GLEN BURNIE BANCORP - Quarter Report: 2006 June (Form 10-Q)

Unassociated Document

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 June 30, 2006

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	(I.R.S. Employer
incorporation or organization)	Identification No.)

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

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

Inapplicable

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

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

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer oAccelerated filer o Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At July 20, 2006, the number of shares outstanding of the registrant’s common stock was 2,474,100.

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TABLE OF CONTENTS

Part I - Financial Information			Page

	Item 1.	Consolidated Financial Statements:

		Condensed Consolidated Balance Sheets, June 30, 2006
		(unaudited) and December 31, 2005 (audited)	3

		Condensed Consolidated Statements of Income for the Three and Six
		Months Ended June 30, 2006 and 2005 (unaudited)	4

		Condensed Consolidated Statements of Comprehensive (Loss)
		Income for the Three and Six Months Ended June 30, 2006 and 2005
		(unaudited)	5

		Condensed Consolidated Statements of Cash Flows for the Six
		Months Ended June 30, 2006 and 2005 (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 4.	Submission of Matters to a Vote of Security Holders	15

	Item 6.	Exhibits	15

		Signatures	16

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PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	June 30,			December 31,
	2006			2005
ASSETS	(unaudited)			(audited)

Cash and due from banks	$	10,426		$	9,405
Interest-bearing deposits in other financial institutions		371			3,712
Federal funds sold		2,585			2,333
Cash and cash equivalents		13,382			15,450
Investment securities available for sale, at fair value		119,050			86,129
Investment securities held to maturity, at cost
(fair value June 30: $1,082; December 31: $1,239)		1,024			1,151
Federal Home Loan Bank stock, at cost		928			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
(June 30: $2,162; December 31: $2,201)		183,284			190,205
Premises and equipment, at cost, less accumulated depreciation		3,669			3,863
Other real estate owned		50			50
Cash value of life insurance		5,787			5,682
Other assets		4,171			2,857

Total assets	$	331,600		$	306,561

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits	$	291,846		$	265,248
Short-term borrowings		216			622
Long-term borrowings		7,156			7,171
Junior subordinated debentures owed to unconsolidated subsidiary trust		5,155			5,155
Other liabilities		1,448			1,740
Total liabilities		305,821			279,936

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding: June 30: 2,474,100 shares;
December 31: 2,056,024 shares		2,474			2,056
Surplus		11,564			11,458
Retained earnings		13,675			13,341
Accumulated other comprehensive loss, net of tax benefits		(1,934	)		(230	)
Total stockholders’ equity		25,779			26,625

Total liabilities and stockholders’ equity	$	331,600		$	306,561

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Interest income on:
Loans, including fees	$	2,873	$	2,802	$	5,809	$	5,611
U.S. Treasury and U.S. Government agency securities		882		627		1,544		1,197
State and municipal securities		430		397		772		794
Other		262		131		496		275
Total interest income		4,447		3,957		8,621		7,877

Interest expense on:
Deposits		1,232		740		2,194		1,414
Short-term borrowings		4		5		6		18
Long-term borrowings		108		108		213		214
Junior subordinated debentures		136		136		273		273
Total interest expense		1,480		989		2,686		1,919

Net interest income		2,967		2,968		5,935		5,958

Provision for credit losses		-		-		-		-

Net interest income after provision for credit losses		2,967		2,968		5,935		5,958

Other income:
Service charges on deposit accounts		214		213		411		418
Other fees and commissions		253		224		484		438
Other non-interest income		3		5		8		24
Income on life insurance		60		51		105		102
Gains on investment securities		-		45		-		48
Total other income		530		538		1,008		1,030

Other expenses:
Salaries and employee benefits		1,653		1,591		3,298		3,153
Occupancy		210		200		417		379
Other expenses		790		896		1,636		1,795
Total other expenses		2,653		2,687		5,351		5,327

Income before income taxes		844		819		1,592		1,661

Income tax expense		131		145		253		299

Net income	$	713	$	674	$	1,339	$	1,362

Basic and diluted earnings per share of common stock	$	0.29	$	0.27	$	0.54	$	0.55

Weighted average shares of common stock outstanding		2,470,931		2,454,949		2,469,184		2,453,556

Dividends declared per share of common stock	$	0.12	$	0.10	$	0.24	$	0.20

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005

Net income	$	713		$	674		$	1,339		$	1,362

Other comprehensive (loss) income , net of tax

Unrealized gains (losses) securities:

Unrealized holding (losses) gains arising
during the period		(1,030	)		721			(1,704	)		54

Reclassification adjustment for gains
included in net income		-			(28	)		-			(29	)

Comprehensive (loss) income	$	(317	)	$	1,367		$	(365	)	$	1,387

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2006			2005

Cash flows from operating activities:
Net income	$	1,339		$	1,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion		567			394
Compensation expense from vested stock options		-			15
Gains on disposals of assets, net		-			(48	)
Income on investment in life insurance		(105	)		(102	)
Changes in assets and liabilities:
(Increase) decrease in other assets		(283	)		88
Decrease in other liabilities		(194	)		(184	)

Net cash provided by operating activities		1,324			1,525

Cash flows from investing activities:
Maturities of available for sale mortgage-backed securities		3,552			1,572
Proceeds from maturities and sales of other investment securities		2,000			11,609
Purchases of investment securities		(41,410	)		(11,690	)
Purchases of Federal Home Loan Bank stock		(9	)		-
Decrease (increase) in loans, net		6,921			(7,140	)
Purchases of premises and equipment		(44	)		(280	)

Net cash used by investing activities		(28,990	)		(5,929	)

Cash flows from financing activities:
Increase in deposits, net		26,598			9,770
Decrease in short-term borrowings		(406	)		(225	)
Repayment of long-term borrowings		(15	)		(14	)
Dividends paid		(692	)		(585	)
Issuance of common stock		-			6
Common stock dividends reinvested		113			104

Net cash provided by financing activities		25,598			9,056

(Decrease) increase in cash and cash equivalents		(2,068	)		4,652

Cash and cash equivalents, beginning of year		15,450			11,374

Cash and cash equivalents, end of period	$	13,382		$	16,026

See accompanying notes to condensed consolidated financial statements.

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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 six months ended June 30, 2006 and 2005.

Operating results for the three and six month periods ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

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.

Information for net income, dividends declared per share, basic and diluted earnings per share, and weighted average shares of common stock outstanding for prior periods have been restated to reflect 411,101 shares of common stock issued in a 20% stock dividend paid in January 2006.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Basic and diluted:
Net income	$	713,000	$	674,000	$	1,339,000	$	1,362,000
Weighted average common shares outstanding		2,470,931		2,454,949		2,469,184		2,453,556
Dilutive effect of stock options		184		486		92		242
Average common shares outstanding - diluted		2,471,115		2,455,435		2,469,276		2,453,798
Basic and dilutive net income per share	$	0.29	$	0.27	$	0.54	$	0.55

NOTE 3 - EMPLOYEE STOCK PURCHASE BENEFIT PLANS

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123R supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) for periods beginning on or after December 15, 2005. The Company elected to use the modified prospective transition method as permitted by SFAS 123R, and therefore has not restated its financial results for prior periods, as reported under the intrinsic value method.

The Company has an employee stock purchase compensation plan. During the second quarter of 2006, the Board of Directors granted 4,755 options under this plan at $14.15 per share, exercisable for a period of six months and expiring December 11, 2006, of which no options have been exercised as of June 30, 2006. Management of the Company has not recorded any compensation expense relating to these options as there would be no material impact in reported net income, as determined under 123(R).

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Net interest income before provision for credit losses, for the second quarter, was $2,968,000 in 2005 compared to $2,967,000 in 2006, a 0.03% decrease. Interest income for the quarter grew from $3,957,000 in 2005 to $4,447,000 in 2006, a 12.38% increase. Total interest expense increased from $989,000 in 2005 to $1,480,000 in 2006, a 49.64% increase. The Company realized net income of $713,000 for the second quarter of 2006 compared to $674,000 for the second quarter of 2005, a 5.79% increase. Year-to-date net interest income before provision for credit losses was $5,958,000 in 2005 compared to $5,935,000 in 2006, a 0.39% decrease. Interest income year-to-date grew from $7,877,000 in 2005 to $8,621,000 in 2006, a 9.44% increase. Total interest expense increased from $1,919,000 in 2005 to $2,686,000 in 2006, a 39.97% increase. The Company realized consolidated net income of $1,339,000 for the first six months of 2006 compared to $1,362,000 for the same period in 2005, a 1.69% decrease.

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 $713,000 ($0.29 basic and diluted earnings per share) for the second quarter of 2006, compared to second quarter 2005 consolidated net income of $674,000 ($0.27 basic and diluted earnings per share). The increase in consolidated net income for the three month period was due to a decrease in various operating expenses partially offset by an increase in salaries and employee benefits and occupancy expenses. Year-to-date consolidated net income of $1,339,000 ($0.54 basic and diluted earnings per share) for the six months ended June 30, 2006, compared to the six months ended June 30, 2005 consolidated net income of $1,362,000 ($0.55 basic and diluted earnings per share). The decrease in consolidated net income was primarily due to an increase in interest expense combined with no realized gains on investment securities in 2006, partially offset by an increase in interest income for the period.

Net Interest Income. The Company’s consolidated net interest income prior to provision for credit losses for the three and six months ended June 30, 2006 was $2,967,000 and $5,935,000, respectively, compared to $2,968,000 and $5,958,000 for the same period in 2005, a decrease of $1,000 (0.03%) for the three month period and a decrease of $23,000 (0.39%) for the six month period.

Interest income increased $490,000 (12.39%) and $744,000 (9.45%) for the three and six months ended June 30, 2006, compared to the same periods in 2005, primarily due to increases in income on U.S. Government securities and other interest-bearing deposits. The six month period increase also included an increase in loan income, offset by a decrease in state and municipal securities income.

Interest expense increased $491,000 (49.65%) and $767,000 (39.97%) for the three and six months ended June 30, 2006, compared to the same 2005 periods. Interest expense increased for the three and six month periods ended June 30, 2006, primarily attributable to increases in interest rates on certificates of deposit and individual retirement accounts combined with increasing balances of interest bearing deposits.

Net interest margins for the three and six months ended June 30, 2006 were 4.24% and 4.35%, compared to tax equivalent net interest margins of 4.57% and 4.59% for the three and six months ended June 30, 2005.

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Provision for Credit Losses. The Company made no provision for credit losses during the three and six month periods ended June 30, 2006 and June 30, 2005. As of June 30, 2006, the allowance for credit losses equaled 708.86% of non-accrual and past due loans compared to 1,164.55% at December 31, 2005 and 896.76% at June 30, 2005. During the three and six month periods ended June 30, 2006, the Company recorded net charge-offs of $1,000 and $39,000, compared to net charge-offs of $161,000 and $197,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2006 period represent 0.04% of the average loan portfolio.

Other Income. Other income decreased from $538,000 for the three month period ended June 30, 2005, to $530,000 for the corresponding 2006 period, an $8,000 (1.49%) decrease. For the six month period, other income decreased to $1,008,000 at June 30, 2006 from $1,030,000 at June 30, 2005, a $22,000 (2.14%) decrease. The decrease for the three and six month periods were primarily due to a decrease in gains on investment securities partially offset by an increase in other fees and commissions.

Other Expenses. Other expenses decreased from $2,687,000 for the three month period ended June 30, 2005, to $2,653,000 for the corresponding 2006 period, a $34,000 (1.27%) decrease. For the six month period, other expenses increased from $5,327,000 at June 30, 2005 to $5,351,000 at June 30, 2006, a $24,000 (0.45%) increase. The decrease for the three month period was primarily due to a decrease in various operating expenses partially offset by an increase in salaries and employee benefits. The increase for the six month period was primarily due to increases in salaries and employee benefits and occupancy costs, partially offset by a decline in various operating expenses.

Income Taxes. During the three and six months ended June 30, 2006, the Company recorded income tax expense of $131,000 and $253,000, respectively, compared to income tax expense of $145,000 and $299,000, for the corresponding periods of the prior year. The Company’s effective tax rate for the three and six month periods in 2006 were 15.52% and 15.89%, respectively, compared to 17.70% and 18.00%, respectively for the prior year periods.

Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s investment portfolio of investment securities. For the second quarter of 2006, comprehensive income (loss), net of tax, totaled ($317,000), compared to the June 30, 2005 total of $1,367,000. Year-to-date comprehensive income, net of tax, totaled ($365,000), as of June 30, 2006, compared to the June 30, 2005 total of $1,387,000. The decline for the second quarter and year-to-date, from the prior year, is due primarily to the increase in unrealized losses on available for sale securities.

FINANCIAL CONDITION

General. The Company’s assets increased to $331,600,000 at June 30, 2006 from $306,561,000 at December 31, 2005, primarily due to an increase in investment securities and other assets, partially offset by a decrease in loans and cash and cash equivalents. The Bank’s net loans totaled $183,284,000 at June 30, 2006, compared to $190,205,000 at December 31, 2005, a decrease of $6,921,000 (3.64%), primarily attributable to a decrease in indirect loans and mortgage loan participations purchased, partially offset by an increase in mortgage and demand loans.

In January of 2006, management initiated a plan to increase net interest income by reducing its portfolio of lower yielding loans, acquiring additional deposits, expanding its customer base and increasing the Bank’s higher yielding commercial loan portfolio. As part of this plan, the Bank has reduced its portfolio of lower yielding indirect loans and has attracted additional deposits by introducing a new fifteen month personal certificate of deposit product at an interest rate which at that time was above market. This new product has resulted in a $7,238,000 increase in other time deposits and certificates of deposit over $100,000 during the second quarter of 2006, bringing the increase for the six month period to $27,409,000. In anticipation of utilizing these funds to increase the Bank’s commercial loan portfolio, the proceeds are currently being invested in marketable securities and overnight deposits making them readily available to fund loans. In addition, the Bank hired a new commercial loan officer in the first quarter of 2006 to increase its ability to reach this market segment.

The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $120,074,000 at June 30, 2006, a $32,794,000 (37.57%) increase from $87,280,000 at December 31, 2005. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of June 30, 2006, totaled $13,382,000, a decrease of $2,068,000 (13.39%) from the December 31, 2005 total of $15,450,000. The aggregate market value of investment securities held by the Bank as of June 30, 2006 was $120,132,000 compared to $87,368,000 as of December 31, 2005, a $32,764,000 (37.50%) increase.

Deposits as of June 30, 2006 totaled $291,846,000, which is an increase of $26,598,000 (10.03%) from $265,248,000 at December 31, 2005. Demand deposits as of June 30, 2006 totaled $81,177,000, which is an increase of $1,863,000 (2.35%) from $79,314,000 at December 31, 2005. NOW accounts as of June 30, 2006 totaled $23,594,000, which is a decrease of $1,797,000 (7.08%) from $25,391,000 at December 31, 2005. Money market accounts as of June 30, 2006 totaled $16,458,000, which is a decrease of $289,000 (1.73%), from $16,747,000 at December 31, 2005. Savings deposits as of June 30, 2006 totaled $54,632,000, which is a decrease of $588,000 (1.06%) from $55,220,000 at December 31, 2005. Certificates of deposit over $100,000 totaled $23,831,000 on June 30, 2006, which is an increase of $7,072,000 (42.20%) from $16,759,000 at December 31, 2005. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $92,154,000 on June 30, 2006, which is a $20,337,000 (28.32%) increase from the $71,817,000 total at December 31, 2005.

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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 June 30,			At December 31,
	2006			2005
	(Dollars in Thousands)

Restructured loans	$	-		$	-

Non-accrual loans:
Real-estate - mortgage:
Residential	$	7		$	14
Commercial		-			-
Real-estate - construction		-			-
Installment		79			159
Credit card and related		-			-
Commercial		211			12

Total non-accrual loans		297			185

Accruing loans past due 90 days or more:
Real-estate - mortgage:
Residential		1			1
Commercial		-			-
Real-estate - construction		7			3
Installment		-			-
Credit card and related		-			-
Commercial		-			-
Other		-			-

Total accruing loans past due 90 days or more		8			4

Total non-accrual loans and past due loans	$	305		$	189

Non-accrual and past due loans to gross loans		0.17	%		0.10	%

Allowance for credit losses to non-accrual and past due loans		708.86	%		1,164.55	%

At June 30, 2006, 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 $10,798 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.

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Transactions in the allowance for credit losses for the six months ended June 30, 2006 and 2005 were as follows:

	Six Months Ended June 30,
	2006			2005
	(Dollars in Thousands)

Beginning balance	$	2,201		$	2,412

Charge-offs		(219	)		(326	)
Recoveries		180			129
Net charge-offs		(39	)		(197	)
Provisions charged to operations		-			-

Ending balance	$	2,162		$	2,215

Average loans	$	185,093		$	184,198

Net charge-offs to average loans (annualized)		0.04	%		0.22	%

Reserve for Unfunded Commitments. As of June 30, 2006, the Bank had outstanding commitments totaling $19,441,423. 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:

	Six Months Ended June 30,
	2006		2005
	(Dollars in Thousands)

Beginning balance	$	200	$	150

Provisions charged to operations		-		-

Ending balance	$	200	$	150

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the second quarter of 2006.

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 June 30, 2006.

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							Over 1
				Over 3 to			Through			Over
	0-3 Months			12 Months			5 Years			5 Years			Total
	(Dollars in Thousands)
Assets:
Cash and due from banks	$	-		$	-		$	-		$	-		$	10,797
Federal funds and overnight deposits		2,585			-			-			-			2,585
Securities		498			-			11,061			108,515			120,074
Loans		10,430			6,800			80,084			85,970			183,284
Fixed assets		-			-			-			-			3,669
Other assets		-			-			-			-			11,191
Total assets	$	13,513		$	6,800		$	91,145		$	194,485		$	331,600

Liabilities:
Demand deposit accounts	$	-		$	-		$	-		$	-		$	81,705
NOW accounts		23,594			-			-			-			23,594
Money market deposit accounts		16,458			-			-			-			16,458
Savings accounts		54,632			-			-			-			54,632
IRA accounts		3,671			12,189			13,912			1,068			30,840
Certificates of deposit		12,701			44,579			27,500			366			85,146
Short-term borrowings		216			-			-			-			216
Long-term borrowings		8			24			7,124			-			7,156
Other liabilities		-			-			-			-			919
Junior subordinated debenture		-			-			5,155			-			5,155
Stockholders’ equity:		-			-			-			-			25,779
Total liabilities and
stockholders' equity	$	111,280		$	56,792		$	53,691		$	1,434		$	331,600

GAP	$	(97,767	)	$	(49,992	)	$	37,454		$	193,051
Cumulative GAP	$	(97,767	)	$	(147,759	)	$	(110,305	)	$	82,746
Cumulative GAP as a % of total assets		-29.48	%		-44.56	%		-33.26	%		24.95	%

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 March 31, 2006, 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		-7.5%		-2.2%		0.5%		0.1%
% Change in Economic Value of Equity		-7.2%		-3.0%		-2.1%		-10.9%

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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 June 30, 2006, totaled $13,382,000, a decrease of $2,068,000 (13.39%) from the December 31, 2005 total of $15,450,000.

As of June 30, 2006, the Bank was permitted to draw on a $39,700,000 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 June 30, 2006, a $7.0 million long-term convertible 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 June 30, 2006, 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 decreased $846,000 (3.18%) during the six months ended June 30 , 2006, due mainly to an increase in accumulated other comprehensive loss, net of tax benefits, offset partially by increases in all the other items. The Company’s accumulated other comprehensive loss, net of tax benefits increased by $1,704,000 (740.87%) from ($230,000) at December 31, 2005 to ($1,934,000) at June 30, 2006, as a result of a decrease in the market value of securities classified as available for sale. Retained earnings increased by $334,000 (2.50%) as the result of the Company’s earnings for the six months, offset by dividends and the stock dividend paid in January. In addition, $112,771 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 June 30, 2006, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 9.76%, a Tier 1 risk-based capital ratio of 15.93% and a total risk-based capital ratio of 17.10%.

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, 2005 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.

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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.

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PART II - OTHER INFORMATION

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

On May 11, 2006, the Company held its Annual Meeting of Stockholders. The matters submitted to the stockholders for a vote were: (i) the election of four directors; and (ii) the authorization to select an outside auditing firm for the Company’s fiscal year ending December 31, 2006. The nominees submitted for election as directors were Shirley E. Boyer, Norman Harrison, Michael Livingston and Edward Maddox.

At the Meeting, at least 1,841,727 shares were voted in favor of each nominee, no more than 241,672 shares were voted to withhold approval of any director. As a result, all of the nominees were elected to serve as directors until the next annual meeting of shareholders of the Company and until their successors are duly elected and qualified. Directors not up for re-election and continuing in office after the Meeting are: Thomas Clocker, John E. Demyan, F. William Kuethe, Jr., F. W. Kuethe, III, Charles Lynch, Jr., William N. Scherer, Sr., Karen B. Thorwarth, and Mary Lou Wilcox.

At the Meeting, the Company was authorized to select an outside auditing firm, with 1,845,899 shares voting in favor of the measure, 228,974 shares voting against authorization, and 18,525 shares abstaining.

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 July 31, 2006

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SIGNATURES

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


	GLEN BURNIE BANCORP (Registrant)

Date: July 31, 2006	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

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