GLEN BURNIE BANCORP - Quarter Report: 2005 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-24047

GLEN BURNIE BANCORP

(Exact name of registrant as specified in its charter)

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

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

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

Inapplicable

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes o No x

At October 24, 2005, the number of shares outstanding of the registrant’s common stock was 2,049,721.

TABLE OF CONTENTS


Part I-Financial Information			Page

	Item 1.	Consolidated Financial Statements:

		Condensed Consolidated Balance Sheets, September 30, 2005
		(unaudited) and December 31, 2004 (audited)	3

		Condensed Consolidated Statements of Income for the Three and Nine
		Months Ended September 30, 2005 and 2004 (unaudited)	4

		Condensed Consolidated Statements of Comprehensive Income for
		the Three and Nine Months Ended September 30, 2005 and 2004
		(unaudited)	5

		Condensed Consolidated Statements of Cash Flows for the Nine
		Months Ended September 30, 2005 and 2004 (unaudited)	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	8

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	14

	Item 4.	Controls and Procedures	14

Part II - Other Information

	Item 6.	Exhibits	15

		Signatures	16

PART I - FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS


GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)


		September 30,		December 31,
ASSETS		(unaudited)		(audited)

Cash and due from banks	$	10,397	$	9,767
Interest-bearing deposits in other financial institutions		26		66
Federal funds sold		3,424		1,541
Cash and cash equivalents		13,847		11,374
Investment securities available for sale, at fair value		91,249		93,279
Investment securities held to maturity, at cost
(fair value September 30: $1,425; December 31: $1,762)		1,318		1,627
Federal Home Loan Bank stock, at cost		1,189		919
Maryland Financial Bank stock, at cost		100		100
Common Stock in the Glen Burnie Statutory Trust I		155		155
Loans, less allowance for credit losses
(September 30: $2,271; December 31: $2,412)		198,341		182,291
Premises and equipment, at cost, less accumulated depreciation		3,958		4,031
Other real estate owned		50		50
Cash value of life insurance		5,638		5,484
Other assets		2,779		3,002

Total assets	$	318,624	$	302,312

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits	$	271,483	$	261,674
Short-term borrowings		6,772		542
Long-term borrowings		7,178		7,200
Junior subordinated debentures owed to unconsolidated subsidiary trust		5,155		5,155
Other liabilities		1,419		1,997
Total liabilities		292,007		276,568

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding: September 30: 2,049,721 shares;
December 31: 2,041,033 shares		2,050		2,041
Surplus		11,347		11,169
Retained earnings		13,101		11,774
Accumulated other comprehensive income, net of tax		119		760
Total stockholders’ equity		26,617		25,744

Total liabilities and stockholders’ equity	$	318,624	$	302,312

See accompanying notes to condensed consolidated financial statements.

GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2005			2004		2005			2004
Interest income on:
Loans, including fees	$	2,993		$	2,922	$	8,604		$	8,372
U.S. Treasury and U.S. Government agency securities		600			593		1,797			1,683
State and municipal securities		353			441		1,147			1,357
Other		148			109		423			341
Total interest income		4,094			4,065		11,971			11,753

Interest expense on:
Deposits		808			655		2,222			1,963
Short-term borrowings		28			28		46			55
Long-term borrowings		107			108		321			323
Junior subordinated debentures		137			137		410			410
Total interest expense		1,080			928		2,999			2,751

Net interest income		3,014			3,137		8,972			9,002

Provision for credit losses		(50	)		140		(50	)		340

Net interest income after provision for credit losses		3,064			2,997		9,022			8,662

Other income:
Service charges on deposit accounts		224			264		642			780
Other fees and commissions		244			189		682			521
Other non-interest income		4			1		28			5
Income on life insurance		53			53		155			155
Gains on investment securities		26			41		74			310
Total other income		551			548		1,581			1,771

Other expenses:
Salaries and employee benefits		1,613			1,604		4,766			4,635
Occupancy		222			157		601			496
Other expenses		845			811		2,640			2,534
Total other expenses		2,680			2,572		8,007			7,665

Income before income taxes		935			973		2,596			2,768

Income tax expense		193			204		492			552

Net income	$	742		$	769	$	2,104		$	2,216

Basic and diluted earnings per share of common stock	$	0.37		$	0.38	$	1.03		$	1.09

Weighted average shares of common stock outstanding		2,046,847			2,032,801		2,043,938			2,030,300

Dividends declared per share of common stock	$	0.14		$	0.12	$	0.38		$	0.34

See accompanying notes to condensed consolidated financial statements.

GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004

Net income	$	742		$	769		$	2,104		$	2,216

Other comprehensice income (loss), net of tax

Unrealized gains (losses) securities:

Unrealized holding gains (losses) arising
during the period		(650	)		1,370			(596	)		113

Reclassification adjustment for gains
included in net income		(16	)		(24	)		(45	)		(190

Comprehensive income	$	76		$	2,115		$	1,463		$	2,139

See accompanying notes to condensed consolidated financial statements.

GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2005			2004

Cash flows from operating activities:
Net income	$	2,104		$	2,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion		585			756
Compensation expense from vested stock options		15			29
Provision for credit losses		(50	)		340
Gains on disposals of assets, net		(73	)		(310	)
Income on investment in life insurance		(154	)		(155	)
Changes in assets and liabilities:
Decrease in other assets		539			263
Decrease in other liabilities		(516	)		(32	)

Net cash provided by operating activities		2,450			3,107

Cash flows from investing activities:
Maturities of available for sale mortgage-backed securities		1,659			5,303
Proceeds from maturities and sales of other investment securities		18,030			17,400
Purchases of investment securities		(18,420	)		(14,801	)
Purchases of Federal Home Loan Bank stock		(270	)		(77	)
Purchases of MD Financial Bank stock		-			(100	)
Increase in loans, net		(16,000	)		(11,053	)
Purchases of premises and equipment		(326	)		(236	)

Net cash used by investing activities		(15,327	)		(3,564	)

Cash flows from financing activities:
Increase in deposits, net		9,809			5,838
Increase (decrease) in short-term borrowings		6,230			(6,202	)
Repayment of long-term borrowings		(22	)		(20	)
Dividends paid		(839	)		(742	)
Issuance of common stock		7			29
Common stock dividends reinvested		165			153

Net cash provided (used) by financing activities		15,350			(944	)

Increase (decrease) in cash and cash equivalents		2,473			(1,401	)

Cash and cash equivalents, beginning of year		11,374			12,895

Cash and cash equivalents, end of period	$	13,847		$	11,494

See accompanying notes to condensed consolidated financial statements.

GLEN BURNIE BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the unaudited consolidated financial statements have been included in the results of operations for the three and nine months ended September 30, 2005 and 2004.

Operating results for the three and nine month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

NOTE 2 - EARNINGS PER SHARE

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Basic and diluted:
Net income	$	742,000	$	769,000	$	2,104,000	$	2,216,000
Weighted average common shares outstanding		2,046,847		2,032,801		2,043,938		2,030,300
Dilutive effect of stock options		628		523		361		716
Average common shares outstanding - diluted		2,047,475		2,033,324		2,044,299		2,031,016
Basic and diluted net income per share	$	0.37	$	0.38	$	1.03	$	1.09

NOTE 3 - EMPLOYEE STOCK PURCHASE BENEFIT PLANS

The Company has an employee stock purchase compensation plan. The Bank applies Accounting Principles Board Options (“APB”) No. 25 and related Interpretations in accounting for this plan. Compensation cost of $15,000 has been recognized in 2005. 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.

During the second quarter of 2005, the Board of Directors granted 4,736 options under this plan at $17.90 per share, exercisable for a period of eight months and expiring December, 2005, of which 395 options have been exercised as of September 30, 2005.

ITEM 2.

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

OVERVIEW

During the third quarter of 2005, net interest income before provision for credit losses decreased from $3,137,000 in 2004 to $3,014,000 in 2005, a 3.92% decrease. Year-to-date, the decrease was from $9,002,000 in 2004 to $8,972,000 in 2005, a 0.33% decrease. Interest income for the quarter grew from $4,065,000 in 2004 to $4,094,000 in 2005, a 0.71% increase. For the year-to-date, interest income grew from $11,753,000 in 2004 to $11,971,000 in 2005, a 1.85% increase. Total interest expense for the quarter increased from $928,000 in 2004 to $1,080,000 in 2005, a 16.38% increase and year-to-date interest expense has increased from $2,751,000 in 2004 to $2,999,000 in 2005, a 9.01% increase. The Company realized net income of $742,000 for the third quarter of 2005 compared to $769,000 for the third quarter of 2004, a 3.51% decrease. Year-to-date net income decreased from $2,216,000 in 2004 to $2,104,000 in 2005, a 5.05% decrease. The decrease is primarily due to the operating expenses of our Linthicum branch, which opened during the first quarter of 2005.

FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this Form 10-Q, the words or phrases “will likely result,”“are expected to,”“will continue,”“is anticipated,”“estimate,”“project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, 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.

RESULTS OF OPERATIONS

General. Glen Burnie Bancorp, a Maryland corporation (the “Company”), and its subsidiaries, The Bank of Glen Burnie (the “Bank”) and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $742,000 ($0.37 basic and diluted earnings per share) for the third quarter of 2005, compared to third quarter 2004 consolidated net income of $769,000 ($0.38 basic and diluted earnings per share). The decrease in consolidated net income for the three month period was due to a decrease in state and municipal security income, increases in other expenses (primarily occupancy) and an increase in interest expense on deposits, partially offset by an increase in loan income and federal funds income. While the Bank’s net loans have increased by $16,050,000 since December 31, 2004, this growth has come primarily in lower yielding indirect automobile loans and mortgage loans made to refinance existing higher yielding loans. As a result, the overall yield on the loan portfolio has declined. Year-to-date consolidated net income of $2,104,000 ($1.03 basic and diluted earnings per share) for the nine months ended September 30, 2005, compared to the nine months ended September 30, 2004 consolidated net income of $2,216,000 ($1.09 basic and diluted earnings per share). The decrease for the nine month period was due to a decrease in state and municipal income, a decrease in gains on investment securities and increases in other expenses and deposit expense, partially offset by an increase in loan income.

Net Interest Income. The Company’s consolidated net interest income prior to provision for credit losses for the three and nine months ended September 30, 2005 was $3,014,000 and $8,972,000, respectively, compared to $3,137,000 and $9,002,000 for the same period in 2004, a decrease of $123,000 (3.92%) for the three month period and a decrease of $30,000 (0.34%) for the nine month period. The decrease for the three and nine month periods were due to increases in deposit expense and a decrease in state and municipal income. This was partially offset by an increase in interest income on loans and federal funds sold.

Interest income increased $29,000 (0.72%) for the three months ended September 30, 2005 and increased $218,000 (1.85%) for the nine months ended September 30, 2005, compared to the same periods in 2004, primarily due to increases in income on loans and federal funds sold, offset by a decrease in state and municipal securities income. The nine month period also included increases in U.S. Government securities.

Interest expense increased $152,000 (16.38%) for the three months ended September 30, 2005 and increased $248,000 (9.02%) for the nine months ended September 30, 2005, compared to the same 2004 periods. Interest expense increased for the three and nine month periods ended September 30, 2005, primarily attributable to increases in interest rates on certificates of deposit combined with increasing balances of interest bearing deposits.

Net interest margins for the three and nine months ended September 30, 2005 were 4.45% and 4.54%, compared to tax equivalent net interest margins of 4.67% and 4.61% for the three and nine months ended September 30, 2004.

Provision for Credit Losses. The Company made a reverse provision for credit losses of $50,000 during the three and nine month periods ended September 30, 2005, and an additional provision of $140,000 and $340,000 during the three and nine month periods ended September 30, 2004. As of September 30, 2005, the allowance for credit losses equaled 1,227.57% of non-accrual and past due loans compared to 398.68% at December 31, 2004 and 407.97% at September 30, 2004. During the three and nine month periods ended September 30, 2005, the Company recorded a net recovery of $106,000 and a net charge-off of $91,000, compared to a net charge-offs of $7,000 and $131,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2005 period represent 0.06% of the average loan portfolio.

Other Income. Other income increased from $548,000 for the three month period ended September 30, 2004, to $551,000 for the corresponding 2005 period, a $3,000 (0.55%) increase. For the nine month period, other income decreased to $1,581,000 at September 30, 2005 from $1,771,000 at September 30, 2004, a $190,000 (10.73%) decrease. The increase for the three month period was primarily due to an increase in other income and other fees, offset by a decrease in service charges and a decrease in gains on investment securities. The decrease in other income for the nine month period was primarily due to decreases in gains on investment securities and service charge income, offset partially by an increase in other fees.

Other Expenses. Other expenses increased from $2,572,000 for the three month period ended September 30, 2004, to $2,680,000 for the corresponding 2005 period, a $108,000 (4.2%) increase. For the nine month period, other expenses increased from $7,665,000 at September 30, 2004 to $8,007,000 at September 30, 2005, a $342,000 (4.46%) increase. The increases for the three and nine month periods were primarily due to increases in salaries and employee benefits and occupancy due to the opening of the Linthicum branch and $50,000 being booked to reserve for unfunded commitments, included in other expense.

Income Taxes. During the three and nine months ended September 30, 2005, the Company recorded income tax expense of $193,000 and $492,000, respectively, compared to income tax expense of $204,000 and $552,000, respectively, for the corresponding periods of the prior year. The Company’s effective tax rate for the three and nine month periods in 2005 were 20.6% and 19.0%, respectively, compared to 21.0% and 19.9%, respectively, for the prior year periods.

Other Comprehensive Income. In accordance with regulatory requirements, the Company reports comprehensive income or loss in its financial statements. Comprehensive income consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s investment portfolio of investment securities. For the third quarter of 2005, comprehensive income, net of tax, totaled $76,000, compared to the September 30, 2004 total of $2,115,000. Year-to-date comprehensive income totaled $1,463,000, as of September 30, 2005, compared to the September 30, 2004 total of $2,139,000. The decline for both the third quarter and year-to-date from the prior year are due to a decrease in unrealized holding gains on available for sale securities as of September 30, 2005.

FINANCIAL CONDITION

General. The Company’s assets increased to $318,624,000 at September 30, 2005 from $302,312,000 at December 31, 2004, primarily due to increases in loan balances and cash and cash equivalents, offset partially by decreases in investment securities. The Bank’s net loans totaled $198,341,000 at September 30, 2005, compared to $182,291,000 at December 31, 2004, an increase of $16,050,000 (8.80%), primarily attributable to increases in commercial and industrial mortgages, indirect loans, mortgage loans purchased and mortgage loans sold, offset by a decrease in installment business loans .

The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $92,567,000 at September 30, 2005, a $2,339,000 (2.46%) decrease from $94,906,000 at December 31, 2004. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of September 30, 2005, totaled $13,847,000, an increase of $2,473,000 (21.74%) from the December 31, 2004 total of $11,374,000. The aggregate market value of investment securities held by the Bank as of September 30, 2005 was $92,674,000 compared to $95,041,000 as of December 31, 2004, a $2,367,000 (2.49%) decrease.

Deposits as of September 30, 2005 totaled $271,483,000, which is an increase of $9,809,000 (3.75%) from $261,674,000 at December 31, 2004. Demand deposits as of September 30, 2005 totaled $81,663,000, which is an increase of $8,236,000 (11.22%) from $73,427,000 at December 31, 2004. NOW accounts as of September 30, 2005 totaled $25,510,000, which is a decrease of $1,580,000 (5.83%) from $27,090,000 at December 31, 2004. Money market accounts as of September 30, 2005 totaled $19,118,000, which is a decrease of $1,091,000 (5.40%), from $20,209,000 at December 31, 2004. Savings deposits as of September 30, 2005 totaled $57,900,000, which is an increase of $235,000 (0.41%) from $57,665,000 at December 31, 2004. Certificates of deposit over $100,000 totaled $16,156,000 on September 30, 2005, which is a decrease of $401,000 (2.42%) from $16,557,000 at December 31, 2004. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $70,947,000 on September 30, 2005, which is a $4,220,000 (6.32%) increase from the $66,727,000 total at December 31, 2004.

Asset Quality. 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 September 30,			At December 31,
	2005			2004
	(Dollars in Thousands)

Restructured loans	$	-		$	95

Non-accrual loans:
Real-estate - mortgage:
Residential	$	19		$	122
Commercial		-			255
Real-estate - construction		-			-
Installment		148			205
Credit card and related		-			-
Commercial		13			16

Total non-accrual loans		180			598

Accruing loans past due 90 days or more:
Real-estate - mortgage:
Residential		-			1
Commercial		-			-
Real-estate - construction		4			6
Installment		-			-
Credit card and related		-			-
Commercial		-			-
Other		1			-

Total accruing loans past due 90 days or more		5			7

Total non-accrual loans and past due loans	$	185		$	605

Non-accrual and past due loans to gross loans		0.09	%		0.33	%

Allowance for credit losses to non-accrual and past due loans		1227.57	%		398.68	%

At September 30, 2005, there were no loans outstanding, other than those 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. Reflected in the above table are $13,438 of prior period troubled debt restructurings that are now not performing under the terms of their modified agreements.

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 borrowers’ ability to pay.

Transactions in the allowance for credit losses for the nine months ended September 30, 2005 and 2004 were as follows:

	Nine Months Ended September 30,
	2005			2004
	(Dollars in Thousands)

Beginning balance	$	2,412		$	2,247

Charge-offs		(399	)		(447	)
Recoveries		308			316
Net charge-offs		(91	)		(131	)
Provisions charged to operations		(50	)		340

Ending balance	$	2,271		$	2,456

Average loans	$	187,556		$	177,143

Net charge-offs to average loans (annualized)		0.06	%		0.09	%

Reserve for Unfunded Commitments. As of September 30, 2005, the Bank had outstanding commitments totaling $17,768,000. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:

	Nine Months Ended September 30,
	2005		2004
	(Dollars in Thousands)

Beginning balance	$	150	$	150

Provisions charged to operations		50		-

Ending balance	$	200	$	150

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the third quarter of 2005.

MARKET RISK AND INTEREST RATE SENSITIVITY

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates or equity pricing. The Company’s principal market risk is interest rate risk that arises from its lending, investing and deposit taking activities. The Company’s profitability is dependent on the Bank’s net interest income. Interest rate risk can significantly affect net interest income to the degree that interest bearing liabilities mature or reprice at different intervals than interest earning assets. The Bank’s Asset/Liability and Risk Management Committee oversees the management of interest rate risk. The primary purpose of the committee is to manage the exposure of net interest margins to unexpected changes due to interest rate fluctuations. The Company does not utilize derivative financial or commodity instruments or hedging strategies in its management of interest rate risk. The primary tool used by the committee to monitor interest rate risk is a “gap” report which measures the dollar difference between the amount of interest bearing assets and interest bearing liabilities subject to repricing within a given time period. These efforts affect the loan pricing and deposit rate policies of the Company as well as the asset mix, volume guidelines, and liquidity and capital planning.

The following table sets forth the Company’s interest-rate sensitivity at September 30, 2005.



	0-3 Months			Over 3 to 12 Months			Over 1Through 5 Years			Over 5 Years			Total
	(Dollars in Thousands)

Assets:
Cash and due from banks	$	-		$	-		$	-		$	-		$	10,397
Federal funds and overnight deposits		3,450			-			-			-			3,450
Securities		355			495			12,707			79,010			92,567
Loans		17,055			4,751			86,235			90,300			198,341
Fixed assets		-			-			-			-			3,958
Other assets		-			-			-			-			9,911

Total assets	$	20,860		$	5,246		$	98,942		$	169,310		$	318,624

Liabilities:
Demand deposit accounts	$	-		$	-		$	-		$	-		$	81,663
NOW accounts		25,510			-			-			-			25,510
Money market deposit accounts		19,118			-			-			-			19,118
Savings accounts		58,089			947			-			-			59,036
IRA accounts		1,206			8,009			14,624			1,473			25,312
Certificates of deposit		10,475			23,351			26,304			714			60,844
Short-term borrowings		6,772			-			-			-			6,772
Long-term borrowings		7			23			7,144			4			7,178
Other liabilities		-			-			-			-			1,419
Junior subordinated debenture		-			-			-			5,155			5,155
Stockholders’ equity:		-			-			-			-			26,617

Total liabilities and
stockholders' equity	$	121,177		$	32,330		$	48,072		$	7,346		$	318,624

GAP	$	(100,317	)	$	(27,084	)	$	50,870		$	161,964
Cumulative GAP	$	(100,317	)	$	(127,401	)	$	(76,531	)	$	85,433
Cumulative GAP as a % of total assets		-31.48	%		-39.98	%		-24.02	%		26.81	%

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

In addition to GAP analysis, the Bank utilizes a simulation model to quantify the effect a hypothetical immediate plus or minus 200 basis point change in rates would have on net interest income and the economic value of equity. The model takes into consideration the effect of call features of investments as well as prepayments of loans in periods of declining rates. When actual changes in interest rates occur, the changes in interest earning assets and interest bearing liabilities may differ from the assumptions used in the model. As of June 30, 2005, the model produced the following sensitivity profile for net interest income and the economic value of equity.

	Immediate Change in Rates
	-200			-100			+100			+200
	Basis Points			Basis Points			Basis Points			Basis Points

% Change in Net Interest Income		-11.6	%		-3.8	%		1.9	%		4.9	%
% Change in Economic Value of Equity		-13.3	%		-4.6	%		-3.3	%		-8.7	%

LIQUIDITY AND CAPITAL RESOURCES

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

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

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of three months or less and money market mutual funds. The levels of such assets are dependent on the Bank’s operating financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of September 30, 2005, totaled $13,847,000, an increase of $2,473,000 (21.74%) from the December 31, 2004 total of $11,374,000.

As of September 30, 2005, the Bank was permitted to draw on a $38,100,000 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. As of September 30, 2005, a $7.0 million long-term convertible advance was outstanding and a $6.0 million short-term advance was outstanding. In addition the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn. Furthermore, as of September 30, 2005, the Company had outstanding $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures issued to Glen Burnie Statutory Trust I, a Connecticut statutory trust subsidiary of the Company.

The Company’s stockholders’ equity increased $873,000 (3.39%) during the nine months ended September 30, 2005, due mainly to an increase in retained earnings offset by a decrease in accumulated other comprehensive income, net of tax. The Company’s accumulated other comprehensive income, net of tax decreased by $641,000 (84.34%) from $760,000 at December 31, 2004 to $119,000 at September 30, 2005, as a result of a decrease in the market value of securities classified as available for sale. Retained earnings increased by $1,327,000 (11.27%) as the result of the Company’s earnings for the nine months, offset by dividends. In addition, $164,283 was transferred within stockholders’ equity in consideration for shares to be issued under the Company’s dividend reinvestment plan in lieu of cash dividends.

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. At September 30, 2005, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 9.87%, a Tier 1 risk-based capital ratio of 14.71% and a total risk-based capital ratio of 15.88%.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s accounting policies are more fully described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 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 Bank’s allowance for credit losses is determined based upon estimates that can and do change when the actual events occur, including historical losses as an indicator of future losses, fair market value of collateral, and various general or industry or geographic specific economic events. The use of these estimates and values is inherently subjective and the actual losses could be greater or less than the estimates. For further information regarding the Bank’s allowance for credit losses, see “Allowance for Credit Losses”, above.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For information regarding the market risk of the Company’s financial instruments, see “Market Risk and Interest Rate Sensitivity” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 4. CONTROLS AND PROCEDURES

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

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

Exhibit No.

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

3.2	Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)

3.3	Articles Supplementary, dated November 16, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December 8, 1999, File No. 0-24047)

3.4	By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)

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)

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

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

32.1	Section 1350 Certifications

99.1	Press Release dated October 28, 2005

SIGNATURES

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


	GLEN BURNIE BANCORP (Registrant)

Date: October 28, 2005	By:	/s/ F. William Kuethe, Jr.
		F. William Kuethe, Jr.
		President, Chief Executive Officer


	By:	/s/ John E. Porter
		John E. Porter
		Chief Financial Officer