Ended December 31,

				2002							2001							2000

				Average				Yield/			Average				Yield/			Average				Yield/
				Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost

				(Dollars In Thousands)
ASSETS:
Interest-earning assets:
	Federal funds sold			$	5,919	$	94		1.59	%	$	6,733	$	286		4.25	%	$	3,185	$	201		6.31	%
	Interest-bearing deposits				1,782		55		3.09			5,878		240		4.08			472		22		4.66


Investment securities:
	U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities				52,287		2,517		4.81			39,491		2,442		6.18			42,098		2,738		6.50
Obligations of states and political subdivisions(1)					25,402		1,741		6.85			13,761		1,125		8.18			2,766		243		8.79
All other investment securities					4,935		344		6.97			3,833		327		8.56			1,587		118		7.43

		Total investment securities			82,624		4,602		5.57			57,085		3,894		6.82			46,451		3,099		6.67


Loans, net of unearned income:
	Demand, time and lease				5,066		348		6.87			4,542		426		9.38			3,894		465		11.94
	Mortgage and construction				83,444		6,342		7.60			79,873		6,416		8.03			81,427		7,161		8.79
	Installment and credit card				73,851		5,647		7.65			79,416		6,332		7.97			74,489		5,839		7.83

		Total gross loans(2)			162,361		12,337		7.60			163,831		13,174		8.04			159,810		13,465		8.42
		Allowance for credit losses			2,767							3,242							3,260

		Total net loans			159,594		12,337		7.59			160,589		13,174		8.20			156,550		13,465		8.60

Total interest-earning assets					249,919		17,088		6.84			230,285		17,594		7.64			206,658		16,787		8.12

Cash and due from banks					8,921							9,963							6,734
Other assets					10,199							9,124							9,962

			Total assets	$	269,039						$	249,372						$	223,354


LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing deposits:
	Savings and NOW			$	67,926		485		0.71	%	$	61,992	$	740		1.19	%	$	62,257	$	1,188		1.90	%
	Money market				19,770		186		0.94			18,756		357		1.90			16,919		450		2.65
	Other time deposits				88,304		3,542		4.01			83,498		4,431		5.31			73,292		3,924		5.35

		Total interest-bearing deposits			176,000		4,213		2.39			164,246		5,528		3.37			152,468		5,562		3.64
Borrowed funds					13,172		989		7.51			12,981		1,006		7.75			1,880		339		4.81

		Total interest-bearing liabilities			189,172		5,202		2.75			177,227		6,534		3.69			154,348		5,902		3.82


Non-interest-bearing deposits					58,351							52,252							48,071
Other liabilities					1,389							2,240							3,348
Stockholders’ equity					20,127							17,653							17,587

Total liabilities and equity				$	269,039						$	249,372						$	223,354

Net interest income						$	11,886						$	11,060						$	10,885

Net interest spread									4.09	%						3.95	%						4.30	%

Net interest margin									4.76	%						4.80	%						5.27	%

		1 Tax equivalent basis. The incremental tax rate applied was 30.73% for 2002 and 34.38% for 2001.

		2 Non-accrual loans included in average balance.

Provision For Credit Losses. During the year ended December 31, 2002, the Company made no provision for credit losses compared to a negative $150,000 provision during the year ended December 31, 2001 and no provision during the year ended December 31, 2000. At December 31, 2002, the allowance for loan losses equaled 429.13% of non-accrual and past due loans compared to 445.30% and 837.87% at December 31, 2001 and 2000, respectively. During the year ended December 31, 2002, the Company recorded net chargeoffs of $423,755 compared to $296,360 and $463,184 in net charge-offs during the years ended December 31, 2001 and 2000, respectively.

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Other Income. Other income increased from $1,821,138 in 2001 to $2,484,725 in 2002, a $663,587, or 36.4% increase. The increase was largely due to the non-recurring curtailment gain of $763,644 on a post retirement benefit plan amendment partially offset by a decrease in securities gains realized, income from service charges on deposit accounts and other fees and commissions also increased. Other income decreased from $3,657,878 in 2000 to $1,821,138 in 2001, a $1,836,740, or 50.2% decrease. The decrease was largely due to a $490,000 gain on foreclosed real estate and a non-recurring settlement gain of $1,600,126 on the termination of the Bank’s pension plan in 2000 which were not present in 2001, partially offset by a gain on investment securities of $273,003 in 2001.

Other Expenses. Other expenses decreased from $10,332,093 in 2001 to $9,956,847 in 2002, a $375,246 or 3.6% decrease. This decrease was primarily due to a decline in other operating expenses and employee benefit costs, which were partially offset by an increase in salaries and wages. Other expenses decreased from $10,746,049 in 2000 to $10,332,093 in 2001, a $413,956 or 3.85% decrease. This decrease was primarily due to a decline in employee benefit expense, which relates to the termination of the Bank’s defined benefit retirement plan.

Income Taxes. During the year ended December 31, 2002, the Company recorded income tax expense of $1,084,945, compared to income tax expense of $587,539 for the year ended December 31, 2001. The increase in income tax expense for 2002 as compared to 2001 was primarily due to the curtailment gain on post retirement benefits and an increase in net interest income partially offset by the tax benefits from the Companies increased investment in state and municipal securities. During the year ended December 31, 2001, the Company recorded income tax expense of $587,539, compared to income tax expense of $1,438,061 for the year ended December 31, 2000. Part of the 2000 period income tax expense was due to nonrecurring income realized in 2000 and was offset, in part, by the tax benefits from the Company’s investments in state and municipal securities. The decreased income tax expense for 2001 was due to a decline in pretax income and increased investments in state and municipal securities.

Comparison of Financial Condition at December 31, 2002, 2001 and 2000

The Company’s total assets increased to $279,406,206 at December 31, 2002 from $263,361,726 at December 31, 2001. The increase in assets during the year ended December 31, 2002 is a result primarily of growth in investment securities and other assets partially offset by a decrease in the loan portfolio. The Company’s total assets increased to $263,361,726 at December 31, 2001 from $239,211,180 at December 31, 2000. The increase in assets during the year ended December 31, 2001 is a result primarily of growth in the investment portfolio.

The Company’s loan portfolio declined to $158,286,746 at December 31, 2002 compared to $164,569,252 at December 31, 2001 and $162,373,731 at December 31, 2000. The decline in the loan portfolio during the 2002 period is attributable almost entirely to a decrease in the indirect automobile portfolio. The growth in the loan portfolio during the 2001 period is primarily attributable to growth in residential mortgages, partially offset by a decrease in commercial mortgages and indirect automobile lending. The decrease in indirect automobile lending can be at least partially attributed to zero percent financing offered by automobile manufacturers since September 2001.

During 2002, the Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $91,860,051, a $19,795,130 or 27.5%, increase from $72,064,921 at December 31, 2001. This increase is primarily attributable to growth in mortgage backed and state and municipal securities, partially offset by a decline in U.S. Government agency securities. During 2001, the Company’s total investment securities portfolio totaled $72,064,921, a $19,470,023 or 37%, increase from $52,594,898 at December 31, 2000. This increase was primarily attributable to the use of increased deposits to increase the Bank’s investment in mortgage backed securities and state, county and municipal securities, partially offset by a decrease in U.S. governmental agency securities.

Deposits as of December 31, 2002 totaled $241,419,607, an increase of $12,112,890, or 5.3%, from the $229,306,717 total as of December 31, 2001. The $229,306,717 in total deposits as of December 31, 2001 was a $23,338,380 or 11.3% increase from the $205,968,337 total deposits as of December 31, 2000. Demand deposits as of December 31, 2002 totaled $59,061,977, a $3,376,869 or 6.1% increase from $55,685,108 at December 31, 2001. NOW and Super NOW accounts as of December 31, 2002 increased by $1,675,470 or 7.5% from their 2001 level to $24,071,173. Money market accounts decreased by $736,522 or 3.6%, from their 2001 level to total $19,889,727

-23-

December 31, 2002. Savings deposits increased by $5,271,207 or 12.4% from their 2001 level, to $47,616,167 at December 31, 2002. Time deposits over $100,000 totaled $17,698,559 on December 31, 2002, an increase of $63,093, or 0.3% from December 31, 2001. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $73,082,004 on December 31, 2002, a $2,462,772 or a 3.5%, increase from December 31, 2001.

Total stockholders’ equity as of December 31, 2002 increased by $3,927,801 or 22.0% from the 2001 period. The increase was attributed to an increase in retained earnings and accumulated other comprehensive income, net of tax. Total stockholders’ equity as of December 31, 2001 increased by $680,838 or 3.96% from the 2000 period. The increase was attributed to an increase in outstanding common stock and retained earnings, offset by a decline in accumulated other comprehensive income, net of tax.

Asset/Liability Management

Net interest income, the primary component of the Company’s net income, arises from the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative amounts of such assets and liabilities. The Company manages its assets and liabilities by coordinating the levels of and gap between interest-rate sensitive assets and liabilities to minimize changes in net interest income and in the economic value of its equity despite changes in market interest rates. The Bank’s Asset/Liability and Risk Management Committee meets on a monthly basis to monitor compliance with the Board’s objectives. Among other tools used by the Asset/Liability and Risk Management Committee to monitor interest rate risk is a “gap” report which measures the dollar difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing within a given time period. Generally, during a period of rising interest rates, a negative gap position would adversely affect net interest income, while a positive gap would result in an increase in net interest income, while, conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income.

During recent periods, the Company has maintained a negative gap position that has benefited earnings as interest rates have fallen. In order to reduce its negative gap position, the Company has recently begun investing in mortgage-backed and other government securities which have rates that adjust to market rates. The Company also maintains a significant portfolio of available-for-sale securities that can be quickly converted to more liquid assets if needed.

-24-

The following table sets forth the Bank’s interest-rate sensitivity at December 31, 2002.


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

			(Dollars In Thousands)
Assets:
	Cash and due from banks		$	—		$	—		$	—		$	—	$	11,297
	Federal funds and overnight deposits			4,445			—			—			—
	Securities			100			1,299			12,434			78,730		92,663
	Loans			12,199			2,665			75,823			70,115		160,802
	Fixed Assets			—			—			—			—		4,143
	Other Assets			—			—			—			—		5,123


		Total assets	$	16,744		$	3,964		$	88,257		$	148,945	$	278,473


Liabilities:
	Demand deposit accounts		$	—		$	—		$	—		$	—	$	59,062
	NOW accounts			24,071			—			—			—		24,071
	Money market deposit accounts			19,890			—			—			—		19,890
	Savings accounts			47,616			1,428			—			—		49,044
	IRA accounts			2,319			6,372			11,410			1,689		21,790
	Certificates of deposit			15,888			26,739			24,459			476		67,563
	Other liabilities			—			—			—			—		10,109
	Junior Subordinated Debenture			—			—			—			—		5,155
		Stockholders’ equity		—			—			—			—		21,782


		Total liabilities and Stockholders’ equity	$	109,784		$	34,539		$	35,869		$	2,165	$	278,473


GAP			$	(93,040	)	$	(30,575	)	$	52,388		$	146,780
Cumulative GAP				(93,040	)		(123,615	)		(71,227	)		75,553
Cumulative GAP as a % of total assets				(33.41%	)		(44.39%	)		(25.58%	)		27.13%

The foregoing analysis assumes that the Bank’s assets and liabilities move with rates at their earliest repricing opportunities based on final maturity. Mortgage-backed securities are assumed to mature during the period in which they are estimated to prepay and it is assumed that loans and other securities are not called prior to maturity. Certificates of deposit and IRA accounts are presumed to reprice at maturity. NOW savings accounts are assumed to reprice within three months although it is the Company’s experience that such accounts may be less sensitive to changes in market rates.

Liquidity and Capital Resources

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

The Bank’s principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans, interest received on investment securities and proceeds from maturing investment securities. Its principal funding commitments are for the origination or purchase of loans and the payment of maturing deposits. Deposits are considered the primary source of funds supporting the Bank’s lending and investment activities. The Bank also uses borrowings from the FHLB of Atlanta to supplement deposits, residential and small business lending, and to meet specific and anticipated needs.

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold and money market mutual funds. The levels of such assets are dependent on the Bank’s operating financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

Cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of December 31, 2002, totaled $15,742,088, a decrease of $2,478,740 or 13.6%, from the December 31, 2001 total of $18,220,828. Most of this decrease was due to a decline in deposits in other financial institutions and a reduction in federal funds sold.

-25-

As of December 31, 2002, the Bank was permitted to draw on a $33.4 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 its portfolio of U.S. Government and Agency Securities. As of December 31, 2002, a $7 million long-term convertible advance was outstanding under this line. In addition the Bank has a secured line of credit in the amount of $5 million from another commercial bank on which it has not drawn. Furthermore, on September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a Connecticut statutory trust wholly owned by the Company. The Trust, in turn, issued $5,000,000 of its 10.6% capital securities to institutional investors. The debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010. As of December 31, 2002, the full $5,155,000 was outstanding.

Federal banking regulations require the Company and the Bank to maintain specified levels of capital. At December 31, 2002, the Company was in compliance with these requirements with a leverage ratio of 9.1%, a Tier 1 risk-based capital ratio of 14.0% and total risk-based capital ratio of 15.3%. At December 31, 2002, the Bank met the criteria for designation as a well capitalized depository institution under FDIC regulations.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary in mature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Critical Accounting Policies

The Company’s accounting policies are more fully described in Note 1 of the Notes to the Consolidated Financial Statements, starting on page F-8 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 is management’s best estimate of the probable incurred credit losses in the lending portfolio. The Company performs periodic and systematic detailed reviews of its loan portfolio to identify and estimate the inherent risks and assess overall collectibility. These reviews include loss forecast modeling based on historical experiences and current events and conditions as well as individual loan valuations. In each analysis, numerous portfolio and economic assumptions are made.

Accrued Taxes. Management estimates income tax expense based on the amount it expects to owe various tax authorities. Income taxes are discussed in more detail in Note 9 to the consolidated financial statements. 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.

-26-

Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullified Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement changes the current practice of accounting for these transactions by changing the timing of the recognition of exit or disposal costs and generally requires such costs to be recognized when the liability is incurred rather than on the date the entity commits to a plan of exit or disposal. It also requires such liabilities to be measured at fair value. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002. In management’s opinion, the Company and the Bank are currently in compliance with all applicable provisions of this pronouncement (See Note 5 to the Company’s Consolidated Financial Statements).

In October 2002, FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, an amendment of FASB Statement No. 72 and 144 and FASB Interpretation No. 9 (SFAS 147). This statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FASB No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17, When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounting for by the Purchase Method. This statement also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets (such as depositor and borrower relationship intangible assets and credit cardholder intangible assets) including those acquired in transactions between two or more mutual enterprises. In management’s opinion, the Company and the Bank are currently in compliance with all applicable provisions of this pronouncement.

In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148). This statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transaction for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock based employee compensation. Finally this statement amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting (APB 28), to require disclosure about effects in interim financial information.

Certain of the amendments to SFAS 123 contained in SFAS 148 are effective for financial statements for fiscal years ending after December 15, 2002, and others are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Management is currently considering the impact of the change to the fair value based method of accounting for stock-based employee compensation in the 2003 financial statements. In management’s opinion, the Company and the Bank are currently in compliance with all applicable disclosure provisions of this pronouncement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 16(a) of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Proposal I — Election of Directors” in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 2003 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference to the sections captioned “Voting Securities and Principal Holders Thereof” and “Securities Ownership of Management” in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference to the section captioned “Transactions with Management” in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

Based on the evaluation of the Company’s disclosure controls and procedures by F. William Kuethe, Jr., the Company’s Chief Executive Officer, and John E. Porter, the Company’s Chief Financial Officer, as of a date within 90 days of the filing date of this annual report, such officers have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information 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 period specified by the Securities and Exchange Commission’s rules and forms.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section captioned “Authorization for Appointment of Auditors – Disclosure of Independent Auditor Fees” in the Proxy Statement.

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PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements.

		Page
Independent Auditors’ Report		F-1
Consolidated Balance Sheets as of December 31, 2002, 2001 and 2000		F-2
Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000		F-3
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000		F-4
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 2001 and 2000		F-6
Notes to Consolidated Financial Statements		F-8

(a) 2. Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.

(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.


Exhibit No.

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		By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998, 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)
4.1		Rights Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and restated as of December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
10.1		Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No.33-62280)
10.2		The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)
10.3		Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
10.4		The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047)
21		Subsidiaries of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
23		Consent of Trice Geary & Myers LLC
99.1		Certification Required Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K.

None.

-29-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GLEN BURNIE BANCORP

March 24, 2003		By: /s/ F. William Kuethe, Jr. F. William Kuethe, Jr. President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ F. William Kuethe, Jr. F. William Kuethe, Jr.	President, Chief Executive Officer and Director	March 24, 2003

__________________ John I. Young	Executive Vice President, Chief Operating Officer and Director	March ______, 2003

/s/ John E. Porter John E. Porter	Senior Vice President and Chief Financial Officer	March 24, 2003

/s/ John E. Demyan John E. Demyan	Chairman of the Board and Director	March 24, 2003

__________________ Theodore L. Bertier, Jr.	Director	March ______, 2003

/s/ Shirley E. Boyer Shirley E. Boyer	Director	March 24, 2003

/s/ Thomas Clocker Thomas Clocker	Director	March 24, 2003

/s/ Alan E. Hahn Alan E. Hahn	Director	March 24, 2003

/s/ Charles L. Hein Charles L. Hein	Director	March 24, 2003

/s/ F. W. Kuethe, III F. W. Kuethe, III	Director	March 24, 2003

-30-


/s/ William N. Scherer, Sr. William N. Scherer, Sr.	Director	March 24, 2003

/s/ Karen B. Thorwarth Karen B. Thorwarth	Director	March 24, 2003

/s/ Mary Lou Wilcox Mary Lou Wilcox	Director	March 24, 2003

-31-

CERTIFICATION

I, F. William Kuethe, Jr., certify that:

1. I have reviewed this Annual Report on Form 10-K of Glen Burnie Bancorp;

2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report;

4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

	b)		evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and

	c)		presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6. The Registrant’s other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: March 24, 2003		/s/ F. William Kuethe, Jr. F. William Kuethe, Jr. Chief Executive Officer

-32-

CERTIFICATION

I, John E. Porter, certify that:

1. I have reviewed this Annual Report on Form 10-K of Glen Burnie Bancorp;

	d)		designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

	e)		evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and

	f)		presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	c)		all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

	d)		any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and


Date: March 24, 2003		/s/ John E. Porter John E. Porter Chief Financial Officer

-33-

(TGMlogo)

INDEPENDENT AUDITORS’ REPORT

The Board of Directors
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland

We have audited the accompanying consolidated balance sheets of Glen Burnie Bancorp and subsidiaries as of December 31, 2002, 2001, and 2000, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Glen Burnie Bancorp and subsidiaries as of December 31, 2002, 2001, and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

(Signature Logo)

(Address Logo)

F-1

Glen Burnie Bancorp and Subsidiaries
Consolidated Balance Sheets



December 31,			2002		2001			2000

Assets
Cash and due from banks			$	11,297,175	$	10,888,085		$	9,559,329
Interest-bearing deposits in other financial institutions				41,335		1,879,444			50,947
Federal funds sold				4,403,578		5,453,299			5,898,863

	Cash and cash equivalents			15,742,088		18,220,828			15,509,139
Certificates of deposit in other financial institutions				100,000		100,000			100,000
Investment securities available for sale, at fair value				84,657,682		55,547,998			21,308,961
Investment securities held to maturity (fair value 2002 $7,615,702; 2001 $16,881,451; 2000 $31,019,121)				7,202,369		16,516,923			31,285,937
Federal Home Loan Bank stock, at cost				703,200		652,300			652,300
Common stock in the Glen Burnie Statutory Trust I				155,000		155,000			155,000
Ground rents, at cost				249,900		249,900			249,900
Loans, less allowance for credit losses 2002 $2,514,700; 2001 $2,938,455; 2000 $3,384,815				158,286,746		164,569,252			162,373,731
Premises and equipment, at cost, less accumulated depreciation				4,143,429		3,886,631			4,268,403
Accrued interest receivable on loans and investment securities				1,547,511		1,527,018			1,681,219
Deferred income tax benefits				—		427,367			126,933
Other real estate owned				413,373		420,162			484,148
Other assets				6,204,908		1,088,347			1,015,509

		Total assets	$	279,406,206	$	263,361,726		$	239,211,180

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
	Noninterest-bearing		$	59,061,977	$	55,685,108		$	52,962,491
	Interest-bearing			182,357,630		173,621,610			153,005,846

		Total deposits		241,419,607		229,306,718			205,968,337
Short-term borrowings				837,074		882,408			487,978
Long-term borrowings				7,251,489		7,274,791			7,296,523
Dividends payable				236,291		195,333			213,345
Accrued interest payable on deposits				111,398		155,174			195,166
Accrued interest payable on junior subordinated debentures				171,518		171,518			166,986
Deferred income tax liabilities				915,314		—			—
Other liabilities				1,519,129		2,359,199			2,547,098

		Total liabilities		252,461,820		240,345,141			216,875,433

Commitments and contingencies
Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures				5,155,000		5,155,000			5,155,000

Stockholders’ equity:
Common stock, par value $1, authorized 15,000,000 shares; issued and outstanding 2002 1,677,173 shares; 2001 1,663,560 shares; 2000 1,110,049 shares				1,677,173		1,663,560			1,110,049
Surplus				10,637,578		10,390,511			10,373,549
Retained earnings				7,946,747		5,970,537			5,544,305
Accumulated other comprehensive income (loss), net of tax				1,527,888		(163,023	)		152,844

		Total stockholders’ equity		21,789,386		17,861,585			17,180,747

		Total liabilities and stockholders’ equity	$	279,406,206	$	263,361,726		$	239,211,180

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-2

Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Income



Years Ended December 31,			2002		2001			2000

Interest income on:
	Loans, including fees		$	12,336,820	$	13,173,325		$	13,464,699
	U.S. Treasury securities			59,818		94,336			129,283
	U.S. Government agency securities			2,457,585		2,347,049			2,608,332
	State and municipal securities			1,206,798		738,330			159,053
	Corporate trust preferred securities			341,094		310,484			80,897
	Federal funds sold			93,735		286,176			200,978
	Other			74,432		257,304			59,473

		Total interest income		16,570,282		17,207,004			16,702,715

Interest expense on:
	Deposits			4,212,826		5,527,610			5,562,428
	Short-term borrowings			6,446		17,885			66,513
	Long-term borrowings			436,430		436,817			105,690
	Junior subordinated debentures			546,430		550,962			166,986

		Total interest expense		5,202,132		6,533,274			5,901,617

		Net interest income		11,368,150		10,673,730			10,801,098
Provision for credit losses				—		(150,000	)		—

		Net interest income after provision for credit losses		11,368,150		10,823,730			10,801,098

Other income:
	Service charges on deposit accounts			917,816		860,681			859,734
	Other fees and commissions			750,385		687,454			734,255
	Gains (losses) on investment securities			52,880		273,003			(26,237	)
	Gain on sale of other real estate owned			—		—			490,000
	Curtailment gain on post-retirement benefits plan amendment			763,644		—			—
	Settlement gain on pension plan termination			—		—			1,600,126

		Total other income		2,484,725		1,821,138			3,657,878

Other expenses:
	Salaries and wages			4,165,994		4,083,115			4,085,541
	Employee benefits			1,614,284		1,769,209			2,131,481
	Occupancy			589,289		577,440			615,201
	Furniture and equipment			854,059		889,924			871,655
	Other expenses			2,733,221		3,012,405			3,042,171

		Total other expenses		9,956,847		10,332,093			10,746,049

Income before income taxes				3,896,028		2,312,775			3,712,927
Federal and state income tax expense				1,084,945		587,539			1,438,061

Net income			$	2,811,083	$	1,725,236		$	2,274,866

Basic and diluted earnings per share of common stock			$	1.68	$	1.04		$	1.38

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-3

Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income



Years Ended December 31,		2002			2001			2000

Net income		$	2,811,083		$	1,725,236		$	2,274,866

Other comprehensive income (loss), net of tax
Unrealized holding gains (losses) arising during the period (net of deferred taxes (benefits) 2002 $1,081,095; 2001 ($98,834); 2000 $182,437)			1,718,218			(157,081	)		290,199
Reclassification adjustment for (gains) losses included in net income (net of deferred taxes (benefits) 2002 $17,182; 2001 $99,907; 2000 ($10,128))			(27,307	)		(158,786	)		16,110

	Total other comprehensive income (loss)		1,690,911			(315,867	)		306,309

Comprehensive income		$	4,501,994		$	1,409,369		$	2,581,175

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-4

Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Years Ended December 31, 2002, 2001, and 2000


													Accumulated
													Other			Total
	Common Stock									Retained			Comprehensive			Stockholders'
	Shares			Par Value			Surplus			Earnings			Income (Loss)			Equity

Balances, December 31, 1999		1,093,496		$	1,093,496		$	10,149,247		$	4,013,171		$	(153,465	)	$	15,102,449
Net income		—			—			—			2,274,866			—			2,274,866
Shares issued under stockholder stock purchase plan		2,659			2,659			47,330			—			—			49,989
Cash dividends, $.449 per share		—			—			—			(743,732	)		—			(743,732	)
Dividends reinvested under dividend reinvestment plan		13,894			13,894			187,861			—			—			201,755
Expired stock options		—			—			(10,889	)		—			—			(10,889	)
Other comprehensive income, net of tax		—			—			—			—			306,309			306,309

Balances, December 31, 2000		1,110,049			1,110,049			10,373,549			5,544,305			152,844			17,180,747

Net income		—			—			—			1,725,236			—			1,725,236
Shares repurchased and retired		(10,000	)		(10,000	)		(138,750	)		—			—			(148,750	)
Cash dividends, $.45 per share		—			—			—			(747,807	)		—			(747,807	)
Dividends reinvested under dividend reinvestment plan		12,314			12,314			155,712			—			—			168,026
Stock split effected in form of 50% stock dividend		551,197			551,197			—			(551,197	)		—			—
Other comprehensive loss, net of tax		—			—			—			—			(315,867	)		(315,867	)

Balances, December 31, 2001		1,663,560			1,663,560			10,390,511			5,970,537			(163,023	)		17,861,585

Net income		—			—			—			2,811,083			—			2,811,083
Cash dividends, $.50 per share		—			—			—			(834,873	)		—			(834,873	)
Dividends reinvested under dividend reinvestment plan		10,548			10,548			169,522			—			—			180,070
Shares issued under employee stock purchase plan		3,065			3,065			39,140			—			—			42,205
Vested stock options		—			—			38,405			—			—			38,405
Other comprehensive income, net of tax		—			—			—			—			1,690,911			1,690,911

Balances, December 31, 2002		1,677,173		$	1,677,173		$	10,637,578		$	7,946,747		$	1,527,888		$	21,789,386

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-5

Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Cash Flows



Years Ended December 31,				2002			2001			2000

Cash flows from operating activities:
	Net income			$	2,811,083		$	1,725,236		$	2,274,866
	Adjustments to reconcile net income to net cash provided by operating activities
	Depreciation, amortization, and accretion				1,241,007			805,988			744,678
		Compensation expense (benefit) from vested stock options, net			38,405			—			(10,889	)
		Provision for credit losses			—			(150,000	)		—
		Losses on other real estate owned			6,789			63,986			27,679
		Deferred income taxes (benefits), net			278,768			(101,691	)		(73,725	)
		Losses (gains) on disposals of assets, net			14,429			(259,135	)		(255,803	)
		Income on investment in life insurance			(24,964	)		—			—
		Changes in assets and liabilities:
			(Increase) decrease in accrued interest receivable		(20,493	)		154,201			(402,152	)
			(Increase) decrease in other assets		(209,838	)		(59,006	)		2,020,004
			(Decrease) increase in accrued interest payable		(43,776	)		(35,460	)		209,597
			(Decrease) increase in other liabilities		(840,072	)		(167,514	)		834,018

			Net cash provided by operating activities		3,251,338			1,976,605			5,368,273

Cash flows from investing activities:
	Maturities of held to maturity mortgage-backed securities				3,179,978			3,303,672			1,521,930
	Maturities of other held to maturity investment securities				6,134,713			10,961,629			500,000
	Maturities of available for sale mortgage-backed securities				13,505,963			2,271,148			1,621,643
	Maturities of other available for sale investment securities				4,098,363			5,237,023			500,000
	Sales of debt securities				2,053,968			7,067,274			4,540,643
	Purchases of held to maturity mortgage-backed securities				—			—			(2,990,625	)
	Purchases of held to maturity investment securities				—			—			(1,652,173	)
	Purchases of available for sale mortgage-backed securities				(30,417,008	)		(25,158,011	)		—
	Purchases of other available for sale investment securities				(16,085,767	)		(23,434,008	)		(12,836,928	)
	Purchase of FHLB stock				(50,900	)		—			—
	Purchase of certificate of deposit				—			—			(100,000	)
	Purchase of common stock in the Glen Burnie Statutory Trust I				—			—			(155,000	)
	Purchase of life insurance contracts				(5,000,000	)		—			—
	Decrease (increase) in loans, net				6,282,506			(2,045,521	)		(11,267,171	)
	Proceeds from sales of other real estate				—			—			537,000
	Purchases of premises and equipment				(904,507	)		(432,658	)		(599,373	)

			Net cash used by investing activities		(17,202,691	)		(22,229,452	)		(20,380,054	)

Cash flows from financing activities:
	Increase in noninterest-bearing deposits, NOW accounts, money market accounts, and savings accounts, net				9,587,004			10,990,615			7,608,893
	Increase in time deposits, net				2,525,885			12,347,766			4,269,449
	(Decrease) increase in short-term borrowings				(45,334	)		394,430			(1,976,958	)
	Proceeds from long-term borrowings				—			—			7,000,000
	Repayments of long-term borrowings				(23,302	)		(21,732	)		(3,477	)
	Cash dividends paid				(793,915	)		(765,819	)		(667,053	)
	Common stock dividends reinvested				180,070			168,026			201,755
	Repurchase and retirement of common stock				—			(148,750	)		—
	Issuance of guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures				—			—			5,155,000
	Issuance of common stock				42,205			—			49,989

			Net cash provided by financing activities		11,472,613			22,964,536			21,637,598

(Decrease) increase in cash and cash equivalents					(2,478,740	)		2,711,689			6,625,817
Cash and cash equivalents, beginning of year					18,220,828			15,509,139			8,883,322

Cash and cash equivalents, end of year				$	15,742,088		$	18,220,828		$	15,509,139

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-6

Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Cash Flows
(Continued)



Years Ended December 31,		2002		2001			2000

Supplementary Cash Flow Information:
	Interest paid	$	5,245,908	$	6,568,734		$	5,692,020
	Income taxes paid		712,844		693,000			205,000
	Total increase (decrease) in unrealized appreciation (depreciation) on securities available for sale		2,754,826		(514,610	)		499,038

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

The Bank of Glen Burnie (the “Bank”) provides financial services to individuals and corporate customers located in Anne Arundel County and surrounding areas of Central Maryland, and is subject to competition from other financial institutions. The Bank is also subject to the regulations of certain Federal and State of Maryland (the “State”) agencies and undergoes periodic examinations by those regulatory authorities. The accounting policies of the Bank conform to generally accepted accounting principles and to general practices within the banking industry.

Significant accounting policies not disclosed elsewhere in the consolidated financial statements are as follows:

Principles of Consolidation:

The consolidated financial statements include the accounts of Glen Burnie Bancorp (the “Company”) and its subsidiaries, The Bank of Glen Burnie and GBB Properties, Inc., a company engaged in the acquisition and disposition of other real estate. Intercompany balances and transactions have been eliminated. The Parent Only financial statements (see Note 22) of the Company account for the subsidiaries using the equity method of accounting.

Use of Estimates:

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted within the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Securities Held to Maturity:

Bonds, notes, and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the effective interest rate method over the period to maturity. Securities transferred into held to maturity from the available for sale portfolio are recorded at fair value at time of transfer with unrealized gains or losses reflected in equity and amortized over the remaining life of the security.

Securities Available for Sale:

Marketable debt securities not classified as held to maturity are classified as available for sale. Securities available for sale may be sold in response to changes in interest rates, loan demand, changes in prepayment risk, and other factors. Changes in unrealized appreciation (depreciation) on securities available for sale are reported in other comprehensive income. Realized gains (losses) on securities available for sale are included in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. The gains and losses on securities sold are determined by the specific identification method. Premiums and discounts are recognized in interest income using the effective interest rate method over the period to maturity. Additionally, declines in the fair value of individual investment securities below their cost that are other than temporary are reflected as realized losses in the consolidated statements of income.

Other Securities:

Federal Home Loan Bank (“FHLB”) stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of Statement of Financial Accounting Standards (“SFAS”) No 115, Accounting for Certain Investments in Debt and Equity Securities, because its ownership is restricted and it lacks a market. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLB or another member institution.

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (continued)

Loans and Allowance for Credit Losses:

Loans are generally carried at the amount of unpaid principal, adjusted for deferred loan fees, which are amortized over the term of the loan using the effective interest rate method. Interest on loans is accrued based on the principal amounts outstanding. It is the Bank’s policy to discontinue the accrual of interest when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. When a loan is placed on nonaccrual status all interest previously accrued but not collected is reversed against current period interest income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Cash collections on such loans are applied as reductions of the loan principal balance and no interest income is recognized on those loans until the principal balance has been collected. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. The carrying value of impaired loans is based on the present value of the loan’s expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral.

While management believes it has established the allowance for credit losses in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future the Bank’s regulators or its economic environment will not require further increases in the allowance.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is established through a provision for unfunded commitments charged to other expenses. The reserve is calculated by utilizing the same methodology and factors as the allowance for credit losses. The reserve, based on evaluations of the collectibiltiy of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on unfunded commitments (off-balance sheet financial instruments) that may become uncollectible in the future.

Other Real Estate Owned (“OREO”):

OREO comprises properties acquired in partial or total satisfaction of problem loans. The properties are recorded at the lower of cost or fair value (appraised value) at the date acquired. Losses arising at the time of acquisition of such properties are charged against the allowance for credit losses. Subsequent write-downs that may be required and expenses of operation are included in other income or expenses. Gains and losses realized from the sale of OREO are included in other income or expenses. No loans were converted to OREO in 2002, 2001, or 2000. The Bank financed no sales of OREO for 2002, 2001, or 2000. Sales of OREO financed by GBB Properties, Inc. totaled $145,000 for 2000.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (continued)

Bank Premises and Equipment:

Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the terms of the leases or their estimated useful lives. Expenditures for improvements that extend the life of an asset are capitalized and depreciated over the asset’s remaining useful life. Gains or losses realized on the disposition of premises and equipment are reflected in the consolidated statements of income. Expenditures for repairs and maintenance are charged to other expenses as incurred. Computer software is recorded at cost and amortized over three to five years.

Intangible Assets:

A core deposit intangible asset of $544,652, relating to a branch acquisition, is being amortized on the straight-line method over 10 years. Accumulated amortization totaled $394,872, $340,407, and $285,942 at December 31, 2002, 2001, and 2000, respectively. Amortization expense totaled $54,465 for each of the years ended December 2002, 2001, and 2000.

Long-Lived Assets:

The carrying value of long-lived assets and certain identifiable intangibles, including goodwill, is reviewed by the Bank for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as prescribed in SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and later superceded by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Asset. As of December 31, 2001, no long-lived assets existed in which management considered impaired; however, in 2002 and 2000 certain long-lived assets were deemed to be impaired (See Note 5).

Income Taxes:

The provision for Federal and state income taxes is based upon the results of operations, adjusted for tax-exempt income. Deferred income taxes are provided by applying enacted statutory tax rates to temporary differences between financial and taxable bases.

Temporary differences which give rise to deferred tax benefits relate principally to the allowance for credit losses, deferred compensation and benefit plans, other real estate owned, tax credit carryovers, net unrealized depreciation on investment securities available for sale, and reserve for unfunded commitments.

Temporary differences which give rise to deferred tax liabilities relate principally to accumulated depreciation, allowance for credit losses, securities discount accretion, and the net unrealized appreciation on investment securities available for sale.

Credit Risk:

The Bank has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2002, the Bank had deposits and Federal funds sold with three separate financial institutions of approximately $475,000, $2,617,000, and $7,415,000.

Cash and Cash Equivalents:

The Bank has included cash and due from banks, interest-bearing deposits in other financial institutions, and Federal funds sold as cash and cash equivalents for the purpose of reporting cash flows.

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies (continued)

Accounting for Stock Options:

The Company applies the intrinsic value-based method of accounting prescribed by the Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards (SFAS) No. 123 “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting prescribed above, and has adopted the disclosure-only provisions of SFAS No.123.

Earnings per share:

Basic earnings per common share are determined by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share are calculated including the average dilutive common stock equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

Financial Statement Presentation:

Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation.

Note 2. Restrictions on Cash and Due from Banks

The Federal Reserve requires the Bank to maintain noninterest-bearing cash reserves against certain categories of average deposit liabilities. Such reserves averaged approximately $4,196,000, $2,923,000, and $3,039,000 during the years ended December 31, 2002, 2001, and 2000, respectively.

Note 3. Investment Securities

Investment securities are summarized as follows:

Gross

Amortized

Unrealized

Fair

December 31, 2002

Cost

Gains

Losses

Value

Available for sale:

U.S. Treasury

499,497

14,568

—

514,065

U.S. Government agency

8,084,257

469,446

140,000

8,413,703

State and municipal

31,216,663

812,011

86,496

31,942,178

Corporate trust preferred

5,056,735

471,397

—

5,528,132

Mortgage-backed

37,311,301

948,303

—

38,259,604

82,168,453

2,715,725

226,496

84,657,682

Held to maturity:

U.S. Government agency

1,499,692

106,321

—

1,606,013

State and municipal

682,688

47,014

—

729,702

Mortgage-backed

5,019,989

259,998

—

5,279,987

7,202,369

413,333

—

7,615,702

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities (continued)


				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
December 31, 2001		Cost		Gains		Losses		Value

*Available for sale:*
	U.S. Treasury	$	498,684	$	25,066	$	—	$	523,750
	U.S. Government agency		7,504,660		13,859		9,688		7,508,831
	State and municipal		19,976,500		137,505		313,434		19,800,571
	Corporate trust preferred		4,819,930		126,842		9,958		4,936,814
	Mortgage-backed		23,013,820		33,127		268,915		22,778,032

		$	55,813,594	$	336,399	$	601,995	$	55,547,998

*Held to maturity:*
	U.S. Treasury	$	749,498	$	21,830	$	—	$	771,328
	U.S. Government agency		6,881,993		161,650		14,375		7,029,268
	State and municipal		682,560		19,197		—		701,757
	Mortgage-backed		8,202,872		183,604		7,378		8,379,098

		$	16,516,923	$	386,281	$	21,753	$	16,881,451


				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
December 31, 2000		Cost		Gains		Losses		Value

*Available for sale:*
	U.S. Treasury	$	497,871	$	9,638	$	—	$	507,509
	U.S. Government agency		6,975,277		45,107		38,008		6,982,376
	State and municipal		8,038,349		254,201		—		8,292,550
	Corporate trust preferred		2,821,428		—		1,481		2,819,947
	Mortgage-backed		2,727,023		—		20,444		2,706,579

		$	21,059,948	$	308,946	$	59,933	$	21,308,961

*Held to maturity:*
	U.S. Treasury	$	1,248,529	$	14,446	$	620	$	1,262,355
	U.S. Government agency		17,834,666		83,636		311,617		17,606,685
	State and municipal		682,431		27,437		—		709,868
	Mortgage-backed		11,520,311		51,804		131,902		11,440,213

		$	31,285,937	$	177,323	$	444,139	$	31,019,121

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities (continued)

Contractual maturities of investment securities at December 31, 2002, 2001, and 2000 are shown below. Actual maturities may differ from contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities have no stated maturity and primarily reflect investments in various Pass-through and Participation Certificates issued by the Federal National Mortgage Association and the Government National Mortgage Association. Repayment of mortgage-backed securities is affected by the contractual repayment terms of the underlying mortgages collateralizing these obligations and the current level of interest rates.

Available for Sale

Held to Maturity

Amortized

Fair

Amortized

Fair

December 31, 2002

Cost

Value

Cost

Value

Due within one year

579,445

595,838

—

Due over one to five years

7,370,459

7,707,811

1,499,692

1,606,013

Due over five to ten years

5,762,134

6,085,881

—

Due over ten years

31,145,134

32,008,548

682,688

729,702

Mortgage-backed, due in monthly installments

37,311,281

38,259,604

5,019,989

5,279,987

82,168,453

84,657,682

7,202,369

7,615,702


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
December 31, 2001	Cost		Value		Cost		Value

Due within one year	$	—	$	—	$	1,669,481	$	1,715,190
Due over one to five years		7,277,130		7,274,011		1,000,000		1,066,579
Due over five to ten years		4,195,187		4,126,922		499,625		534,375
Due over ten years		21,327,457		21,369,033		5,144,945		5,186,209
Mortgage-backed, due in monthly installments		23,013,820		22,778,032		8,202,872		8,379,098

	$	55,813,594	$	55,547,998	$	16,516,923	$	16,881,451


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
December 31, 2000	Cost		Value		Cost		Value

Due within one year	$	—	$	—	$	499,841	$	499,478
Due over one to five years		6,973,148		6,976,182		3,634,136		3,684,832
Due over five to ten years		679,801		696,287		7,490,924		7,449,653
Due over ten years		10,679,976		10,929,913		8,140,725		7,944,945
Mortgage-backed, due in monthly installments		2,727,023		2,706,579		11,520,311		11,440,213

	$	21,059,948	$	21,308,961	$	31,285,937	$	31,019,121

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities (continued)

Proceeds from sales of securities prior to maturity totaled $2,053,968, $7,067,274, and $4,540,643 for the years ended December 31, 2002, 2001, and 2000, respectively. The Bank realized gains of $52,943 and losses of $63 on those sales for 2002. The Bank realized gains of $276,392 and losses of $3,389 on those sales for 2001. The Bank realized losses of $26,237 on those sales for 2000. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade. Income tax benefit (expense) relating to net gains/losses on sales of investment securities totaled ($20,422), ($105,434), and $10,133 for the years ended December 31, 2002, 2001, and 2000, respectively.

Securities with amortized costs of approximately $999,000, $1,248,000, and $1,247,000 were pledged as collateral for short-term borrowings at December 31, 2002, 2001, and 2000, respectively.

The Bank has no derivative financial instruments required to be disclosed under SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments.

Note 4. Loans

Major categories of loans are as follows:


		2002			2001			2000

Mortgage:
	Residential	$	49,572,269		$	44,293,130		$	36,187,294
	Commercial		31,584,086			36,920,258			40,168,603
	Construction and land development		2,337,489			2,355,395			5,256,921
Lease financing			—			—			70,675
Demand and time			5,374,283			5,082,790			3,655,180
Installment			72,780,383			79,642,436			81,124,897

			161,648,510			168,294,009			166,463,570
Unearned income on loans			(847,064	)		(786,302	)		(705,024	)

			160,801,446			167,507,707			165,758,546
Allowance for credit losses			(2,514,700	)		(2,938,455	)		(3,384,815	)

		$	158,286,746		$	164,569,252		$	162,373,731

The Bank has an automotive indirect lending program where vehicle collateralized loans made by dealers to consumers are acquired by the Bank. The Bank’s installment loan portfolio included approximately $52,795,000, $59,308,000, and $61,725,000 of such loans at December 31, 2002, 2001, and 2000, respectively.

The Bank makes loans to customers located primarily in Anne Arundel County and surrounding areas of Central Maryland. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region.

Executive officers, directors, and their affiliated interests enter into loan transactions with the Bank in the ordinary course of business. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers. They do not involve more than normal risk of collectibility or present other unfavorable terms. At December 31, 2002, 2001, and 2000, the amounts of such loans outstanding totaled $1,244,758, $1,194,860, and $1,319,700, respectively. During 2002, loan additions and repayments totaled $207,500 and $157,602, respectively.

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Loans (continued)

The allowance for credit losses is as follows:


	2002			2001			2000

Balance, beginning of year	$	2,938,455		$	3,384,815		$	2,921,631
Provision for credit losses		—			(150,000	)		—
Recoveries		306,332			390,792			1,223,618
Loans charged off		(730,087	)		(687,152	)		(760,434	)

Balance, end of year	$	2,514,700		$	2,938,455		$	3,384,815

Loans on which the accrual of interest has been discontinued totaled $571,057, $601,120, and $370,053 at December 31, 2002, 2001, and 2000, respectively. Interest that would have been accrued under the terms of these loans totaled $9,188, $14,877, and $48,484 for the years ended December 31, 2002, 2001, and 2000, respectively.

Information regarding loans classified by the Bank as impaired is summarized as follows:


	2002		2001		2000

Loans classified as impaired	$	355,489	$	443,874	$	207,579
Allowance for credit losses on impaired loans		109,310		117,271		77,633
Average balance of impaired loans		175,609		211,294		63,105

Following is a summary of cash receipts on impaired loans and how they were applied:

Cash receipts applied to reduce principal balance	$	19,381	$	71,057	$	6,389
Cash receipts recognized as interest income		8,454		10,878		581

Total cash receipts	$	27,835	$	81,935	$	6,970

At December 31, 2002, the recorded investment in new troubled debt restructurings totaled $40,833. The average recorded investment in troubled debt restructurings totaled $41,964 for the year ended December 31, 2002. The allowance for credit losses relating to troubled debt restructurings totaled $8,166 at December 31, 2002. The Bank recognized $2,304 in interest income on troubled debt restructurings for cash payments received in 2002. All previous restructurings appear to be performing under the terms of the modified agreements.

According to management, no troubled debt restructurings transpired in 2001.

At December 31, 2000, the recorded investment in troubled debt restructurings totaled $369,594. The average recorded investment in troubled debt restructurings totaled $383,642 for the year ended December 31, 2000. The allowance for credit losses relating to troubled debt restructurings totaled $66,479 at December 31, 2000. The Bank recognized $93,653 in interest income on troubled debt restructurings for cash payments received in 2000.

The Bank has no commitments to loan additional funds to the borrowers of restructured, impaired, or non-accrual loans.

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Premises and Equipment

A summary of premises and equipment is as follows:


	Useful
	lives	2002			2001			2000

Land		$	684,977		$	684,977		$	684,977
Buildings	5-50 years		4,166,210			4,157,641			4,112,520
Equipment and fixtures	5-30 years		4,682,284			4,768,901			4,479,403
Construction in progress			622,587			17,954			246,461

			10,156,058			9,629,473			9,523,361
Accumulated depreciation			(6,012,629	)		(5,742,842	)		(5,254,958	)

		$	4,143,429		$	3,886,631		$	4,268,403

Construction in progress relates primarily to the opening of the new Severna Park branch in January 2003 and certain computer hardware and software upgrades in the main office.

Depreciation expense totaled $508,301, $573,674, and $551,784 for the years ended December 31, 2002, 2001, and 2000, respectively. Amortization of software and intangible assets totaled $190,493, $192,670, and $197,286 for the years ended December 31, 2002, 2001, and 2000, respectively.

The Bank leases the South Crain Highway and new Severna Park branches. Minimum lease obligations under the South Crain Highway branch are $71,800 per year through September 2004, adjusted annually by the CPI. Minimum lease obligations under the Severna Park branch are $30,000 per year through September 2007. The Bank is also required to pay all maintenance costs under all these leasing arrangements. Rent expense totaled $117,929, $110,612, and $122,060 for the years ended December 31, 2002, 2001, and 2000, respectively.

In the fourth quarter of 2002, the Board of Directors of the Company decided to close and relocate the existing Severna Park branch. At December 31, 2002, management determined that leasehold improvements made to this Severna Park branch, with a book value of $64,648, were impaired as prescribed by SFAS No. 144, and had no net realizable value, and recorded an asset impairment loss from continuing operations for this amount. The Bank also accrued approximately $77,000, as prescribed in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (See Note 21), relating to the estimated future lease and maintenance obligations. All expenses were included in other operating expenses for 2002 (see Note 13).

In December 2000, the Board of Directors of the Company decided to close the Ferndale Shopping Center branch. At December 31, 2000, management determined that leasehold improvements made to the Ferndale branch, with a book value of $184,535, were impaired as prescribed by SFAS No. 144 and had no net realizable value, and recorded an asset impairment loss from continuing operations for this amount. The Bank also accrued approximately $96,000 relating to the estimated cost of closing the Ferndale branch, which were included in other operating expenses for 2000 (see Note 13).

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Short-term borrowings

Short-term borrowings are as follows:


	2002		2001		2000

Notes payable — U.S. Treasury	$	837,074	$	882,408	$	487,978

Notes payable to the U.S. Treasury represents Federal treasury tax and loan deposits accepted by the Bank from its customers to be remitted on demand to the Federal Reserve Bank. The Bank pays interest on these balances at a slight discount to the Federal funds rate. The note payable is secured by investment securities with an amortized cost of approximately $999,000, $998,000, and $997,000 at December 31, 2002, 2001, and 2000, respectively.

The Bank owned 7,032 shares of common stock of the FHLB at December 31, 2002. The Bank is required to maintain an investment of .3% of total assets, adjusted annually. This investment was a condition for obtaining a variable rate credit facility with the FHLB. The credit available under this facility is determined at 12% of the Bank’s total assets, or approximately $33,400,000 at December 31, 2002. Long-term advances totaled $7,000,000 under this credit arrangement at December 31, 2002 (see Note 7). This credit facility is secured by a floating lien on the Bank’s residential mortgage loan portfolio and by investment securities with amortized cost of approximately $0, $250,000, and 250,000 at December 31, 2002, 2001, and 2000, respectively. Average short-term borrowings under this facility approximated $233,000 and $640,000 during 2002 and 2000, respectively, with no short-term borrowings in 2001.

The Bank also has available $5,000,000 in a short-term credit facility, secured by Federal funds sold, from another bank for short term liquidity needs, if necessary. No outstanding borrowings existed under this credit arrangement at December 31, 2002, 2001, and 2000.

Note 7. Long-term Borrowings

Long-term borrowings are as follows:


	2002		2001		2000

Federal Home Loan Bank of Atlanta, convertible advance	$	7,000,000	$	7,000,000	$	7,000,000
Mortgage payable-individual, interest at 7%, payments of $3,483, including principal and interest, due monthly through October 2010, secured by real estate		251,489		274,791		296,523

	$	7,251,489	$	7,274,791	$	7,296,523

The Federal Home Loan Bank of Atlanta convertible advance has a final maturity of September 2010 and an interest rate of 5.84%, payable quarterly, which is fixed through September 2003. At that time, the Federal Home Loan Bank of Atlanta has the option of converting the rate to a three-month LIBOR; however, if converted, the borrowing can be repaid without penalty. The proceeds of the convertible advance were used to purchase higher yielding investment securities.

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Long-term Borrowings (continued)

At December 31, 2002, the scheduled maturities of long-term borrowings are approximately as follows:


	2002

2003	$	25,000
2004		27,000
2005		29,000
2006		31,000
2007		33,000
2008 and thereafter		7,106,000

	$	7,251,000

Note 8. Deposits

Major classifications of interest-bearing deposits are as follows:


	2002		2001		2000

NOW and SuperNOW	$	24,071,173	$	22,395,703	$	19,644,885
Money Market		19,889,727		20,626,249		16,766,390
Savings		47,616,167		42,344,960		40,687,639
Certificates of Deposit, $100,000 or more		17,698,559		17,635,466		11,995,756
Other time deposits		73,082,004		70,619,232		63,911,176

	$	182,357,630	$	173,621,610	$	153,005,846

Interest expense on deposits is as follows:


	2002		2001		2000

NOW and SuperNOW	$	64,644	$	136,590	$	217,558
Money Market		186,059		356,798		449,850
Savings		431,320		613,088		961,028
Certificates of Deposit, $100,000 or more		684,691		750,434		557,693
Other time deposits		2,846,112		3,670,700		3,376,299

	$	4,212,826	$	5,527,610	$	5,562,428

At December 31, 2002, the scheduled maturities of time deposits are approximately as follows:


	2002

2003	$	52,744,000
2004		16,840,000
2005		5,625,000
2006		4,397,000
2007		9,007,000
2008 and thereafter		2,168,000

	$	90,781,000

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Deposits (continued)

		Deposit balances of executive officers and directors and their affiliated interests totaled approximately $1,058,000, $526,000, and $734,000 at December 31, 2002, 2001, and 2000, respectively.

		The Bank had no brokered deposits at December 31, 2002, 2001, and 2000.

Note 9. Income Taxes

The components of income tax expense for the years ended December 31, 2002, 2001, and 2000 are as follows:


		2002		2001			2000

Current:
	Federal	$	739,995	$	594,160		$	1,271,219
	State		66,182		95,070			240,567

	Total current		806,177		689,230			1,511,786

Deferred income taxes (benefits):
	Federal		229,215		(70,871	)		51,660
	State		49,553		(30,820	)		(125,385	)

	Total deferred		278,768		(101,691	)		(73,725	)

	Income tax expense	$	1,084,945	$	587,539		$	1,438,061

A reconciliation of income tax expense computed at the statutory rate of 34% to the actual income tax expense for the years ended December 31, 2002, 2001, and 2000 is as follows:


		2002			2001			2000

Income before income taxes		$	3,896,028		$	2,312,775		$	3,712,927

Taxes computed at Federal income tax rate		$	1,324,650		$	786,344		$	1,262,395
Federal excise tax on pension plan termination and settlement			—			—			238,636
Increase (decrease) resulting from:
	Tax-exempt income		(408,130	)		(248,386	)		(49,261	)
	State income taxes, net of Federal income tax benefit		108,518			42,405			76,021
	AMT credits		—			—			(87,421	)
	Other		59,907			7,176			(2,309	)

	Income tax expense	$	1,084,945		$	587,539		$	1,438,061

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Income Taxes (continued)

Sources of deferred income taxes and the tax effects of each for the years ended December 31, 2002, 2001, and 2000 are as follows:


		2002			2001			2000

Depreciation		$	(33,128	)	$	(52,012	)	$	(46,174	)
Securities discount accretion			5,379			8,109			7,066
Provision for credit losses			(3,549	)		52,185			(18,725	)
Deferred compensation and pension benefit plans			310,066			(89,370	)		(646,776	)
Charitable contributions			—			—			29,372
Write-downs on other real estate owned			—			(22,912	)		(9,462	)
Alternative minimum tax credits			—			60,239			610,974
Reserve for unfunded commitments			—			(57,930	)		—

	Deferred income tax expense (benefit)	$	278,768		$	(101,691	)	$	(73,725	)

The components of the net deferred income tax benefits as of December 31, 2002, 2001, and 2000 are as follows:


			2002			2001		2000

Deferred income tax benefits:
	Allowance for credit losses		$	—		$	—		2,986
	Deferred compensation and benefit plans			105,359			415,425		326,055
	Other real estate owned			32,375			32,375		9,462
	Alternative minimum tax credits			—			—		60,239
	Net unrealized depreciation on investment securities available for sale			—			102,573		—
	Reserve for unfunded commitments			57,930			57,930		—

		Total deferred income tax benefits		195,664			608,303		398,742

Deferred income tax liabilities:
	Accumulated depreciation			61,016			94,144		146,156
	Allowance for credit losses			45,650			49,199		—
	Securities discount accretion			42,972			37,593		29,483
	Net unrealized appreciation on investment securities available for sale			961,340			—		96,170

		Total deferred income tax liabilities		1,110,978			180,936		271,809

		Net deferred income tax (liabilities) benefits	$	(915,314	)	$	427,367	$	126,933

Management has determined that no valuation allowance is required as it is more likely than not that the net deferred income tax benefits will be fully realizable in future years.

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans

		The Bank had a defined benefit pension plan covering substantially all of its employees. Benefits were based on the employee’s average rate of earnings for the five consecutive years before retirement. The Bank’s funding policy was to contribute annually an amount between the minimum and maximum actuarially determined contribution, using the frozen entry age actuarial cost method. Assets of the plan were held in a trust fund principally comprised of growth and income mutual funds managed by another bank.

		The Bank officially terminated the plan in December 1999 and received IRS approval for plan termination in February 2000. The Bank settled all accrued benefits under the plan in October 2000. The Bank established a money purchase pension plan as a replacement plan. Upon termination of the pension plan, all participants became 100% vested. All accrued benefits under the terminated and settled pension plan were provided to participants through the purchase of annuities, or, in the case of actively employed participants, at their option, in the form of a lump sum rollover to the new defined contribution money purchase pension plan.

		As a result of the termination of the defined benefit plan in 1999, the Bank had recognized a curtailment gain of $1,311,997, included in other income. The Bank also accrued a 25% safe harbor contribution of $328,000, included in employee benefit expense, and excise taxes of $196,800, payable on curtailment gains recognized, included in Federal and state income tax expense.

		As a result of the settlement of the defined benefit plan in October 2000, the Bank recognized a settlement gain of $1,600,126, included in other income. The Bank also accrued a 25% safe harbor contribution of $397,728, included in employee benefit expense, and excise taxes of $238,636, payable on settlement gains recognized, included in Federal and state income tax expense.

		The following table sets forth the financial status of the pension plan at December 31, 2000:


		2000

Projected benefit obligation at January 1,		$	4,791,364
	Actual benefit payments		(4,710,262	)
	Other adjustments		(81,102	)

Projected benefit obligation at December 31,		$	—

Plan assets at January 1,		$	7,045,921
	Actual distributions		(7,622,385	)
	Actual returns		576,464

Plan assets at December 31,		$	—

Net pension expense includes the following:
	Actual return on assets	$	(576,464	)
	Net amortization and deferral		874,288

Net pension expense		$	297,824

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans (continued)

		The Bank has a money purchase pension plan, which provides for annual employer contributions based on employee compensation, and covers substantially all employees. Contributions under this plan, made from the safe harbor accrual, totaled $188,470, $175,794, and $156,988 for the years ended December 31, 2002, 2001 and 2000, respectively. The Bank is also making additional contributions under this plan to certain employees whose retirement funds were negatively affected by the termination of the defined benefit pension plan. These additional contributions, included in employee benefit expense, totaled $103,476 and $149,045 for the years ended December 31, 2002 and 2001, respectively. The Bank made no additional contributions for the year ended December 31, 2000. As of December 31, 2002, the Bank has accrued approximately $477,000 relating to the remaining safe harbor contributions and the additional contributions to negatively affected employees.

		The Bank also has a defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code that is funded through a profit sharing agreement and voluntary employee contributions. The plan provides for discretionary employer matching contributions to be determined annually by the Board of Directors. The plan covers substantially all employees. The Bank’s contributions to the plan, included in employee benefit expense, totaled $359,914, $242,997, and $230,971 for the years ended December 31, 2002, 2001, and 2000, respectively.

Note 11. Post-Retirement Health Care Benefits

		The Bank provides health care benefits to employees who retire at age 65 with five years of full time service immediately prior to retirement and two years of participation in the medical benefits plan. In 2001, the Bank amended the plan to include the current Board of Directors and their spouses and the spouses of current retirees. In the first quarter of 2002, the Bank again amended the plan so that all post-retirement healthcare benefits currently provided by the Bank to the above qualified participants will terminate on December 31, 2006. This amendment to the plan resulted in a net curtailment gain of approximately $764,000 in the year ended December 31, 2002. The plan was funded only by the Bank’s monthly payments of insurance premiums due, which totaled $59,316, $42,312, and $24,216 for the years ended December 31, 2002, 2001, and 2000, respectively.

		The following table sets forth the financial status of the plan at December 31, 2002, 2001, and 2000:


		2002		2001			2000

Accumulated post-retirement benefit obligation:
	Retirees	$	269,955	$	503,823		$	299,422
	Other active participants, fully eligible		—		79,954			—
	Other active participants, not fully eligible		—		1,023,038			659,531

			269,955		1,606,815			958,953
Unrecognized net gain			2,857		31,712			250,074
Unrecognized transition obligation			—		(434,186	)		(467,585	)
Unrecognized past service (cost) savings			—		(128,666	)		102,822

Accrued post-retirement benefit cost		$	272,812	$	1,075,675		$	844,264

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Post-Retirement Health Care Benefits (continued)

Net post-retirement benefit expense for the years ended December 31, 2002, 2001, and 2000 includes the following:


Service cost	$	—	$	135,368	$	73,360
Interest cost		20,096		100,651		60,006
Amortization of unrecognized transition obligation		—		33,399		33,399
Amortization of net gain		—		—		(6,879	)
Amortization of past service cost (savings)		—		4,304		(6,924	)

Net post-retirement benefit expense	$	20,096	$	273,722	$	152,962

Assumptions used in the accounting for net post-retirement benefit expense were as follows:


	2002			2001			2000

Health care cost trend rate		5.0	%		5.0	%		5.0	%
Discount rate		6.5	%		6.5	%		6.5	%

If the assumed health care cost trend rate were increased to 6% for 2002, 2001, and 2000, the total of the service and interest cost components of net periodic post-retirement health care benefit cost would increase by $369, $46,848, and $28,474 for the years ended December 31, 2002, 2001, and 2000, respectively, and the accumulated post-retirement benefit obligation would increase to $20,465, $320,570, and $181,436 as of December 31, 2002, 2001, and 2000, respectively.

Note 12. Other Benefit Plans

		During the fourth quarter of 2002, the Bank purchased life insurance contracts on most of the officers and is the sole owner and primary beneficiary of the policies. The Bank is in the process of assigning a portion of each policies benefit to the insured officer in accordance with the Bank Owned Life Insurance (BOLI) program. Income from these contracts will be used to offset or recover the costs associated with employee benefit plans. Cash value totaled $5,024,964 at December 31, 2002 and is included in other assets.

		In March 1998, the Bank established and funded a grantor trust for $1,500,000 as part of a change in control severance plan covering substantially all employees. Participants in the plan are entitled to cash severance benefits upon termination of employment, for any reason other than just cause, should a “change in control” of the Company occur.

		Subsequent to the repurchase of the Company’s common stock under a “Redemption Agreement” and entering into a standstill agreement (see Note 15), and effective as of December 31, 1998, all assets held by this trust were returned to the Bank; however, the trust continues to exist on an unfunded status. In August 2001, the Board of Directors approved certain amendments and revisions to the plan to reflect changes at the Bank since inception of the plan.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Other Operating Expenses

Other operating expenses include the following:


	2002		2001		2000

Professional services	$	533,194	$	605,952		$642,609
Stationery, printing and supplies		226,127		260,863		224,453
Postage and delivery		256,080		262,759		269,710
FDIC assessment		38,015		37,696		67,393
Directors fees and expenses		142,762		128,101		114,442
Marketing		212,470		244,838		251,113
Data processing		144,580		154,980		231,097
Correspondent bank services		76,508		74,533		95,245
Telephone		142,703		138,220		100,026
Liability insurance		116,121		93,608		98,446
Losses and expenses on real estate owned (OREO)		7,157		73,455		58,334
Asset impairment losses on branch closures and related exit expenses (see Note 5)		141,647		—		280,460
Provision for losses on unfunded credit related commitments with off-balance sheet risk		—		150,000		—
Other		695,857		787,400		608,843

	$	2,733,221	$	3,012,405	$	3,042,171

Note 14. Litigation Charges

In 2001, the Company incurred losses of $70,000 relating to the settlement of a legal claim involving alleged conversion of funds of a certificate of deposit. These nonrecurring charges were included in other expenses for 2001.

Note 15. Repurchase and Retirement of Company Common Stock

		During 1998, the Company was pursued by another competing financial institution (the institution) in a hostile take-over attempt. In November 1998, the Company reached an agreement with the institution to repurchase 213,168 shares of its common stock, or approximately 19.5% of its then outstanding shares, for an aggregate purchase price of $5,580,764. In conjunction with the redemption agreement, the Company and the institution also entered into a standstill agreement through November 2008. Under the standstill agreement, the Company will make payments over five years totaling $675,510 beginning with a payment of $150,000 in January 1999 and four subsequent annual payments of $131,378.

		During each of the years ended December 31, 2002, 2001, and 2000, the Company made payments totaling $131,378 relating to the standstill agreement. These payments are included in other expenses.

Note 16. Commitments and Contingencies

		Financial instruments:

		The Bank is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements.

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Commitments and Contingencies (continued)

Outstanding loan commitments, unused lines of credit and letters of credit are as follows:


		2002		2001		2000

Loan commitments:
	Construction and land development	$	357,000	$	250,000	$	450,000
	Other mortgage loans		3,422,912		5,456,022		79,000

		$	3,779,912	$	5,706,022	$	529,000

Unused lines of credit:
	Home-equity lines	$	4,288,833	$	3,775,941	$	3,417,102
	Commercial lines		9,272,579		7,272,045		7,615,035
	Unsecured consumer lines		841,400		862,555		908,600

		$	14,402,812	$	11,910,541	$	11,940,737

Letters of credit:		$	891,549	$	1,257,361	$	1,237,878

		Loan commitments and lines of credit are agreements to lend to customers as long as there is no violation of any conditions of the contracts. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Many of the loan commitments and lines of credit are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include deposits held in financial institutions, U.S. Treasury securities, other marketable securities, accounts receivable, inventory, property and equipment, personal residences, income-producing commercial properties, and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

		Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other securities is deemed necessary.

		The Bank’s exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. As of December 31, 2002, the Bank accrued $150,000 for unfunded commitments related to these financial instruments with off balance sheet risk, which is included in other liabilities.

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures

		On September 7, 2000, Glen Burnie Statutory Trust I, a Connecticut business trust newly formed, funded, and wholly owned by the Company, issued $5,155,000 of capital securities at 10.6% to institutional investors. The proceeds were upstreamed to the Company as junior subordinated debt under the same terms and conditions. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Statutory Trust I’s obligations with respect to the capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Glen Burnie Bancorp’s Junior Subordinated Debentures.” The sole asset of the Statutory Trust I is $5,155,000 of junior subordinated debentures issued by the Company. These junior subordinated debentures carry an interest rate of 10.6%, payable semi-annually, with a non call provision over the first 10 year period, and a declining 10 year premium call thereafter. Both the capital securities Statutory Trust I and the junior subordinated debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010.

		Cost associated with the issuance of the trust preferred securities totaling $150,000 were capitalized and are being amortized through 2030. At December 31, 2002, 2001, and 2000, the unamortized balance totaled $140,000, $145,000, and $150,000, respectively, and was included in other assets.

Note 18. Stockholders’ Equity

		Restrictions on dividends:

		Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agencies. Regulatory approval is required to pay dividends that exceed the Bank’s net profits for the current year plus its retained net profits for the preceding two years. Retained earnings from which dividends may not be paid without prior approval totaled approximately $3,462,000, $2,469,000, and $2,694,000 at December 31, 2002, 2001, and 2000, respectively, based on the earnings restrictions and minimum capital ratio requirements noted below.

		Stock repurchase program:

		In December 2000, the Company instituted a Stock Repurchase Program. Under the program, the Company may spend up to $250,000 to repurchase its outstanding stock. The repurchases may be made from time to time at a price not to exceed $10.667 per share. During 2001, the Company repurchased 15,000 shares at an average price of $9.917 (adjusted for stock splits and stock dividends). This program was terminated by the Company in December 2001.

		Employee stock purchase benefit plans:

		The Company has a stock-based compensation plan, which is described below. The Bank applies Accounting Principles Board Opinion (“APB”) No. 25 and related Interpretations in accounting for this plan. Net compensation cost (benefit) of $38,405, $0, and ($10,889) have been recognized in the accompanying consolidated financial statements in 2002, 2001, and 2000, respectively. If compensation cost for the Company’s stock-based compensation plan had been determined based on the fair value at the grant date for awards under this plan consistent with the methods outlined in SFAS No. 123 Accounting for Stock-Based Compensation, there would be no material change in reported net income.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders’ Equity (continued)

Employees who have completed one year of service are eligible to participate in the employee stock purchase plan. The number of shares of common stock granted under options will bear a uniform relationship to compensation. The plan allows employees to buy stock under options granted at the lesser of 85% of the fair market value of the stock on the date of grant or exercise. Options granted will expire no later than 27 months from the grant date or upon termination of employment. Activity under this plan is as follows:


				Grant
	Shares			Price

Outstanding December 31, 1999		5,616		$	10.978
Expired		(5,616	)	$	10.978

Outstanding December 31, 2000		—
Outstanding December 31, 2001		—
Granted on May 17, 2002, expiring August 13, 2003		7,765		$	13.77
Exercised		(3,065	)
Expired		(145	)	$	13.77

Outstanding December 31, 2002		4,555

		At December 31, 2002 shares of common stock reserved for issuance under the plan totaled 38,497.

		The Board of Directors may suspend or discontinue the plan at its discretion.

		Dividend reinvestment and stock purchase plan:

		The Company’s dividend reinvestment and stock purchase plan allows all participating stockholders the opportunity to receive additional shares of common stock in lieu of cash dividends at 95% of the fair market value on the dividend payment date.

		During 2002, 2001, and 2000, shares of common stock purchased under the plan totaled 10,548, 12,314, and 13,894, respectively. At December 31, 2002, shares of common stock reserved for issuance under the plan totaled 143,691.

		The Board of Directors may suspend or discontinue the plan at its discretion.

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders’ Equity (continued)

		Stockholder purchase plan:

		The Company’s stockholder purchase plan allows participating stockholders an option to purchase newly issued shares of common stock. The Board of Directors shall determine the number of shares that may be purchased pursuant to options. Options granted will expire no later than three months from the grant date. Each option will entitle the stockholder to purchase one share of common stock, and will be granted in proportion to stockholder share holdings. At the discretion of the Board of Directors, stockholders may be given the opportunity to purchase unsubscribed shares.


				Grant
	Shares			Price

Outstanding December 31, 1999		—
Granted on January 24, 2000, expiring March 24, 2000		75,000		$	12.533
Exercised		(2,307	)
Expired		(72,693	)	$	12.533

Granted on March 21, 2000, expiring June 23, 2000		75,000		$	12.533
Exercised		(1,682	)
Expired		(73,318	)	$	12.533

Outstanding December 31, 2000		—
Outstanding December 31, 2001		—
Outstanding December 31, 2002		—

		At December 31, 2002, shares of common stock reserved for issuance under the plan totaled 181,666. The Board of Directors may suspend or discontinue the plan at its discretion.

		Under all three plans, options granted, exercised, and expired, shares issued and reserved, and grant prices have been restated for the effects of any stock dividends or stock splits.

		Regulatory capital requirements:

		The Company and Bank are subject to various regulatory capital requirements administered by Federal and State banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. The Company and Bank must meet specific capital guidelines that involve quantitative measures of their respective assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting principles. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

		Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 2002, 2001, and 2000, that both the Company and Bank meet all capital adequacy requirements to which they are subject.

F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders’ Equity (continued)

		As of December 31, 2002, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

		A comparison of capital as of December 31, 2002, 2001, and 2000 with minimum requirements is approximately as follows:


													*To Be Well Capitalized*
								*For Capital*					*Under Prompt Corrective*
			*Actual*					*Adequacy Purposes*					*Action Provisions*
			*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*

As of December 31, 2002
	Total Capital
		(to Risk Weighted Assets)
		Company	$	27,523,000		15.3	%	$	14,410,000		8.0	%		N/A
		Bank		26,949,000		15.0	%		14,363,000		8.0	%	$	17,954,000		10.0	%
	Tier I Capital
		(to Risk Weighted Assets)
		Company		25,266,000		14.0	%		7,209,000		4.0	%		N/A
		Bank		24,699,000		13.8	%		7,185,000		4.0	%		10,778,000		6.0	%
	Tier I Capital
		(to Average Assets)
		Company		25,266,000		9.1	%		11,143,000		4.0	%		N/A
		Bank		24,699,000		8.9	%		11,126,000		4.0	%		13,907,000		5.0	%
As of December 31, 2001
	Total Capital
		(to Risk Weighted Assets)
		Company	$	25,254,000		13.9	%	$	14,514,000		8.0	%		N/A
		Bank		24,361,000		13.5	%		14,458,000		8.0	%		$18,072,000		10.0	%
	Tier I Capital
		(to Risk Weighted Assets)
		Company		22,976,000		12.7	%		7,254,000		4.0	%		N/A
		Bank		22,092,000		12.2	%		7,226,000		4.0	%		10,838,000		6.0	%
	Tier I Capital
		(to Average Assets)
		Company		22,976,000		8.8	%		10,456,000		4.0	%		N/A
		Bank		22,092,000		8.5	%		10,421,000		4.0	%		13,026,000		5.0	%

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders’ Equity (continued)


													To Be Well Capitalized
								For Capital					Under Prompt Corrective
			Actual					Adequacy Purposes					Action Provisions
			Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2000
	Total Capital
		(to Risk Weighted Assets)
		Company	$	24,092,000		14.0	%	$	13,772,000		8.0	%		N/A
		Bank		23,655,000		13.7	%		13,863,000		8.0	%	$	17,328,000		10.0	%
	Tier I Capital
		(to Risk Weighted Assets)
		Company		21,925,000		12.7	%		6,886,000		4.0	%		N/A
		Bank		21,474,000		12.4	%		6,932,000		4.0	%		10,397,000		6.0	%
	Tier I Capital
		(to Average Assets)
		Company		21,925,000		9.3	%		9,424,000		4.0	%		N/A
		Bank		21,474,000		9.1	%		9,424,000		4.0	%		11,780,000		5.0	%

Note 19. Earnings Per Common Share

Earnings per common share are calculated as follows:


		2002		2001		2000

Basic:
	Net income	$	2,811,083	$	1,725,236	$	2,274,866
	Weighted average common shares outstanding		1,668,335		1,656,904		1,652,001
	Basic net income per share	$	1.68	$	1.04	$	1.38
Diluted:
	Net income	$	2,811,083
	Weighted average common shares outstanding		1,668,335
	Dilutive effect of stock options		2,820

	Average common shares outstanding - diluted		1,671,155
	Diluted net income per share	$	1.68

Diluted earnings per share calculations were not required for 2001 and 2000 as there were no options outstanding at December 31, 2001 and 2000.

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Fair Values of Financial Instruments

In accordance with the disclosure requirements of SFAS No. 107, the estimated fair value and the related carrying values of the Company’s financial instruments are as follows:


		2002				2001				2000

		Carrying		Fair		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value		Amount		Value

Financial assets:
	Cash and due from banks	$	11,297,175	$	11,297,175	$	10,888,085	$	10,888,085	$	9,559,329	$	9,559,329
	Interest-bearing deposits in other financial institutions		41,335		41,335		1,879,444		1,879,444		50,947		50,947
	Federal funds sold		4,403,578		4,403,578		5,453,299		5,453,299		5,898,863		5,898,863
	Certificates of deposit in other financial institutions		100,000		100,000		100,000		100,000		100,000		100,000
	Investment securities available for sale		84,657,682		84,657,682		55,547,998		55,547,998		21,308,961		21,308,961
	Investment securities held to maturity		7,202,369		7,615,702		16,516,923		16,881,451		31,285,937		31,019,121
	Federal Home Loan Bank Stock		703,200		703,200		652,300		652,300		652,300		652,300
	Common stock-Statutory Trust I		155,000		155,000		155,000		155,000		155,000		155,000
	Ground rents		249,900		249,900		249,900		249,900		249,900		249,900
	Loans, less allowance for credit losses		158,286,746		158,290,000		164,569,252		164,570,000		162,373,731		162,525,000
	Accrued interest receivable		1,547,511		1,547,511		1,527,018		1,527,018		1,681,219		1,681,219
Financial liabilities:
	Deposits		241,419,607		241,420,000		229,306,718		231,692,000		205,968,337		205,969,000
	Short-term borrowings		837,074		837,074		882,408		882,408		487,978		487,978
	Long-term borrowings		7,251,489		7,251,489		7,274,791		7,274,791		7,296,523		7,296,523
	Dividends payable		236,291		236,291		195,333		195,333		213,345		213,345
	Accrued interest payable		111,398		111,398		155,174		155,174		195,166		195,166
	Accrued interest payable on junior subordinated debentures		171,518		171,518		171,518		171,518		166,986		166,986
	Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures		5,155,000		5,155,000		5,155,000		5,155,000		5,155,000		5,155,000
Unrecognized financial instruments
	Commitments to extend credit		18,182,724		18,182,724		17,616,563		17,466,563		12,469,737		12,364,095
	Standby letters of credit		891,549		891,549		1,257,361		1,257,361		1,237,878		1,237,878

		For purposes of the disclosures of estimated fair value, the following assumptions were used.

		Loans:

		The estimated fair value for loans is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

		Investment securities:

		Estimated fair values are based on quoted market prices.

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Fair Values of Financial Instruments (continued)

		Deposits:

		The estimated fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair value of certificates of deposit is based on the rates currently offered for deposits of similar maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

		Other assets and liabilities:

		The estimated fair values for cash and due from banks, interest-bearing deposits in other financial institutions, Federal funds sold, accrued interest receivable and payable, and short-term borrowings are considered to approximate cost because of their short-term nature.

		Other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. In addition, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill, and similar items.

Note 21. Recently Issued Accounting Pronouncements

		In June 2002, the FASB issued statements of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, (“SFAS 146”). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.) This statement changes the current practice of accounting for these transactions by changing the timing of the recognition of exit or disposal costs and generally requires such costs to be recognized when the liability is incurred rather than on the date the entity commits to a plan of exit or disposal. It also requires such liabilities to be measured at fair value.

		The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002. In management’s opinion, the Company and the Bank are currently in compliance with all applicable provisions of this pronouncement (See Note 5).

		In October 2002, the FASB issued statements of Financial Accounting Standards No. 147, Acquisitions of Certain Financial Institutions, an amendment of FASB Statement No. 72 and 144 and FASB Interpretation No. 9 (“SFAS 147”). This statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FASB no. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB interpretation No. 9, Applying APB Opinions No. 16 and 17, When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounting for by the Purchase Method. This statement also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets (such as depositor and borrower- relationship intangible assets and credit cardholder intangible assets), including those acquired in transactions between two or more mutual enterprises.

		The provisions in paragraph 5 of SFAS 147 are effective for acquisitions on or after October 1, 2002. The provisions in paragraph 6 shall be effective on October 1, 2002. Transition provisions for previously recognized identified intangible assets in paragraphs 8-14 are effective on October 1, 2002, with earlier application permitted. In management’s opinion, the Company and Bank are currently in compliance with all applicable provisions of this pronouncement.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. Recently Issued Accounting Pronouncements (continued)

		In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, (“SFAS 148”). This statement amends FASB No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transaction for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock based employee compensation. Finally, this statement amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about effects in interim financial information.

		The amendments to SFAS 123 in paragraph 2(a) – 2 (e) of this statement shall be effective for financial statements for fiscal years ending after December 15, 2002. The amendments to SFAS 123 in paragraph 2 (f) of this statement and the amendment to APB 28 in paragraph 3 shall be effective for financial reports continuing condensed financial statements for interim periods beginning after December 15, 2002. Management is currently considering the impact of the change to the fair value based method of accounting for stock-based employee compensation in the 2003 financial statements. In management’s opinion, the Company and Bank are in compliance with all applicable disclosure provisions of this pronouncement.

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information

The Balance Sheets, Statements of Income, and Statements of Cash Flows for Glen Burnie Bancorp (Parent Only) are presented below:


Balance Sheets

December 31,			2002		2001			2000

Assets

Cash			$	397,118	$	512,981		$	110,768
Investment in The Bank of Glen Burnie				26,376,359		22,133,607			22,013,186
Investment in GBB Properties, Inc.				251,012		244,920			238,645
Investment in the Glen Burnie Statutory Trust I				155,000		155,000			155,000
Due from subsidiaries				34,484		104,384			198,479
Other assets				141,361		232,544			150,000

		Total assets	$	27,355,334	$	23,383,436		$	22,866,078


Liabilities and Stockholders’ Equity

Dividends payable			$	236,291	$	195,333		$	213,345
Accrued interest payable on junior subordinated debentures				171,518		171,518			166,986
Due to subsidiary				—		—			150,000
Other liabilities				3,139		—			—

		Total liabilities		410,948		366,851			530,331

Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures				5,155,000		5,155,000			5,155,000

Stockholders’ equity:
	Common stock			1,677,173		1,663,560			1,110,049
	Surplus			10,637,578		10,390,511			10,373,549
	Retained earnings			7,946,747		5,970,537			5,544,305
	Accumulated other comprehensive income (loss), net of taxes (benefits)			1,527,888		(163,023	)		152,844

		Total stockholders’ equity		21,789,386		17,861,585			17,180,747

		Total liabilities and stockholders’ equity	$	27,355,334	$	23,383,436		$	22,866,078

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information (continued)


Statements of Income

Years Ended December 31,		2002			2001			2000

Dividends and distributions from subsidiaries		$	720,000		$	1,750,000		$	475,000
Other income			16,430			16,430			—
Standstill agreement expense			(131,378	)		(131,378	)		(131,378	)
Interest expense on junior subordinated debentures			(546,430	)		(550,962	)		(166,986	)
Other expenses			(36,642	)		(42,156	)		(2,100	)

Income before income tax benefit and equity in undistributed net income of subsidiaries			21,980			1,041,934			174,536
Income tax benefit			269,575			240,739			102,158
Change in undistributed net income of subsidiaries			2,519,528			442,563			1,998,172

	Net income	$	2,811,083		$	1,725,236		$	2,274,866

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information (continued)


Statements of Cash Flows

Years Ended December 31,			2002			2001			2000

Cash flows from operating activities:
	Net income		$	2,811,083		$	1,725,236		$	2,274,866
	Adjustments to reconcile net income to net cash provided by operating activities:
		Decrease (increase) in other assets		91,183			(82,544	)		(150,000	)
		Decrease (increase) in due from subsidiaries		69,900			94,095			(102,158	)
		(Decrease) increase in due to subsidiaries		—			(150,000	)		150,000
		Increase in accrued interest payable		—			4,532			166,986
		Increase in other liabilities		3,139			—			—
		Change in undistributed net income of subsidiaries		(2,519,528	)		(442,563	)		(1,998,172	)

	Net cash provided by operating activities			455,777			1,148,756			341,522

Cash flows from investing activities:
	Purchase of common stock in the Glen Burnie Statutory Trust I			—			—			(155,000	)
	Capital contributed to subsidiary			—			—			(5,000,000	)

	Net cash used by investing activities			—			—			(5,155,000	)

Cash flows from financing activities:
	Proceeds from dividend reinvestment plan			180,070			168,026			201,755
	Issuance of guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures			—			—			5,155,000
	Proceeds from sales of common stock			42,205			—			49,989
	Repurchase and retirement of common stock			—			(148,750	)		—
	Dividends paid			(793,915	)		(765,819	)		(667,053	)

	Net cash (used) provided in financing activities			(571,640	)		(746,543	)		4,739,691

(Decrease) increase in cash				(115,863	)		402,213			(73,787	)
Cash, beginning of year				512,981			110,768			184,555

Cash, end of year			$	397,118		$	512,981		$	110,768

F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Quarterly Results of Operations (Unaudited)

The following is a summary of the Consolidated unaudited quarterly results of operations:

2002

(Dollars in thousands,

Three months ended,

except per share amounts)

December 31

September 30

June 30

March 31

Interest income

4,021

4,250

4,178

4,121

Interest expense

1,248

1,302

1,284

1,368

Net interest income

2,773

2,948

2,894

2,753

Provision for credit losses

—

Net securities gains

Income before income taxes

775

918

762

1,441

Net income

545

691

587

988

Net income per share (basic and diluted)

0.33

0.41

0.35

0.59


2001

(Dollars in thousands,	Three months ended,
except per share amounts)	December 31			September 30		June 30		March 31

Interest income	$	4,316		$	4,297	$	4,303	$	4,291
Interest expense		1,564			1,627		1,598		1,744
Net interest income		2,752			2,670		2,705		2,547
Provision for credit losses		(150	)		—		—		—
Net securities gains		89			137		29		18
Income before income taxes (1)		404			825		485		599
Net income (1)		330			586		377		432
Net income per share (basic and diluted) (1)	$	0.20		$	0.35	$	0.23	$	0.27


2000

(Dollars in thousands,	Three months ended,
except per share amounts)	December 31		September 30			June 30		March 31

Interest income	$	4,415	$	4,141		$	4,318	$	3,829
Interest expense		1,688		1,478			1,392		1,344
Net interest income		2,727		2,663			2,926		2,485
Net securities losses		—		(26	)		—		—
Income before income taxes		1,159		685			1,330		539
Net income		612		466			830		367
Net income per share (basic and diluted)	$	0.70	$	0.42		$	0.66	$	0.29

		The sum of the quarters for each fiscal year presented may not equal the annual total amounts due to rounding.

		(1) Results have been restated to reflect a positive amendment to the post-retirement benefit plan, made during the first quarter 2001. Income before income taxes and net income for each quarter have been decreased by $58 and $35, respectively, as a result of this amendment. Net income per share (basic and diluted) has also been changed to reflect these restatements. Due to these restatements the first, second and third quarters of 2001 do not match the amounts reported in the Form 10-Q filed with the SEC.

F-37