GLEN BURNIE BANCORP - Quarter Report: 2014 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, 2014

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-Accelerated Filer o Smaller Reporting Company 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 August 4, 2014, the number of shares outstanding of the registrant’s common stock was 2,757,490.

TABLE OF CONTENTS


Part I - Financial Information			Page

	Item 1.	Consolidated Financial Statements:

		Condensed Consolidated Balance Sheets, June 30, 2014 (unaudited) and December 31, 2013 (audited)	3

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)	4

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)	5

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 4.	Controls and Procedures	23

Part II - Other Information

	Item 6.	Exhibits	24

		Signatures	25


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,
	2014		2013
ASSETS	(unaudited)		(audited)

Cash and due from banks	$	9,499	$	9,214
Interest-bearing deposits in other financial institutions		4,651		1,636
Federal funds sold		2,415		103
Cash and cash equivalents		16,565		10,953
Investment securities available for sale, at fair value		83,760		74,314
Federal Home Loan Bank stock, at cost		1,328		1,453
Maryland Financial Bank stock		30		30
Loans, less allowance for credit losses
(June 30: $2,663; December 31: $2,972)		281,282		270,684
Premises and equipment, at cost, less accumulated depreciation		3,736		3,697
Other real estate owned		163		1,171
Cash value of life insurance		9,026		8,915
Other assets		4,672		5,977

Total assets	$	400,562	$	377,194

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits	$	345,087	$	323,803
Long-term borrowings		20,000		20,000
Other liabilities		1,626		1,807
Total liabilities		366,713		345,610

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $1, authorized 15,000,000 shares; issued and outstanding: June 30: 2,754,305 shares; December 31: 2,747,370 shares		2,754		2,747
Surplus		9,786		9,714
Retained earnings		20,658		20,301
Accumulated other comprehensive gain (loss), net of taxes		651		(1,178	)
Total stockholders’ equity		33,849		31,584

Total liabilities and stockholders’ equity	$	400,562	$	377,194

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,
	2014		2013		2014		2013
Interest income on:
Loans, including fees	$	3,023	$	3,048	$	6,129	$	6,051
U.S. Treasury and U.S. Government agency securities		175		215		391		402
State and municipal securities		339		426		669		844
Other		23		19		46		41
Total interest income		3,560		3,708		7,235		7,338

Interest expense on:
Deposits		468		539		898		1,098
Long-term borrowings		160		160		318		318
Total interest expense		628		699		1,216		1,416

Net interest income		2,932		3,009		6,019		5,922

Provision for credit losses		112		-		150		-

Net interest income after provision for credit losses		2,820		3,009		5,869		5,922

Other income:
Service charges on deposit accounts		113		132		237		270
Other fees and commissions		190		186		361		361
Other non-interest income		10		4		14		10
Income on life insurance		56		58		111		116
Gains on investment securities		141		122		220		124
Total other income		510		502		943		881

Other expenses:
Salaries and employee benefits		1,669		1,673		3,346		3,328
Occupancy		205		195		427		397
Other expenses		958		855		1,974		1,683
Total other expenses		2,832		2,723		5,747		5,408

Income before income taxes		498		788		1,065		1,395

Income tax expense		63		148		157		226

Net income	$	435	$	640	$	908	$	1,169

Basic and diluted earnings per share of common stock	$	0.16	$	0.24	$	0.33	$	0.43

Weighted average shares of common stock outstanding		2,754,079		2,740,132		2,753,943		2,740,132

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

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Net income	$	435		$	640		$	908		$	1,169

Other comprehensive income, net of tax

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period		739			(2,125	)		1,961			(2,533	)

Reclassification adjustment for gains included in net income		(85	)		(75	)		(132	)		(76	)

Comprehensive income (loss)	$	1,089		$	(1,560	)	$	2,737		$	(1,440	)

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,
	2014			2013

Cash flows from operating activities:
Net income	$	908		$	1,169
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion		388			661
Provision for credit losses		150			-
Gains on disposals of assets, net		(204	)		(124	)
Provision on losses of other real estate owned		75			-
Income on investment in life insurance		(111	)		(116	)
Changes in assets and liabilities:
Decrease in other assets		109			365
Decrease in other liabilities		(182	)		(368	)

Net cash provided by operating activities		1,133			1,587

Cash flows from investing activities:
Maturities of available for sale mortgage-backed securities		6,418			9,643
Proceeds from maturities and sales of other investment securities		3,329			1,854
Purchases of investment securities		(16,117	)		(15,850	)
Sales of Federal Home Loan Bank stock		125			85
Proceeds from sales of other real estate		917			150
Increase in loans, net		(10,748	)		(4,553	)
Purchases of premises and equipment		(258	)		(107	)

Net cash used by investing activities		(16,334	)		(8,778	)

Cash flows from financing activities:
Increase (decrease) in deposits, net		21,284			(3,209	)
Dividends paid		(550	)		(274	)
Common stock dividends reinvested		79			38

Net cash provided (used) by financing activities		20,813			(3,445	)

Increase (decrease) in cash and cash equivalents		5,612			(10,636	)

Cash and cash equivalents, beginning of year		10,953			18,628

Cash and cash equivalents, end of period	$	16,565		$	7,992

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 condensed balance sheet as of December 31, 2013, 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 Article 10 of Regulation S-X 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, 2014 and 2013.

Operating results for the three and six months ended June 30, 2014 is not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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,
	2014		2013		2014		2013
Basic and diluted:
Net income	$	435,000	$	640,000	$	908,000	$	1,169,000
Weighted average common shares outstanding		2,754,079		2,740,132		2,753,943		2,740,132
Basic and dilutive net income per share	$	0.16	$	0.24	$	0.33	$	0.43

Diluted earnings per share calculations were not required for the three and six months ended June 30, 2014 and 2013, since there were no options outstanding.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

The FASB has issued several exposure drafts which, if adopted, would significantly alter the Company’s (and all other financial institutions’) method of accounting for, and reporting, its financial assets and some liabilities from a historical cost method to a fair value method of accounting as well as the reported amount of net interest income. Also, the FASB has issued several exposure drafts regarding a change in the accounting for leases. Under this exposure draft, the total amount of “lease rights” and total amount of future payments required under all leases would be reflected on the balance sheets of all entities as assets and debt. If the changes under discussion in either of these exposure drafts are adopted, the financial statements of the Company could be materially impacted as to the amounts of recorded assets, liabilities, capital, net interest income, interest expense, depreciation expense, rent expense and net income. The Company has not determined the extent of the possible changes at this time. The exposure drafts are in different stages of review, approval and possible adoption.

ASU 2011-11, “Balance Sheet (Topic 210) – “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and did not have a material effect on the Company’s results of operations or financial condition.

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ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for the Corporation beginning January 1, 2013 and did not have a material effect on the Company’s results of operations or financial condition.

ASU 2013-02, Comprehensive Income (Topic 220), “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. Being disclosure-related only, the Company’s adoption of ASU 2013-02 on January 1, 2013 did not have a material effect on the Company’s results of operations or financial condition.

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, is expected to eliminate diversity in practice as it provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The changes were effective for the Company during the first quarter of 2014. Adoption of this ASU had no impact on the financial statements of the Company.

In May 2014, the FASB and the International Accounting Standards Board (the “IASB”) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards (“IFRS”). Previous revenue recognition guidance in GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) Remove inconsistencies and weaknesses in revenue requirements; (2) Provide a more robust framework for addressing revenue issues; (3) Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) Provide more useful information to users of financial statements through improved disclosure requirements; and (5) Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for public entities for interim and annual periods beginning after December 15, 2016; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 and will be closely monitoring developments and additional guidance to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

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In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for interim or annual reporting periods beginning after December 15, 2015; early adoption is permitted. Entities may apply the amendments in this ASU either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As of June 30, 2014, the Company did not have any share-based payment awards that include performance targets that could be achieved after the requisite service period. As such, the adoption of ASU No. 2014-12 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 4 – FAIR VALUE

ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

Fair Value Hierarchy

ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

o Level 1 – Quoted prices in active markets for identical securities

o Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities)

o Level 3 – Significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to ASC 820-10.

The Company’s bond holdings in the investment securities portfolio are the only asset or liability subject to fair value measurements on a recurring basis. Two assets are valued under Level 1 inputs at June 30, 2014 or December 31, 2013. The Company has assets measured by fair value measurements on a non-recurring basis during 2014. At June 30, 2014, these assets include 19 loans classified as impaired, which include nonaccrual, past due 90 days or more and still accruing, or troubled debt restructuring, and a homogeneous pool of indirect loans all considered to be impaired loans, which are valued under Level 3 inputs and one property classified as OREO valued under Level 2 inputs.

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The changes in the assets subject to fair value measurements are summarized below by Level:

	(Dollars in Thousands)
									Fair
	Level 1		Level 2			Level 3			Value
December 31, 2013
Recurring:
Investment securities available for sale (AFS)	$	574	$	73,516		$	224		$	74,314

Non-recurring:
Maryland Financial Bank stock		-		-			30			30
Impaired loans		-		-			4,745			4,745
OREO		-		1,171			-			1,171
		574		74,687			4,999			80,260

Activity:
Investment securities AFS
Purchases of investment securities		-		16,117			-			16,117
Sales, calls and maturities of investment securities		-		(9,747	)		-			(9,747	)
Amortization/accretion of premium/discount		-		(182	)		-			(182	)
Increase (decrease) in market value		119		3,206			(67	)		3,258

Loans
New impaired loans		-		-			3,870			3,870
Payments and other loan reductions		-		-			(382	)		(382	)
Change in total provision		-		-			259			259

OREO
Sales of OREO		-		(917	)		-			(917	)
Loss on disposal of OREO		-		(16	)		-			(16	)
Write-down of OREO		-		(75	)		-			(75	)

June 30, 2014
Recurring:
Investment securities AFS		693		82,910			157			83,760

Non-recurring:
Maryland Financial Bank stock		-		-			30			30
Impaired loans		-		-			8,492			8,492
OREO		-		163			-			163
	$	693	$	83,073		$	8,679		$	92,445

The estimated fair values of the Company’s financial instruments at June 30, 2014 and December 31, 2013 are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

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	June 30, 2014				December 31, 2013
(In Thousands)	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	9,499	$	9,499	$	9,214	$	9,214
Interest-bearing deposits		4,651		4,651		1,636		1,636
Federal funds sold		2,415		2,415		103		103
Investment securities		83,760		83,760		74,314		74,314
Investments in restricted stock		1,328		1,328		1,453		1,453
Ground rents		169		169		169		169
Loans, net		281,282		275,749		270,684		270,684
Accrued interest receivable		1,330		1,330		1,509		1,509

Financial liabilities:
Deposits		345,087		314,768		323,803		291,046
Long-term borrowings		20,000		21,087		20,000		21,032
Dividends payable		275		275		275		275
Accrued interest payable		37		37		29		29

Off-balance sheet commitments		24,345		24,345		23,901		23,901

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments.

The fair value of cash and due from banks, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations. The fair value of loans receivable is estimated using discounted cash flow analysis.

The fair value of non-interest bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts. The fair value of fixed-maturity time deposits is estimated using discounted cash flow analysis.

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2014 are as follows:

Securities available for sale:	Less than 12 months				12 months or more				Total
(Dollars in Thousands)
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss

Obligations of U.S. Govt Agencies	$	-	$	-	$	-	$	-	$	-	$	-
State and Municipal		1,520		6		9,279		301		10,799		307
Corporate Trust Preferred		-		-		157		91		157		91
Mortgage Backed		10,734		43		21,621		967		32,355		1,010
	$	12,254	$	49	$	31,057	$	1,359	$	43,311	$	1,408

At June 30, 2014, the company owned one pooled trust preferred security issued by Regional Diversified Funding, Senior Notes with a Moody’s rating of Ca. The market for this security (two different portions) at June 30, 2014 was not active and markets for similar securities were also not active. As a result, the Company had cash flow testing performed as of June 30, 2014 by an unrelated third party specialist in order to measure the possible extent of other-than-temporary-impairment (“OTTI”). This testing assumed future defaults on the currently performing financial institutions of 150 basis points applied annually with a 0% recovery on both current and future defaulting financial institutions. No write-down was taken in the first six months of 2014. There was a write-down of $15,312 done on the larger portion of the security during the third quarter of 2013 and a write-down of $269 done on the larger portion of the security during the fourth quarter of 2013.

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

As of June 30, 2014, management had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. On June 30, 2014, the Bank held 50 investment securities having continuous unrealized loss positions for more than 12 months. Management has determined that all unrealized losses are either due to increases in market interest rates over the yields available at the time the underlying securities were purchased, current call features that are nearing, and the effect the sub-prime market has had on all mortgage-backed securities. The Bank has no mortgage-backed securities collateralized by sub-prime mortgages. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Except as noted above, as of June 30, 2014, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated income statement.

A rollforward of the cumulative other-than-temporary credit losses recognized in earnings for all debt securities for which a portion of an other-than-temporary loss is recognized in accumulated other comprehensive loss is as follows:

	At		At
	June 30,		December 31,
	2014		2013
	(Dollars in Thousands)

Estimated credit losses, beginning of year	$	3,262	$	3,247
Credit losses - no previous OTTI recognized		-		-
Credit losses - previous OTTI recognized		-		15

Estimated credit losses, end of period	$	3,262	$	3,262

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ITEM 2.

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

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.

Overview

Glen Burnie Bancorp, a Maryland corporation (the “Company”), through its subsidiary, The Bank of Glen Burnie, a Maryland banking corporation (the “Bank”), operates a commercial bank with eight offices in Anne Arundel County Maryland. The Company had consolidated net income of $435,000 ($0.16 basic and diluted earnings per share) for the second quarter of 2014, compared to the second quarter of 2013 consolidated net income of $640,000 ($0.24 basic and diluted income per share), a 32.03% decrease. Year-to-date net income was $908,000 ($0.33 basic and diluted earnings per share), compared to the 2013 consolidated net income of $1,169,000 ($0.43 basic and diluted income per share), a 22.33% decrease. The decrease in net income for the second quarter was primarily due to increases in other expenses and provision for loan losses, a reversal of accrued interest from a loan which was classified as non-performing during the quarter, and a decrease in income on state and municipal securities, partially offset by a decrease in income tax expense. During the three months ended June 30, 2014, deposits increased by $8,164,000 and net loans increased by $2,734,000. The decrease in net income for the six months was primarily due to increases in other expenses, provision for loan losses, the reversal of accrued interest from a loan which was classified as non-performing during the second quarter, and a decrease in state and municipal security income. This was partially offset by a decrease in deposit expense and income tax expense and the gains on investment securities and loan income. During the six months ended June 30, 2014, deposits increased by $21,284,000 and net loans increased by $10,598,000.

Results Of Operations

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, 2014 was $2,932,000 and $6,019,000, compared to $3,009,000 and $5,922,000, respectively, for the same period in 2013, a decrease of $77,000 (2.56%) for the three months and an increase of $97,000 (1.64%) for the six months.

Interest income for the second quarter decreased from $3,708,000 in 2013 to $3,560,000 in 2014, a 3.99% decrease. Interest income for the six months decreased from $7,338,000 in 2013 to $7,235,000 in 2014, a 1.40% decrease. Although interest income on performing loans was approximately the same in both periods, a higher volume of loans was required in the 2014 period to maintain the same income due to the interest rate environment. The decreases in interest income for the three and six month periods were primarily due to a reversal of accrued interest from a loan which was classified as non-performing during the quarter, and a decrease in state and municipal security income.

Interest expense for the second quarter decreased from $699,000 in 2013 to $628,000 in 2014, a 10.16% decrease. Interest expense for the six months decreased from $1,416,000 in 2013 to $1,216,000 in 2014, a 14.12% decrease. The decrease was due to the lower interest rates paid on deposit balances.

Net interest margins on a tax equivalent basis for the three and six months ended June 30, 2014 was 3.33% and 3.54%, compared to 3.86% and 3.95% for the three and six months ended June 30, 2013. The decrease of the net interest margin for the second quarter was primarily due to declining yields on earning assets.

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Provision for Credit Losses. The Company made a provision for credit losses of $112,000 and $150,000 during the three and six month periods ending June 30, 2014 and $0 during the three and six month periods ending June 30, 2013. As of June 30, 2014, the allowance for credit losses equaled 70.28% of non-accrual and past due loans compared to 68.78% at December 31, 2013 and 53.54% at June 30, 2013. During the three and six month periods ended June 30, 2014, the Company recorded a net charge-off of $425,000 and $459,000, compared to net charge-offs of $162,000 and $179,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2014 period represent 0.33% of the average loan portfolio.

Other Income. Other income increased from $502,000 for the three month period ended June 30, 2013, to $510,000 for the corresponding 2014 period, an $8,000 (1.59%) increase. Other income increased from $881,000 for the six month period ended June 30, 2013, to $943,000 for the corresponding 2014 period, a $62,000 (7.04%) increase. The increase for the six and three month periods were due to an increase in gains on investment securities and other non-interest income, partially offset by a reduction in service charges.

Other Expenses. Other expenses increased from $2,723,000 for the three month period ended June 30, 2013, to $2,832,000 for the corresponding 2014 period, a $109,000 (4.00%) increase. Other expenses increased from $5,408,000 for the six month period ended June 30, 2013, to $5,747,000 for the corresponding 2014 period, a $339,000 (6.27%) increase. The increase for the three month period was primarily due to an increase in other professional services along with an increase in other loan expense. The increase for the six month period was primarily due to an increase in losses on other real estate of $91,000, a $53,000 increase in the FDIC assessment, a $23,000 increase in credit reports, a $77,000 increase in other professional services and a $33,000 increase in other loan expenses and increases in salaries and employee benefits.

Income Taxes. During the three and six months ended June 30, 2014, the Company recorded income tax expense of $63,000 and $157,000, compared to income tax expense of $148,000 and $226,000 for the same respective periods in 2013. The Company’s effective tax rate for the three and six month period in 2014 was 12.65% and 14.74%, respectively, compared to 18.78% and 16.20% for the prior year period. The decrease in the effective tax rate for the three and six month periods was due to the increase in the proportion of state and municipal income.

Comprehensive Income. 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 2014, comprehensive income, net of tax, totaled $1,089,000, compared to the June 30, 2013 comprehensive income (loss) of ($1,560,000). Year-to-date, comprehensive income, net of tax, totaled $2,737,000, compared to the June 30, 2013 comprehensive income (loss) of ($1,440,000). The increase for the three and six month periods were due to an increase in the net unrealized gain on securities during those periods.

Financial Condition

General. The Company’s assets increased to $400,562,000 at June 30, 2014 from $377,194,000 at December 31, 2013, primarily due to an increase in cash and cash equivalents, investment securities and an increase in loans funded primarily by deposit growth. The Bank’s net loans totaled $281,282,000 at June 30, 2014, compared to $270,684,000 at December 31, 2013, an increase of $10,598,000 (3.92%), primarily attributable to an increase in purchase money mortgages and indirect lending, offset by decreases primarily in commercial and industrial mortgages and refinance loans.

The Company’s total investment securities portfolio (investment securities available for sale) totaled $83,760,000 at June 30, 2014, an $9,446,000 (12.71%) increase from $74,314,000 at December 31, 2013. 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, 2014, totaled $16,565,000, an increase of $5,612,000 (51.24%) from the December 31, 2013 total of $10,953,000. The increase in cash, cash equivalents and investments was a result of the excess in deposits available to fund loans.

Deposits as of June 30, 2014, totaled $345,087,000, which is an increase of $21,284,000 (6.57%) from $323,803,000 at December 31, 2013. Demand deposits as of June 30, 2014, totaled $90,793,000, which is an increase of $4,045,000 (4.66%) from $86,748,000 at December 31, 2013. NOW accounts as of June 30, 2014, totaled $30,818,000, which is an increase of $2,826,000 (10.10%) from $27,992,000 at December 31, 2013. Money market accounts as of June 30, 2014, totaled $18,879,000, which is a decrease of $341,000 (1.77%), from $19,220,000 at December 31, 2013. Savings deposits as of June 30, 2014, totaled $73,433,000, which is an increase of $2,154,000 (3.02%) from $71,279,000 at December 31, 2013. Certificates of deposit over $100,000 totaled $36,152,000 on June 30, 2014, which is an increase of $7,235,000 (25.02%) from $28,917,000 at December 31, 2013. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $95,012,000 on June 30, 2014, which is a $5,363,000 (5.98%) increase from the $89,649,000 total at December 31, 2013.

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Asset Quality. The following tables set forth the amount of the Bank’s current, past due, and non-accrual loans by categories of loans and restructured loans, at the dates indicated.

The following table analyzes the age of past due loans, including both accruing and non-accruing loans, segregated by class of loans as of the three months ended June 30, 2014 and the year ended December 31, 2013.


At June 30, 2014					90 Days or
(Dollars in Thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total

Commercial and industrial	$	4,017	$	-	$	-	$	-	$	4,017
Commercial real estate		63,908		15		-		2,287		66,210
Consumer and indirect		84,216		1,482		3		281		85,982
Residential real estate		126,820		860		43		1,175		128,898

	$	278,961	$	2,357	$	46	$	3,743	$	285,107

At December 31, 2013					90 Days or
(Dollars in Thousands)			30-89 Days		More and
	Current		Past Due		Still Accruing		Nonaccrual		Total

Commercial and industrial	$	4,159	$	-	$	-	$	14	$	4,173
Commercial real estate		66,191		173		1,177		1,238		68,779
Consumer and indirect		71,755		1,137		-		338		73,230
Residential real estate		126,934		157		431		1,123		128,645

	$	269,039	$	1,467	$	1,608	$	2,713	$	274,827

The balances in the above charts have not been reduced by the allowance for loan loss and the unearned income on loans. For the period ending June 30, 2014, the allowance for loan loss is $2,663,000 and the unearned income is $1,162,000. For the period ending December 31, 2013, the allowance for loan loss is $2,972,000 and the unearned income is $1,171,000.

	At			At
	June 30,			December 31,
	2014			2013
	(Dollars in Thousands)

Restructured loans	$	-		$	-
Non-accrual and 90 days or more and still accruing loans to gross loans		1.33	%		1.58	%
Allowance for credit losses to non-accrual and 90 days or more and still accruing loans		70.28	%		68.78	%

At June 30, 2014, there was $5,319,000 in loans outstanding, included in the current and 30-89 days past due columns 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.

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Non-accrual loans with specific reserves at June 30, 2014 are comprised of:

Consumer loans – Three loans to three borrowers in the amount of $227,000 with a specific reserve of $112,000 established for the loan.

Commercial Real Estate – Three loans to three borrowers in the amount of $2,287,000, secured by commercial and/or residential properties with a specific reserve of $266,000 established for the loans.

Residential Real Estate – Three loans to three borrowers in the amount of $659,000, secured by residential property with a specific reserve of $218,000 established for the loans.

Below is a summary of the recorded investment amount and related allowance for losses of the Bank’s impaired loans at June 30, 2014 and December 31, 2013.


(Dollars in thousands)
June 30, 2014	Recorded Investment		Unpaid Principal Balance		Interest Income Recognized		Specific Reserve		Average Recorded Investment
Impaired loans with specific reserves:
Real-estate - mortgage:
Residential	$	835		835		10		249		839
Commercial		2,287		2,287		36		266		2,356
Consumer		301		301		9		132		301
Installment		-		-		-		-		-
Home Equity		-		-		-		-		-
Commercial		259		259		6		259		261
Total impaired loans with specific reserves	$	3,682		3,682		61		906		3,757

Impaired loans with no specific reserve:
Real-estate - mortgage:
Residential	$	509		842		1		n/a		779
Commercial		4,723		4,723		99		n/a		4,754
Consumer		124		124		-		n/a		-
Installment		272		272		-		n/a		-
Home Equity		-		-		-		n/a		-
Commercial		88		88		2		n/a		90
Total impaired loans with no specific reserve	$	5,716		6,049		102		-		5,623

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(Dollars in thousands)
December 31, 2013	Recorded Investment		Unpaid Principal Balance		Interest Income Recognized		Specific Reserve		Average Recorded Investment
Impaired loans with specific reserves:
Real-estate - mortgage:
Residential	$	559		559		16		155		564
Commercial		2,187		2,187		56		551		2,272
Consumer		394		394		21		179		394
Installment		-		-		-		-		-
Home Equity		-		-		-		-		-
Commercial		279		279		11		279		287
Total impaired loans with specific reserves	$	3,419		3,419		104		1,164		3,517

Impaired loans with no specific reserve:
Real-estate - mortgage:
Residential	$	1,070		1,070		39		n/a		1,071
Commercial		1,177		1,177		47		n/a		1,232
Consumer		11		11		-		n/a		-
Installment		180		180		-		n/a		-
Home Equity		52		52		-		n/a		51
Commercial		-		-		-		n/a		-
Total impaired loans with no specific reserve	$	2,490		2,490		86		-		2,354

Credit Quality Information

The following tables represent credit exposures by creditworthiness category for the quarter ending June 30, 2014 and the year ended December 31, 2013. The use of creditworthiness categories to grade loans permits management to estimate a portion of credit risk. The Bank’s internal creditworthiness is based on experience with similarly graded credits. Loans that trend upward toward higher credit grades typically have less credit risk and loans that migrate downward typically have more credit risk.

The Bank’s internal risk ratings are as follows:

1	Superior – minimal risk (normally supported by pledged deposits, United States government securities, etc.)

2	Above Average – low risk. (all of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)

3	Average – moderately low risk. (most of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)

4	Acceptable – moderate risk. (the weighted overall risk associated with this credit based on each of the bank’s creditworthiness criteria is acceptable)

5	Other Assets Especially Mentioned – moderately high risk. (possesses deficiencies which corrective action by the bank would remedy; potential watch list)

6	Substandard – (the bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected)

7	Doubtful – (weaknesses make collection or liquidation in full, based on currently existing facts, improbable)

8	Loss – (of little value; not warranted as a bankable asset)

Loans rated 1-4 are considered “Pass” for purposes of the risk rating chart below.

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Risk ratings of loans by categories of loans are as follows:


	Commercial				Consumer
June 30, 2014	and		Commercial		and		Residential
(Dollars in Thousands)	Industrial		Real Estate		Indirect		Real Estate		Total

Pass	$	3,655	$	58,070	$	83,718	$	127,491	$	272,934
Special mention		15		1,131		1,690		458		3,294
Substandard		347		7,009		501		548		8,405
Doubtful		-		-		73		-		73
Loss		-		-		-		401		401

	$	4,017	$	66,210	$	85,982	$	128,898	$	285,107

Non-accrual		-		2,287		281		1,175		3,743
Troubled debt restructures		-		-		-		-		-
Number of TDRs contracts		-		-		-		-		-
Non-performing TDRs		-		-		-		-		-
Number of TDR accounts		-		-		-		-		-


	Commercial				Consumer
December 31, 2013	and		Commercial		and		Residential
(Dollars in Thousands)	Industrial		Real Estate		Indirect		Real Estate		Total

Pass	$	3,595	$	59,915	$	71,554	$	126,774	$	261,838
Special mention		299		5,500		1,102		1,312		8,213
Substandard		279		3,364		508		559		4,710
Doubtful		-		-		66		-		66
Loss		-		-		-		-		-

	$	4,173	$	68,779	$	73,230	$	128,645	$	274,827

Non-accrual		14		1,238		338		1,123		2,713
Troubled debt restructures		-		-		-		-		-
Number of TDRs contracts		-		-		-		-		-
Non-performing TDRs		-		-		-		-		-
Number of TDR accounts		-		-		-		-		-

Other Real Estate Owned. At June 30, 2014, the Company had $163,000 in real estate acquired in partial or total satisfaction of debt, compared to $1,171,000 at December 31, 2013. This decrease for 2014 was the result of $91,000 being written off on three properties and three properties with a value of $917,000 being sold. Currently one property is left on OREO at June 30, 2014. All such properties are recorded at the lower of cost or fair value (net realizable value) at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in non-interest expense. Gains and losses realized from the sale of other real estate owned are included in non-interest income or expense.

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 collectability of the principal is unlikely. The allowance, based on evaluations of the collectability 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 are performed for each class of loans and take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, value of collateral securing the loans and current economic conditions and trends that may affect the borrowers’ ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Based on that analysis, the Bank deems its allowance for credit losses in proportion to the total non-accrual loans and past due loans to be sufficient.

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Transactions in the allowance for credit losses for the six months ended June 30, 2014 and the year ended December 31, 2013 were as follows:


	Commercial						Consumer
June 30, 2014	and			Commercial			and			Residential
(Dollars in Thousands)	Industrial			Real Estate			Indirect			Real Estate			Unallocated			Total

Balance, beginning of year	$	413		$	898		$	1,188		$	593		$	(120	)	$	2,972
Provision for credit losses		70			(408	)		184			385			(81	)		150
Recoveries		2			45			128			6			-			181
Loans charged off		(14	)		(137	)		(293	)		(196	)		-			(640	)

Balance, end of quarter	$	471		$	398		$	1,207		$	788		$	(201	)	$	2,663

Individually evaluated for impairment:
Balance in allowance	$	259		$	266		$	132		$	249		$	-		$	906
Related loan balance		347			7,010			697			1,344			-			9,398

Collectively evaluated for impairment:
Balance in allowance	$	212		$	132		$	1,075		$	539		$	(201	)	$	1,757
Related loan balance		3,670			59,200			85,285			127,554			-			275,709


	Commercial						Consumer
December 31, 2013	and			Commercial			and			Residential
(Dollars in Thousands)	Industrial			Real Estate			Indirect			Real Estate			Unallocated			Total

Balance, beginning of year	$	542		$	1,183		$	1,057		$	393		$	133		$	3,308
Provision for credit losses		46			(374	)		469			372			(253	)		260
Recoveries		27			89			314			7			-			437
Loans charged off		(202	)		-			(652	)		(179	)		-			(1,033	)

Balance, end of year	$	413		$	898		$	1,188		$	593		$	(120	)	$	2,972

Individually evaluated for impairment:
Balance in allowance	$	279		$	551		$	179		$	155		$	-		$	1,164
Related loan balance		279			3,364			637			1,629			-			5,909

Collectively evaluated for impairment:
Balance in allowance	$	134		$	347		$	1,009		$	438		$	(120	)	$	1,808
Related loan balance		3,894			65,415			72,593			127,016			-			268,918

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As of June 30, 2014 and December 31, 2013, the allowance for loan losses included an unallocated shortfall in the amount of ($201,000) and ($120,000), respectively. Management is comfortable with the shortfall amounts as they are within the internal Bank policy of 5% tolerance for actual required reserves.


	At			At
	June 30,			June 30,
	2014			2013
	(Dollars in Thousands)

Average loans	$	277,473		$	252,132
Net charge-offs to average loans (annualized)		0.33	%		0.14	%

During 2014, loans to 35 borrowers and related entities totaling approximately $640,000 were determined to be uncollectible and were charged off.

Reserve for Unfunded Commitments. As of June 30, 2014, the Bank had outstanding commitments totaling $24,345,000. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:


	Six Months Ended June 30,
	2014		2013
	(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 2014.

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.

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The following table sets forth the Company’s interest-rate sensitivity at June 30, 2014.


							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	$	-		$	-		$	-		$	-		$	9,499
Federal funds and overnight deposits		7,066			-			-			-			7,066
Securities		-			-			329			83,431			83,760
Loans		15,779			10,398			61,510			193,595			281,282
Fixed assets		-			-			-			-			3,736
Other assets		-			-			-			-			15,219

Total assets	$	22,845		$	10,398		$	61,839		$	277,026		$	400,562

Liabilities:
Demand deposit accounts	$	-		$	-		$	-		$	-		$	90,793
NOW accounts		30,818			-			-			-			30,818
Money market deposit accounts		18,879			-			-			-			18,879
Savings accounts		73,433			-			-			-			73,433
IRA accounts		1,580			12,598			24,572			4,494			43,244
Certificates of deposit		8,571			27,595			46,146			5,608			87,920
Long-term borrowings		-			-			20,000			-			20,000
Other liabilities		-			-			-			-			1,626
Stockholders’ equity:		-			-			-			-			33,849

Total liabilities and stockholders’ equity	$	133,281		$	40,193		$	90,718		$	10,102		$	400,562

GAP	$	(110,436	)	$	(29,795	)	$	(28,879	)	$	266,924
Cumulative GAP	$	(110,436	)	$	(140,231	)	$	(169,110	)	$	97,814
Cumulative GAP as a % of total assets		-27.57	%		-35.01	%		-42.22	%		24.42	%

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

In addition to GAP analysis, the Bank utilizes a simulation model to quantify the effect a hypothetical immediate plus or minus 200 basis point change in rates would have on net interest income and the economic value of equity. The model takes into consideration the effect of call features of investments as well as prepayments of loans in periods of declining rates. When actual changes in interest rates occur, the changes in interest earning assets and interest bearing liabilities may differ from the assumptions used in the model. As of June 30, 2014, 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		-4.1	%		-1.0	%		1.4	%		3.5	%
% Change in Economic Value of Equity		-13.5	%		-4.9	%		-4.1	%		-10.5	%

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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, 2014, totaled $16,565,000, an increase of $5,612,000 (51.24%) from the December 31, 2013 total of $10,953,000.

As of June 30, 2014, the Bank was permitted to draw on a $67,918,000 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. At June 30, 2014, there was nothing outstanding in short-term borrowings from FHLB. As of June 30, 2014, there were $20.0 million in long-term convertible advances outstanding with various monthly and quarterly call features and with final maturities through August 2018. In addition, the Bank has three unsecured federal funds lines of credit in the amount of $3.0 million, $5.0 million and $8.0 million, of which nothing was outstanding as of June 30, 2014.

The Company’s stockholders’ equity increased $2,265,000 (7.17%) during the six months ended June 30, 2014, due mainly to an increase in other comprehensive gain (loss), net of taxes, and an increase in retained net income from the period. The Company’s accumulated other comprehensive gain (loss), net of taxes increased by $1,829,000 (155.26%) from ($1,178,000) at December 31, 2013 to $651,000 at June 30, 2014, as a result of an increase in the market value of securities classified as available for sale. Retained earnings increased by $357,000 (1.76%) as the result of the Company’s net income for the six months, partially offset by 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, 2014, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 8.35%, a Tier 1 risk-based capital ratio of 12.56% and a total risk-based capital ratio of 13.65%.

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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, 2013 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the variables most important in the estimation process:

Allowance for Credit Losses. The Bank’s allowance for credit losses is determined based upon estimates that can and do change when the actual events occur, including historical losses as an indicator of future losses, fair market value of collateral, and various general or industry or geographic specific economic events. The use of these estimates and values is inherently subjective and the actual losses could be greater or less than the estimates. For further information regarding the Bank’s allowance for credit losses, see “Allowance for Credit Losses”, above.

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

ITEM 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 have concluded 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 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)

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)

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

101

Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, June 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to Unaudited Condensed Consolidated Financial Statements

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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: August 14, 2014	By:	/s/ Michael G. Livingston.
		Michael G. Livingston
		President, Chief Executive Officer

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

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