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GLEN BURNIE BANCORP - Quarter Report: 2007 June (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 June 30, 2007

OR
 
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 o Accelerated 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 13, 2007, the number of shares outstanding of the registrant’s common stock was 2,490,231.
 



 
TABLE OF CONTENTS

       
Page
Part I - Financial Information
   
         
Item 1.
 
Consolidated Financial Statements:
   
         
   
Condensed Consolidated Balance Sheets, June 30, 2007 (unaudited) and December 31, 2006 (audited)
 
3
         
   
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006 (unaudited)
 
4
       
 
   
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2007 and 2006 (unaudited)
 
5
       
 
   
Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2007 and 2006 (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
 
15
         
Item 4.
 
Controls and Procedures
 
15
       
 
Part II - Other Information
 
 
 
     
 
Item 4.
 
Submission of Matters to a Vote of Security Holders
 
16
       
 
Item 6.
 
Exhibits
 
16
       
 
   
Signatures
 
17

-2-

 
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,
 
   
2007
 
2006
 
ASSETS
 
(unaudited)
 
(audited)
 
 
         
Cash and due from banks
 
$
11,369
 
$
9,006
 
Interest-bearing deposits in other financial institutions
   
44
   
342
 
Federal funds sold
   
2,710
   
3,972
 
Cash and cash equivalents
   
14,123
   
13,320
 
Investment securities available for sale, at fair value
   
83,843
   
95,811
 
Investment securities held to maturity, at cost
             
(fair value June 30: $719; December 31: $730
   
684
   
683
 
Federal Home Loan Bank stock, at cost
   
1,044
   
928
 
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: $1,760; December 31: $1,839)
   
195,496
   
193,337
 
Premises and equipment, at cost, less accumulated depreciation
   
3,259
   
3,406
 
Other real estate owned
   
50
   
50
 
Cash value of life insurance
   
7,025
   
6,892
 
Other assets
   
3,709
   
3,064
 
 
             
 Total assets
 
$
309,488
 
$
317,746
 
 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
 
             
Liabilities:
             
Deposits
 
$
263,957
 
$
274,833
 
Short-term borrowings
   
3,769
   
545
 
Long-term borrowings
   
7,124
   
7,140
 
Junior subordinated debentures owed to unconsolidated subsidiary trust
   
5,155
   
5,155
 
Other liabilities
   
1,478
   
1,872
 
 Total liabilities
   
281,483
   
289,545
 
 
             
Commitments and contingencies
             
 
             
Stockholders’ equity:
             
Common stock, par value $1, authorized 15,000,000 shares;
             
issued and outstanding: June 30: 2,489,591 shares;
             
December 31: 2,484,633 shares
   
2,490
   
2,485
 
Surplus
   
11,808
   
11,720
 
Retained earnings
   
15,012
   
14,312
 
Accumulated other comprehensive loss, net of tax benefits
   
(1,305
)
 
(316
)
 Total stockholders’ equity
   
28,005
   
28,201
 
 
             
 Total liabilities and stockholders’ equity
 
$
309,488
 
$
317,746
 
 
See accompanying notes to condensed consolidated financial statements.
 
-3-


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,
 
 
 
2007
 
2006
 
2007
 
2006
 
Interest income on:
                         
Loans, including fees
 
$
3,251
 
$
2,873
 
$
6,422
 
$
5,809
 
U.S. Treasury and U.S. Government agency securities
   
691
   
882
   
1,393
   
1,544
 
State and municipal securities
   
388
   
430
   
776
   
772
 
Other
   
135
   
262
   
283
   
496
 
Total interest income
   
4,465
   
4,447
   
8,874
   
8,621
 
 
                     
Interest expense on:
                         
Deposits
   
1,234
   
1,232
   
2,505
   
2,194
 
Short-term borrowings
   
31
   
4
   
35
   
6
 
Long-term borrowings
   
106
   
108
   
211
   
213
 
Junior subordinated debentures
   
136
   
136
   
273
   
273
 
Total interest expense
   
1,507
   
1,480
   
3,024
   
2,686
 
 
                     
Net interest income 
   
2,958
   
2,967
   
5,850
   
5,935
 
 
                         
Provision for credit losses
   
20
   
-
   
50
   
-
 
 
                         
Net interest income after provision for credit losses 
   
2,938
   
2,967
   
5,800
   
5,935
 
 
                         
Other income:
                         
Service charges on deposit accounts
   
206
   
214
   
399
   
411
 
Other fees and commissions
   
234
   
253
   
441
   
484
 
Other non-interest income
   
6
   
3
   
9
   
8
 
Income on life insurance
   
65
   
60
   
132
   
105
 
Gains on investment securities
   
4
   
-
   
5
   
-
 
Total other income
   
515
   
530
   
986
   
1,008
 
 
                         
Other expenses:
                         
Salaries and employee benefits
   
1,569
   
1,653
   
3,168
   
3,298
 
Occupancy
   
217
   
210
   
449
   
417
 
Other expenses
   
794
   
790
   
1,581
   
1,636
 
Total other expenses
   
2,580
   
2,653
   
5,198
   
5,351
 
 
                     
Income before income taxes
   
873
   
844
   
1,588
   
1,592
 
 
                         
Income tax expense
   
182
   
131
   
291
   
253
 
 
                         
Net income
 
$
691
 
$
713
 
$
1,297
 
$
1,339
 
 
                         
Basic and diluted earnings per share of common stock
 
$
0.28
 
$
0.29
 
$
0.52
 
$
0.54
 
 
                         
Weighted average shares of common stock outstanding
   
2,487,639
   
2,470,931
   
2,486,278
   
2,469,184
 
 
                         
Dividends declared per share of common stock
 
$
0.12
 
$
0.12
 
$
0.24
 
$
0.24
 
 
See accompanying notes to condensed consolidated financial statements.
 
-4-


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,
 
 
 
2007
 
2006
 
2007
 
2006
 
Net income
 
$
691
 
$
713
 
$
1,297
 
$
1,339
 
                           
Other comprehensive (loss) income, net of tax
                         
 
                         
Unrealized gains (losses) securities:
                         
 
                         
Unrealized holding losses arising
                         
during the period 
   
(1,130
)
 
(1,030
)
 
(980
)
 
(1,704
)
 
                         
Reclassification adjustment for gains
                         
included in net income 
   
(2
)
 
-
   
(9
)
 
-
 
 
                         
Comprehensive (loss) income
 
$
(441
)
$
(317
)
$
308
 
$
(365
)
 
See accompanying notes to condensed consolidated financial statements.
 
-5-


GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2007
 
2006
 
Cash flows from operating activities:
             
Net income
 
$
1,297
 
$
1,339
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation, amortization, and accretion
   
268
   
567
 
Provision for credit losses
   
50
   
-
 
Gains on disposals of assets, net
   
(5
)
 
-
 
Income on investment in life insurance
   
(133
)
 
(105
)
Changes in assets and liabilities:
             
Decrease in other assets 
   
(77
)
 
(283
)
Decrease in other liabilities  
   
(281
)
 
(194
)
               
 Net cash provided by operating activities
   
1,119
   
1,324
 
               
Cash flows from investing activities:
             
Maturities of available for sale mortgage-backed securities
   
5,113
   
3,552
 
Proceeds from maturities and sales of other investment securities
   
8,365
   
2,000
 
Purchases of investment securities
   
(3,120
)
 
(41,410
)
Purchases of Federal Home Loan Bank stock
   
(116
)
 
(9
)
(Increase) decrease in loans, net
   
(2,209
)
 
6,921
 
Purchases of premises and equipment
   
(64
)
 
(44
)
               
Net cash provided (used) by investing activities
   
7,969
   
(28,990
)
               
Cash flows from financing activities:
             
(Decrease) increase in deposits, net
   
(10,876
)
 
26,598
 
Increase (decrease) in short-term borrowings, net
   
3,224
   
(406
)
Repayment of long-term borrowings
   
(16
)
 
(15
)
Dividends paid
   
(710
)
 
(692
)
Common stock dividends reinvested
   
93
   
113
 
               
Net cash provided (used) by financing activities
   
(8,285
)
 
25,598
 
               
Increase (decrease) in cash and cash equivalents
   
803
   
(2,068
)
               
Cash and cash equivalents, beginning of year
   
13,320
   
15,450
 
               
Cash and cash equivalents, end of period
 
$
14,123
 
$
13,382
 
 
See accompanying notes to condensed consolidated financial statements.
 
-6-

 
GLEN BURNIE BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying condensed balance sheet as of December 31, 2006, which has been derived from audited financial statements, and the unaudited interim 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, 2007 and 2006.

Operating results for the three and six month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

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
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2007
 
2006
 
2007
 
2006
 
Basic and diluted:
                         
Net income
 
$
691,000
 
$
713,000
 
$
1,297,000
 
$
1,339,000
 
Weighted average common shares outstanding
   
2,487,639
   
2,470,931
   
2,486,278
   
2,469,184
 
Dilutive effect of stock options
   
-
   
184
   
-
   
92
 
Average common shares outstanding - diluted
   
2,487,639
   
2,471,115
   
2,486,278
   
2,469,276
 
Basic and dilutive net income per share
 
$
0.28
 
$
0.29
 
$
0.52
 
$
0.54
 
 
Diluted earnings per share calculations were not required for the three and six months ended June 30, 2007, since there were no options outstanding.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS will be applied prospectively and is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement No. 115 which is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the fiscal year that begins on or after November 15, 2007, provided that the Company also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. Management is currently evaluating the impact of adopting this Statement on the Company’s financial statements for future periods.
 
-7-


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 $2,967,000 in 2006 compared to $2,958,000 in 2007, a 0.30% decrease. Interest income for the second quarter grew from $4,447,000 in 2006 to $4,465,000 in 2007, a 0.40% increase. Total interest expense for the quarter increased from $1,480,000 in 2006 to $1,507,000 in 2007, a 1.82% increase. The Company realized consolidated net income of $691,000 for the second quarter of 2007 compared to $713,000 for the second quarter of 2006, a 3.08% decrease. Year-to-date net interest income before provision for credit losses was $5,935,000 in 2006 compared to $5,850,000 in 2007, a 1.43% decrease. Interest income year-to-date grew from $8,621,000 in 2006 to $8,874,000 in 2007, a 2.93% increase. Total interest expense increased from $2,686,000 in 2006 to $3,024,000 in 2007, a 12.58% increase. The Company realized consolidated net income of $1,297,000 for the first six months of 2007 compared to $1,339,000 for the first six months of 2006, a 3.14% decrease.

Net interest income is affected by the mix of loans in the Bank’s loan portfolio. Currently a majority of the Bank’s loans are mortgage and construction loans secured by real estate and indirect automobile loans secured by automobiles. While mortgage and construction loans secured by real estate produce higher yields than automobile loans, all of these types of loans are made at interest rates lower than unsecured loans. While the Bank’s loan volume increased in 2004 and 2005, this loan mix produced lower yields on the Company’s interest-earning assets. Meanwhile, market forces resulted in higher rates of interest being paid by the Bank on deposits and borrowings used to fund income producing assets resulting in a decline in net interest income for 2005. In January of 2006, the Bank 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 attracted additional deposits by temporarily offering a 15-month certificate of deposit with an above market rate which resulted in over $27 million in additional deposits. These additional funds were invested in marketable securities and overnight deposits making them readily available to fund loans. The Bank also hired a new commercial loan officer to increase its ability to reach this market segment. In accordance with this plan, the Bank successfully increased its higher yield commercial loans resulting in increased loan volume and yield on commercial mortgages, although the commercial loan volume increase was less than anticipated. Over the same period, yields on new indirect automobile loans increased as outstanding lower interest indirect loans matured. As a result, the Bank earned higher yields on its interest earning assets. However, market forces required us to pay higher rates of interest than anticipated on deposits overall and on borrowings used to fund income producing assets, thereby mitigating the successes of the Bank’s plan and resulting in an overall decline in net interest income for 2006 and the first six months of 2007.

The Bank has developed programs to significantly increase its portfolio of commercial mortgage loans to offset the higher rates paid on deposits. In addition, the Bank has reduced its portfolio of above market rate 15-month certificates of deposit which the Bank had attracted in its promotion that began in January 2006. These steps resulted in improvements in the Bank’s net interest margins and in improvements in the Bank’s overall financial results and condition from the first quarter of 2007, and management anticipates that these steps will continue to improve net interest margins in future periods.  The Bank funded these deposit outflows and the increase in loans through the sale of investment securities and short-term overnight borrowings.

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 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. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in the Company’s periodic reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.

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 $691,000 ($0.28 basic and diluted earnings per share) for the second quarter of 2007, compared to the second quarter 2006 consolidated net income of $713,000 ($0.29 basic and diluted earnings per share). The decrease in consolidated net income for the three month period was due to increases in short term borrowings expense and provision for loan losses, partially offset by decreases in salaries. Year-to-date consolidated net income of $1,297,000 ($0.52 basic and diluted earnings per share) for the six months ended June 30, 2007, compared to the six months ended June 30, 2006 consolidated net income of $1,339,000 ($0.54 basic and diluted earnings per share). The decrease in consolidated net income was primarily due to an increase in interest expense and provisions for loan losses, partially offset by an increase in interest income and decreases in salaries and employee benefits and other expenses for the period.

-8-

 
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, 2007 was $2,958,000 and $5,850,000, respectively, compared to $2,967,000 and $5,935,000 for the same period in 2006, a decrease of $9,000 (0.30%) for the three month period and a decrease of $85,000 (1.43%) for the six month period.   

Interest income increased $18,000 (0.40%) and $253,000 (2.93%) for the three and six months ended June 30, 2007, compared to the same periods in 2006, primarily due to an increase in loan income because of an increase in the average loan balance, partially offset by decreases in the other categories.

Interest expense increased $27,000 (1.82%) and $338,000 (12.58%) for the three and six months ended June 30, 2007, compared to the same 2006 periods. Interest expense increased for the six month period ended June 30, 2007, primarily attributable to increases in interest rates on certificates of deposit and individual retirement accounts and an increase in short term borrowings. The increase in interest expense for the three month period ended June 30, 2007 was due to short term borrowings.

Net interest margins for the three and six months ended June 30, 2007 were 4.43% and 4.44%, compared to tax equivalent net interest margins of 4.24% and 4.35% for the three and six months ended June 30, 2006.
 
Provision for Credit Losses. The Company made a provision for credit losses of $20,000 and $50,000 during the three and six month periods ended June 30, 2007 and no provision for credit losses during the three and six month periods ended June 30, 2006. As of June 30, 2007, the allowance for credit losses equaled 926.32% of non-accrual and past due loans compared to 3,116.95% at December 31, 2006 and 708.86% at June 30, 2006. During the three and six month periods ended June 30, 2007, the Company recorded net charge-offs of $64,000 and $129,000, compared to net charge-offs of $1,000 and $39,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2007 period represent 0.13% of the average loan portfolio.

Other Income. Other income decreased from $530,000 for the three month period ended June 30, 2006, to $515,000 for the corresponding 2007 period, a $15,000 (2.83%) decrease. For the six month period, other income decreased to $986,000 at June 30, 2007 from $1,008,000 at June 30, 2006, a $22,000 (2.18%) decrease. The decrease for the three and six month periods were primarily due to a decrease in other fees and commissions and gains on investment securities. The six month period decrease was partially offset by an increase in income on life insurance.

Other Expenses. Other expenses decreased from $2,653,000 for the three month period ended June 30, 2006, to $2,580,000 for the corresponding 2007 period, an $73,000 (2.75%) decrease. For the six month period, other expenses decreased from $5,351,000 at June 30, 2006 to $5,198,000 at June 30, 2007, a $153,000 (2.94%) decrease. The decrease for the three month period was primarily due to a decrease in salaries and employee benefits. The decrease for the six month period was primarily due to a decrease in salaries and employee benefits and a decline in various operating expenses.

Income Taxes. During the three and six months ended June 30, 2007, the Company recorded income tax expense of $182,000 and $291,000, respectively, compared to income tax expense of $131,000 and $253,000, for the corresponding periods of the prior year. The Company’s effective tax rate for the three and six month periods in 2007 were 20.85% and 18.32%, respectively, compared to 15.52% and 15.89%, respectively for the prior year periods. The increase in the effective tax rate for the three month period was due to decreases in income on tax exempt securities and increased income on loans. The increase in the effective tax rate for the six month period was due to decreases in income on state tax exempt agency securities and increased income on loans.
 
Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income 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 second quarter of 2007, comprehensive income (loss), net of tax, totaled ($441,000), compared to the June 30, 2006 total of ($317,000). Year-to-date comprehensive income (loss), net of tax, totaled $308,000, as of June 30, 2007, compared to the June 30, 2006 total of ($365,000). The decrease for the second quarter, from the prior year, is due primarily to the increase in unrealized losses on available for sale securities, while the increase for the year-to-date, from the prior year, was due to a decrease in unrealized losses on available for sale securities.

-9-


FINANCIAL CONDITION

General. The Company’s assets decreased to $309,488,000 at June 30, 2007 from $317,746,000 at December 31, 2006, primarily due to the decrease in investment securities referred to above (see “Overview”) used to fund the Bank’s increase in loans and the Bank’s deposit outflow resulting from the reduction in portfolio of above market rate 15-month certificates of deposit which the Bank had previously attracted in its promotion that began in January 2006. This decrease in investment securities was partially offset by an increase in cash and cash equivalents and other assets. The Bank’s net loans totaled $195,496,000 at June 30, 2007, compared to $193,337,000 at December 31, 2006, an increase of $2,159,000 (1.12%), primarily attributable to an increase in refinanced mortgages and mortgage participations purchased, partially offset by a decrease in demand loans and purchase money mortgages. Management believes that these steps resulted in improvements in the Bank’s net interest margins and in improvements in the Bank’s overall financial results and condition from the first quarter of 2007, and management anticipates that these steps will continue to improve net interest margins in future periods.

The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $84,527,000 at June 30, 2007, an $11,967,000 (12.40%) decrease from $96,494,000 at December 31, 2006. The Bank’s cash and due from banks (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of June 30, 2007, totaled $14,123,000, an increase of $803,000 (6.03%) from the December 31, 2006 total of $13,320,000. The aggregate market value of investment securities held by the Bank as of June 30, 2007 was $84,562,000 compared to $96,541,000 as of December 31, 2006, a $11,979,000 (12.41%) decrease.

Deposits as of June 30, 2007 totaled $263,957,000, which is a decrease of $10,876,000 (3.96%) from $274,833,000 at December 31, 2006. Demand deposits as of June 30, 2007 totaled $75,156,000, which is an increase of $427,000 (0.57%) from $74,729,000 at December 31, 2006. NOW accounts as of June 30, 2007 totaled $22,084,000, which is a decrease of $190,000 (0.85%) from $22,274,000 at December 31, 2006. Money market accounts as of June 30, 2007 totaled $16,669,000, which is an increase of $1,328,000 (8.66%), from $15,341,000 at December 31, 2006. Savings deposits as of June 30, 2007 totaled $52,006,000, which is an increase of $1,772,000 (3.53%) from $50,234,000 at December 31, 2006. Certificates of deposit over $100,000 totaled $19,330,000 on June 30, 2007, which is a decrease of $3,050,000 (13.63%) from $22,380,000 at December 31, 2006. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $78,712,000 on June 30, 2007, which is an $11,162,000 (12.42%) decrease from the $89,874,000 total at December 31, 2006.

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.

-10-

 
   
At
June 30,
 
At
December 31,
 
 
 
2007
 
2006
 
 
 
(Dollars in Thousands)
 
Restructured loans
 
$
1,055
 
$
-
 
               
Non-accrual loans:
             
Real-estate - mortgage:
             
Residential
 
$
-
 
$
3
 
Commercial
   
-
   
-
 
Real-estate - construction
   
-
   
-
 
Installment
   
58
   
46
 
Credit card and related
   
-
   
-
 
Commercial
   
128
   
8
 
               
Total non-accrual loans
   
186
   
57
 
               
Accruing loans past due 90 days or more:
             
Real-estate - mortgage:
             
Residential
   
-
   
2
 
Commercial
   
-
   
-
 
Real-estate - construction
   
4
   
-
 
Installment
   
-
   
-
 
Credit card and related
   
-
   
-
 
Commercial
   
-
   
-
 
Other
   
-
   
-
 
               
Total accruing loans past due 90 days or more
   
4
   
2
 
               
Total non-accrual loans and past due loans
 
$
190
 
$
59
 
               
Non-accrual and past due loans to gross loans
   
0.10
%
 
0.03
%
               
Allowance for credit losses to non-accrual and past due loans
   
926.32
%
 
3,116.95
%
 
At June 30, 2007, 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 $0 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.

-11-

 
Transactions in the allowance for credit losses for the six months ended June 30, 2007 and 2006 were as follows:

   
Six Months Ended June 30,
 
 
 
2007
 
2006
 
 
 
(Dollars in Thousands)
 
Beginning balance
 
$
1,839
 
$
2,201
 
               
Charge-offs
   
(305
)
 
(219
)
Recoveries
   
176
   
180
 
Net charge-offs
   
(129
)
 
(39
)
Provisions charged to operations
   
50
   
-
 
               
Ending balance
 
$
1,760
 
$
2,162
 
               
Average loans
 
$
194,121
 
$
185,093
 
               
Net charge-offs to average loans (annualized)
   
0.13
%
 
0.04
%

Reserve for Unfunded Commitments. As of June 30, 2007, the Bank had outstanding commitments totaling $25,703,548. 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,
 
 
 
2007
 
2006
 
 
 
(Dollars in Thousands)
 
Beginning balance
 
$
200
 
$
200
 
               
Provisions charged to operations
   
-
   
-
 
               
Ending balance
 
$
200
 
$
200
 
 
Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the second quarter of 2007.

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, 2007.

-12-


   
 
 
 
 
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
 
$
-
 
$
-
 
$
-
 
$
-
 
$
11,413
 
Federal funds and overnight deposits
   
2,710
   
-
   
-
   
-
   
2,710
 
Securities
   
299
   
-
   
9,613
   
74,615
   
84,527
 
Loans
   
9,812
   
12,206
   
79,000
   
94,478
   
195,496
 
Fixed assets
   
-
   
-
   
-
   
-
   
3,259
 
Other assets
   
-
   
-
   
-
   
-
   
12,083
 
                                 
Total assets
 
$
12,821
 
$
12,206
 
$
88,613
 
$
169,093
 
$
309,488
 
                                 
Liabilities:
                               
Demand deposit accounts
 
$
-
 
$
-
 
$
-
 
$
-
 
$
75,156
 
NOW accounts
   
22,084
   
-
   
-
   
-
   
22,084
 
Money market deposit accounts
   
16,669
   
-
   
-
   
-
   
16,669
 
Savings accounts
   
52,006
   
-
   
-
   
-
   
52,006
 
IRA accounts
   
3,636
   
5,609
   
17,531
   
2,391
   
29,167
 
Certificates of deposit
   
18,056
   
21,033
   
29,267
   
519
   
68,875
 
Short-term borrowings
   
3,769
   
-
   
-
   
-
   
3,769
 
Long-term borrowings
   
8
   
26
   
7,090
   
-
   
7,124
 
Other liabilities
   
-
   
-
   
-
   
-
   
1,478
 
Junior subordinated debenture
   
-
   
-
   
5,155
   
-
   
5,155
 
Stockholders’ equity: 
   
-
   
-
   
-
   
-
   
28,005
 
                                 
Total liabilities and
                               
stockholders' equity
 
$
116,228
 
$
26,668
 
$
59,043
 
$
2,910
 
$
309,488
 
                                 
GAP
 
$
(103,407
)
$
(14,462
)
$
29,570
 
$
166,183
       
Cumulative GAP
 
$
(103,407
)
$
(117,869
)
$
(88,299
)
$
77,884
       
Cumulative GAP as a % of total assets
   
-33.41
%
 
-38.09
%
 
-28.53
%
 
25.17
%
     

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 December 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
   
-4.8
%
 
-0.8
%
 
-1.4
%
 
-3.6
%
% Change in Economic Value of Equity
   
-9.5
%
 
-1.5
%
 
-5.4
%
 
-12.0
%
 
-13-

 
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, 2007, totaled $14,123,000, an increase of $803,000 (6.03%) from the December 31, 2006 total of $13,320,000.

As of June 30, 2007, the Bank was permitted to draw on a $37,100,000 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 June 30, 2007, a $7.0 million long-term convertible advance was outstanding. A short term advance of $3.5 million from FHLB of Atlanta was outstanding at June 30, 2007. This advance was used to fund the 15 month certificate of deposits that were maturing in the second quarter and not being renewed. In addition the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it did not have an outstanding balance at June 30, 2007. Furthermore, as of June 30, 2007, 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 $196,000 (0.70%) during the six months ended June 30, 2007, due mainly to an increase in accumulated other comprehensive loss, net of tax benefits, offset by increases in all the other items. The Company’s accumulated other comprehensive loss, net of tax benefits increased by $989,000 (312.97%) from ($316,000) at December 31, 2006 to ($1,305,000) at June 30, 2007, as a result of a decrease in the market value of securities classified as available for sale. Retained earnings increased by $700,000 (4.89%) as the result of the Company’s earnings for the six months, offset by dividends. In addition, $93,755 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, 2007, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 10.81%, a Tier 1 risk-based capital ratio of 16.23% and a total risk-based capital ratio of 17.16%.

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, 2006 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:

-14-

 
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.
-15-


PART II - OTHER INFORMATION

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

On May 10, 2007, 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 of the Board of Directors to accept the selection of the Audit Committee of an outside auditing firm for the Company’s fiscal year ending December 31, 2007. The nominees submitted for election as directors were F. William Kuethe, Jr., Thomas Clocker, William N. Scherer, Sr., and Karen B. Thorwarth.

At the Meeting, at least 1,857,192 shares were voted in favor of each nominee, no more than 310,236 shares were voted to withhold approval of any director. As a result, all of the nominees were elected to serve as directors for a term of three years each and until their successors are duly elected and qualified. Directors not up for re-election and continuing in office after the Meeting are: John E. Demyan, F. W. Kuethe, III, Charles Lynch, Jr., Shirley E. Boyer, Norman Harrison, Michael Livingston, Edward Maddox and Mary Lou Wilcox.

At the Meeting, the Company was authorized to select an outside auditing firm, with 2,101,410 shares voting in favor of the measure, 63,003 shares voting against authorization, and 3,015 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 March 31, 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 March 31, 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 August 8, 2007

-16-


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: August 8, 2007 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
 
-17-