UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2008March 31, 2009

OR
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-240470-24047

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  xx   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 ¨oNon-Accelerated Filer ¨ oSmaller 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 ¨oNo xx

At October 20, 2008,April 17, 2009, the number of shares outstanding of the registrant’s common stock was 2,968,462.2,675,051.
 

TABLE OF CONTENTS


TABLE OF CONTENTS

 
Page
Part I - Financial Information
 
    
 
Item 1.
Consolidated Financial Statements: 
    
  Condensed Consolidated Balance Sheets, September 30, 2008March 31, 2009 
  (unaudited) and December 31, 20072008 (audited)3
    
  Condensed Consolidated Statements of Income for the Three and Nine 
  Months Ended September 30,March 31, 2009 and 2008 and 2007 (unaudited)4
    
  Condensed Consolidated Statements of Comprehensive (Loss) Income for the 
  Three and Nine Months Ended September 30, 2008March 31, 2009 and 2007(unaudited)2008(unaudited)5
    
  Condensed Consolidated Statements of Cash Flows for the NineThree Months 
  Ended September 30, 2008March 31, 2009 and 2007(unaudited)2008(unaudited)6
    
  Notes to Unaudited Condensed Consolidated Financial Statements7
    
 
Item 2.
Management’s Discussion and Analysis of Financial Condition 
  and Results of Operations9
    
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk1615 
    
 
Item 4.
Controls and Procedures1615
    
Part II - Other Information
 
    
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds1716 
    
 
Item 6.
Exhibits1716 
    
  
Signatures
1817 

- 2 - -

PART I - FINANCIAL INFORMATION
ITEM 1.
1.
CONSOLIDATED FINANCIAL STATEMENTS
 
 
GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

  September 30, December 31, 
  2008 2007 
   (unaudited)  (audited) 
 ASSETS       
        
Cash and due from banks $9,228 $8,221 
Interest-bearing deposits in other financial institutions  8,938  5,847 
Federal funds sold  52  727 
Cash and cash equivalents  18,218  14,795 
Investment securities available for sale, at fair value  61,924  77,182 
Investment securities held to maturity, at cost (fair value September 30: $0; December 31: $726)  -  684 
Federal Home Loan Bank stock, at cost  1,768  1,382 
Maryland Financial Bank stock, at cost  100  100 
Common Stock in the Glen Burnie Statutory Trust I  155  155 
Loans, less allowance for credit losses (September 30: $1,443; December 31: $1,604)  232,034  199,753 
Premises and equipment, at cost, less accumulated depreciation  3,129  3,088 
Other real estate owned  600  50 
Cash value of life insurance  7,365  7,161 
Other assets  3,965  2,924 
        
 Total assets $329,258 $307,274 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
        
Liabilities:       
Deposits $268,895 $252,917 
Short-term borrowings  350  503 
Long-term borrowings  27,081  17,107 
Junior subordinated debentures owed to unconsolidated subsidiary trust  5,155  5,155 
Other liabilities  1,722  1,856 
 Total liabilities  303,203  277,538 
        
Commitments and contingencies       
        
Stockholders’ equity:       
Common stock, par value $1, authorized 15,000,000 shares; issued and outstanding: September 30: 2,968,462 shares; December 31: 2,498,465 shares  2,968  2,499 
Surplus  11,577  11,921 
Retained earnings  13,194  15,750 
Accumulated other comprehensive loss, net of tax benefits  (1,684) (434)
 Total stockholders’ equity  26,055  29,736 
        
 Total liabilities and stockholders’ equity $329,258 $307,274 
       
  March 31,  December 31, 
  2009  2008 
   (unaudited)  (audited) 
ASSETS      
       
Cash and due from banks $8,277  $6,960 
Interest-bearing deposits in other financial institutions  8,779   7,884 
Federal funds sold  4,602   6,394 
Cash and cash equivalents  21,658   21,238 
Investment securities available for sale, at fair value  68,300   57,949 
Federal Home Loan Bank stock, at cost  1,813   1,768 
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        
(March 31: $1,977; December 31: $2,022)  237,748   235,133 
Premises and equipment, at cost, less accumulated depreciation  3,326   3,099 
Other real estate owned  550   550 
Cash value of life insurance  7,503   7,435 
Other assets  4,947   5,075 
         
Total assets $346,100  $332,502 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Liabilities:        
Deposits $287,433  $269,768 
Short-term borrowings  180   630 
Long-term borrowings  27,062   27,072 
Junior subordinated debentures owed to unconsolidated subsidiary trust  5,155   5,155 
Other liabilities  1,365   1,969 
Total liabilities  321,195   304,594 
         
Commitments and contingencies        
         
Stockholders’ equity:        
Common stock, par value $1, authorized 15,000,000 shares;        
issued and outstanding: March 31: 2,675,051 shares;        
December 31: 2,967,727 shares  2,675   2,968 
Surplus  9,137   11,568 
Retained earnings  14,315   14,129 
Accumulated other comprehensive loss, net of tax benefits  (1,222)  (757)
 Total stockholders’ equity  24,905   27,908 
         
 Total liabilities and stockholders’ equity $346,100  $332,502 

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 Nine Months Ended 
  September 30, September 30, 
  2008 2007 2008 2007 
Interest income on:             
Loans, including fees $3,780 $3,411 $10,642 $9,833 
U.S. Treasury and U.S. Government agency securities  455  604  1,572  1,997 
State and municipal securities  353  338  1,073  1,114 
Other  79  123  285  406 
Total interest income  4,667  4,476  13,572  13,350 
            
Interest expense on:             
Deposits  1,141  1,146  3,522  3,651 
Short-term borrowings  33  52  50  87 
Long-term borrowings  235  106  611  317 
Junior subordinated debentures  137  137  410  410 
Total interest expense  1,546  1,441  4,593  4,465 
            
Net interest income  3,121  3,035  8,979  8,885 
              
Provision for credit losses  239  -  446  50 
              
Net interest income after provision for credit losses  2,882  3,035  8,533  8,835 
              
Other income:             
Service charges on deposit accounts  181  205  554  604 
Other fees and commissions  237  249  652  690 
Other non-interest income  (14) 4  (11) 13 
Income on life insurance  67  66  203  198 
Gains on investment securities  86  115  141  120 
Total other income  557  639  1,539  1,625 
              
Other expenses:             
Salaries and employee benefits  1,608  1,575  4,784  4,743 
Occupancy  220  221  676  670 
Impairment of securities  2,816  -  2,816  - 
Other expenses  710  829  2,343  2,410 
Total other expenses  5,354  2,625  10,619  7,823 
            
(Loss) income before income taxes  (1,915) 1,049  (547) 2,637 
              
Income tax expense  203  264  431  555 
              
Net (loss) income $(2,118)$785 $(978)$2,082 
              
Basic and diluted (loss) earnings per share of common stock $(0.71)$0.26 $(0.33)$0.70 
              
Weighted average shares of common stock outstanding  2,972,016  2,990,105  2,985,757  2,987,349 
              
Dividends declared per share of common stock $0.10 $0.10 $0.30 $0.30 
  Three Months Ended 
  March 31, 
  2009  2008 
Interest income on:      
Loans, including fees $3,766  $3,373 
U.S. Treasury and U.S. Government agency securities  373   564 
State and municipal securities  330   347 
Other
  64   129 
Total interest income  4,533   4,413 
         
Interest expense on:        
Deposits  1,269   1,222 
Short-term borrowings  -   1 
Long-term borrowings  262   188 
Junior subordinated debentures  137   137 
Total interest expense  1,668   1,548 
         
Net interest income  2,865   2,865 
         
Provision for credit losses  150   55 
         
Net interest income after provision for credit losses  2,715   2,810 
         
Other income (loss):        
Service charges on deposit accounts  170   191 
Other fees and commissions  179   199 
Other non-interest income (loss)  (1)  3 
Income on life insurance  68   68 
(Losses) gains on investment securities  (2)  7 
Total other income  414   468 
         
Other expenses:        
Salaries and employee benefits  1,532   1,589 
Occupancy  232   229 
Impairment of securities  30   - 
Other expenses  825   835 
Total other expenses  2,619   2,653 
         
Income before income taxes  510   625 
         
Income tax expense  55   89 
         
Net income $455  $536 
         
Basic and diluted  earnings per share of common stock $0.16  $0.18 
         
Weighted average shares of common stock outstanding  2,918,679   2,996,496 
         
Dividends declared per share of common stock $0.10  $0.10 

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 Nine Months Ended 
  September 30, September 30, 
  2008 2007 2008 2007 
          
Net (loss) income $(2,118)$785 $(978)$2,082 
              
Other comprehensive (loss) income, net of tax             
              
Unrealized gains (losses) securities:             
              
Unrealized holding (losses) gains arising during the period  (416) 749  (1,165) (230)
              
Reclassification adjustment for gains included in net income  (52) (70) (85) (80)
              
Comprehensive (loss) income $(2,586)$1,464 $(2,228)$1,772 
  Three Months Ended 
  March 31, 
  2009  2008 
       
Net income $455  $536 
         
Other comprehensive (loss) income, net of tax        
         
Unrealized gains (losses) securities:        
         
Unrealized holding (losses) gains arising during the period  (466)  248 
         
Reclassification adjustment for losses (gains) included in net income  1   (1)
         
Comprehensive (loss) income $(10) $783 

See accompanying notes to condensed consolidated financial statements.

- 5 - -

GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

  Nine Months Ended September 30, 
  2008 2007 
      
Cash flows from operating activities:       
Net (loss) income $(978)$2,082 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:       
Depreciation, amortization, and accretion  424  338 
Provision for credit losses  446  50 
Gains on disposals of assets, net  (124) (120)
Impairment of securities  2,816  - 
Income on investment in life insurance  (204) (199)
Changes in assets and liabilities:      
(Increase) decrease in other assets  (149) 149 
Decrease in other liabilities  (185) (202)
        
Net cash provided by operating activities  2,046  2,098 
        
Cash flows from investing activities:       
Maturities of available for sale mortgage-backed securities  13,153  8,857 
Proceeds from maturities and sales of other investment securities  11,321  15,500 
Purchases of investment securities  (13,382) (5,310)
Purchases of Federal Home Loan Bank stock  (386) (116)
Purchases of other real estate  (550) - 
Increase in loans, net  (32,727) (13,655)
Purchases of premises and equipment  (449) (90)
        
Net cash (used) provided by investing activities  (23,020) 5,186 
        
Cash flows from financing activities:       
Increase (decrease) in deposits, net  15,978  (15,372)
Increase in federal funds purchased, net  -  815 
(Decrease) increase in short-term borrowings, net  (153) 3,437 
Proceeds from long-term borrowings  10,000  - 
Repayment of long-term borrowings  (26) (24)
Repurchase and retirement of common stock  (503) - 
Issuance of common stock  -  4 
Dividends paid  (1,029) (1,005)
Common stock dividends reinvested  130  136 
        
Net cash provided (used) by financing activities  24,397  (12,009)
        
Increase (decrease) in cash and cash equivalents  3,423  (4,725)
        
Cash and cash equivalents, beginning of year  14,795  13,320 
        
Cash and cash equivalents, end of period $18,218 $8,595 
  Three Months Ended March 31, 
  2009  2008 
       
Cash flows from operating activities:      
Net income $455  $536 
Adjustments to reconcile net income to net cash  provided by operating activities:        
Depreciation, amortization, and accretion  110   168 
Provision for credit losses  150   55 
Losses (gains) on disposals of assets, net  4   (7)
Impairment of securities  30   - 
Income on investment in life insurance  (68)  (68)
Changes in assets and liabilities:        
Decrease in other assets  424   164 
Decrease in other liabilities  (442)  (559)
         
Net cash  provided by operating activities  663   289 
         
Cash flows from investing activities:        
Maturities of available for sale mortgage-backed securities  635   1,247 
Proceeds from maturities and sales of other investment securities  1,498   3,007 
Purchases of investment securities  (13,293)  (9,692)
(Purchases) sales of Federal Home Loan Bank stock  (45)  19 
Increase in loans, net  (2,765)  (4,299)
Purchases of premises and equipment  (323)  (194)
         
Net cash used by investing activities  (14,293)  (9,912)
         
Cash flows from financing activities:        
Increase  in deposits, net  17,665   8,095 
Decrease in short-term borrowings, net  (450)  (360)
Repayment of long-term borrowings  (10)  (8)
Repurchase and retirement of common stock  (2,769)  (123)
Dividends paid  (431)  (430)
Common stock dividends reinvested  45   43 
         
Net cash provided by financing activities  14,050   7,217 
         
Increase (decrease) in cash and cash equivalents  420   (2,406)
         
Cash and cash equivalents, beginning of year  21,238   14,795 
         
Cash and cash equivalents, end of period $21,658  $12,389 

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, 2007,2008, 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 nine months ended September 30, 2008March 31, 2009 and 2007.2008.

Operating results for the three and nine month periodsperiod ended September 30, 2008March 31, 2009 is not necessarily indicative of the results that may be expected for the year ending December 31, 2008.2009.

NOTE 2 - EARNINGS PER SHARE

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

Information for net income, dividends declared per share, basic and diluted earnings per share, and weighted average shares of common stock outstanding for prior periods have been restated to reflect 499,559 shares of common stock issued in a 20% stock dividend paid in January 2008.

  Three Months Ended Nine Months Ended  Three Months Ended 
  September 30,  September 30,   March 31, 
  2008 2007 2008 2007  2009  2008 
Basic and diluted:                   
Net (loss) income $(2,118,000)$785,000 $(978,000)$2,082,000 
Net income $455,000  $536,000 
Weighted average common shares outstanding  2,972,016  2,990,105  2,985,757  2,987,349   2,918,679   2,996,496 
Basic and dilutive net income per share $(0.71)$0.26 $(0.33)$0.70  $0.16  $0.18 

Diluted earnings per share calculations were not required for the three and nine months ended September 30,March 31, 2009 and 2008, and 2007, since there were no options outstanding.

NOTE 3 – REPURCHASE AND RETIREMENT OF COMMON STOCK

In February 2008, the Company approvedinstituted a common stock repurchase planStock Repurchase Program.  Under the program, as extended and increased, the Company was authorized to spend up to $4,127,309 to repurchase upshares of its outstanding common stock.  The repurchases may be made from time to $1,000,000 of common stocktime at a price not to exceed $12.50 per share.  During the three month period ended March 31, 2008, the Company repurchased and retired 10,80050,300 shares of common stock at an average price of $11.35 per share, for a total of $122,634. $11.48.

During the three month period ended June 30, 2008,ending March 31, 2009, the Company increased the authorized amount by $2,549,865 and repurchased and retired 13,000297,679 shares of common stock at an average price of $12.27 per share,$9.30 for a total of $159,434. During$2,769,067.  As of March 31, 2009, $780,798 remains available for repurchases under the three month period ended September 30, 2008, the Company repurchased and retired 19,000 shares of common stock at an average price of $11.63 per share, for a total of $220,914.program.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2008,12, 2009, the Company adopted EmergingFASB issued FASB Staff Position EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue Task ForceNo. 99-20 (FSP). FASB FSP 99-20-1 amends the impairment guidance in FASB EITF Issue (“EITF”) No. 06-04, 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be held by a Transferor in Securitized Financial AssetsAccounting. The intent of the FSP is to reduce complexity and achieve more consistent determinations as to whether other-than-temporary impairments of available for Deferred Compensationsale or held to maturity debt securities have occurred. The FSP is effective for interim and Postretirement Benefit Aspectsannual reporting periods ending after December 15, 2008. The adoption of Endorsement Split-Dollar Life Insurance Agreements, which established recognition of a liability and related compensation costs for endorsement split-dollar life insurance arrangements that provide a benefit tothis FSP did not have an employee that extends to postretirement periods. Inimpact on the first quarter 2008, the Company recognized a change in accounting principle through a cumulative-effect adjustment to retained earnings of $179,794.Company’s consolidated financial statements.

- 7 - -

In April 2009, the FASB issued three Final Staff Positions (FSPs) to provide additional guidance and disclosures regarding fair value measurements and impairments of securities:

In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Statement (SFAS) No. 157, FSP FAS 157-4. “Determining Fair Value Measurements”. When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”This Statement defines, provides guidance for estimating fair value  establishes a frameworkwhen the volume and level of activity for measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. This Statementhave significantly decreased. The Company does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncementsexpect that require or permit assets or liabilities to be measured at fair value. In February 2008,FSP FAS 157-4 will have a material impact on the FASB agreed to defer the effective date to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in theCompany’s consolidated financial statements on a recurring basis.  For these financial and nonfinancial assets and liabilities that are remeasured at least annually, this statement is effective for fiscal years beginning after November 15, 2007.statements.

In February 2007,FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends the FASB issued SFAS No. 159, other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in financial statements. The Company does not expect that FSP FAS 115-2 and FAS 124-2 will have a material impact on the Company’s consolidated financial statements.

‘TheFSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value Optionof Financial Instruments, requires disclosure about fair value of financial instruments for Financial Assets and Financial Liabilities”. This statement is effective for fiscal years beginning after November 15, 2007.interim reporting periods of publicly traded companies as well as in annual financial statements. The Company will not electreview the fair value option for anyrequirements of FSP FAS 107-1 and comply with its financial assets or financial liabilities.requirements.

These three FSPs are effective for interim and annual periods ending after June 15, 2009.

NOTE 5 – FAIR VALUE

SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

Fair Value Hierarchy
 
SFAS No. 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with SFAS No. 157, 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 SFAS No. 157.
 
The following table presents fair value measurements as of September 30, 2008:March 31, 2009:
 
  
Level 1
 
Level 2
 
Level 3
 
Total
 
  
(in thousands)
 
          
Investment securities $-  61,924  - $61,924 

NOTE 6 – SUBSEQUENT EVENT

The Company’s financial results include a write-down of $2,816,000 taken on September 30, 2008 on investments in the three series of preferred stock issued by Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) held by the Company, as required by SFAS 115. On October 3, 2008 the Emergency Economic Stabilization Act of 2008 (EESA) was enacted. Section 301 of EESA provides tax relief for banking organizations that have suffered losses on certain holdings of Fannie Mae and Freddie Mac preferred stock by changing the character of those losses from capital to ordinary for Federal income tax purposes. As a result, the Company will recognize a tax credit for $1,110,000 during the quarter ending December 31, 2008 arising from the $2,816,000 write-down taken in the quarter ended September 30, 2008. Had EESA been enacted during the third quarter, the Company would have recognized $132,000 in net income for the nine month period ending September 30, 2008.

  Level 1  Level 2  Level 3  Total 
  (in thousands) 
 Recurring:
            
   Investment securities available for sale $-  $68,300  $-  $68,300 
                 
Non-recurring:                
   Impaired loans  -   -   886   886 
   OREO  -   550   -   550 
  $-  $68,850  $886  $69,736 
- 8 - -

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

Net interest income before provision for credit losses, for the thirdfirst quarter, was $3,035,000$2,865,000 in 20072008 compared to $3,121,000$2,865,000 in 2008, a 2.83% increase.2009.  Interest income for the thirdfirst quarter increased from $4,476,000 in 2007 to $4,667,000$4,413,000 in 2008 to $4,533,000 in 2009, a 4.27%2.722% increase.  Total interest expense for the quarter increased from $1,441,000 in 2007 to $1,546,000$1,548,000 in 2008 to $1,668,000 in 2009, a 7.28%7.75% increase.  The Company realized consolidated net lossincome of $2,118,000$455,000 for the thirdfirst quarter of 20082009 compared to consolidated net income $785,000$536,000 for the thirdfirst quarter of 2007,2008, a 369.81%15.11% decrease.  The decrease was primarily due to a larger provision for loan losses, a write-down recognized on a security and a decrease in income on service charges and other fees and commissions.  This was partially offset by a decrease in salaries and employee benefits and a decrease in income tax expense.

While the Bank has not been directly impacted by many of $2,816,000 taken on September 30, 2008 on investmentsthe difficulties facing other financial institutions in the three seriescurrent economic downturn, the turbulence in the U.S. economy and in the stock market has had significant impact on the Bank in specific identifiable areas.  Overall deposits have increased as stock market investors seek more secure places to invest their funds, and there has been an overall decline in interest rates in response to stock market turbulence.  Both rates of preferred stock issued by Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) heldinterest paid by the Company, as required by SFAS 115. Year-to-date netBank on deposits and rates of interest income before provision for credit losses was $8,885,000 in 2007 compared to $8,979,000 in 2008, a 1.06% increase. Interest income year-to-date increased from $13,350,000 in 2007 to $13,572,000 in 2008, a 1.66% increase. Total interest expense year-to-date increased from $4,465,000 in 2007 to $4,593,000 in 2008, a 2.87% increase. The Company realized consolidated net loss of $978,000 for the first nine months of 2008 compared to consolidated net income of $2,082,000 for the first nine months of 2007, a 146.97% decrease primarily due to the write-down of the three series of Fannie Mae and Freddie Mac preferred stock heldearned by the Company.Bank on loans and other interest earning assets have declined; however, the rates earned by the Bank on loans and other interest earning assets have declined faster than the rates paid on deposits.

Since December 31, 2007 loans have increased by $32,281,000, funded by depositsresults of $15,978,000, long-term borrowings from the Federal Home Loan Bank of Atlanta of $10,000,000 and net sales and maturities of investment securities of $11,092,000, resulting in a net increase of cash and equivalents of $3,423,000.operations

As a result of the write-down of $2,816,000 taken in the September 30, 2008 quarter on investments in the three series of Fannie Mae and Freddie Mac preferred stock held by the Company, the Company will recognize a tax credit of $1,110,771 in the quarter ending December 31, 2008.
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 lossincome of $2,118,000$455,000 ($0.710.16 basic and diluted loss per share) for the thirdfirst quarter of 2008,2009, compared to the thirdfirst quarter 20072008 consolidated net income of $785,000$536,000 ($0.260.18 basic and diluted earnings per share).  The decrease in consolidated net income for the three month period was due to the write-down taken on the Fannie Mae and Freddie Mac preferred stock and an increase in the provision for loan losses. Year-to-date consolidated net loss was $978,000 ($0.33 basiclosses and diluted loss per share) fora write-down of a security held in the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007 consolidated netBank’s investment portfolio, offset by a decrease in salaries and employee benefits and income of $2,082,000 ($0.70 basic and diluted earnings per share).tax expense.

Net Interest Income.  The Company’s consolidated net interest income prior to provision for credit losses for the three and nine months ended September 30, 2008March 31, 2009 was $3,121,000 and $8,979,000, respectively,$2,865,000, compared to $3,035,000 and $8,885,000$2,865,000 for the same period in 2007, an increase of $86,000 (2.83%2008.

Interest income increased $120,000 (2.72%) for the three month period and an increase of $94,000 (1.06%) for the nine month period.

Interest income increased $191,000 (4.27%) and $222,000 (1.66%) for the three and nine months ended September 30, 2008,March 31, 2009, compared to the same periodsperiod in 2007.2008.  Interest income increased for the three and nine month periodsperiod due to an increase in loan income, partially offset by a decrease in interest income on U.S. Government agency securities, as a result of recent sales and maturities, and a decrease in other income.

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Interest expense increased $105,000 (7.29%$120,000 (7.75%) and $128,000 (2.87%), respectively, for the three and nine months ended September 30, 2008,March 31, 2009, compared to the same 2007 periods.2008 period. The increase in interest expense for the three and nine month periodsperiod ended September 30, 2008 wereMarch 31, 2009 was due to an increase in interest paid on newincreased deposit balances and  interest on long-term borrowings partially offset by a decrease in interest paid on deposits.used to fund maturing higher rate deposits and loan growth.

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Net interest margin for the three and nine months ended September 30, 2008 were 4.54% and 4.36%March 31, 2009 was 4.04%, compared to tax equivalent net interest margin of 4.53% and 4.43% for the three and nine months ended September 30, 2007.March 31, 2008.   This decline is due to the narrowing of the gap between the interest rates offered by the Bank on increasing customer deposits and the rates the Bank is able to obtain on loans and other interest earning assets.  Accordingly, while net interest income before provision for credit losses for the quarters ended March 31, 2008 and 2009 are identical, the net interest margin for 2009 was lower than in 2008.

Provision for Credit Losses.  The Company made a provision for credit losses of $239,000 and $446,000$150,000 during the three and nine month period ended September 30, 2008March 31, 2009 and $0 and $50,000$55,000 for credit losses during the three and nine month period ended September 30, 2007.March 31, 2008.  As of September 30, 2008,March 31, 2009, the allowance for credit losses equaled 919.11%180.05% of non-accrual and past due loans compared to 188.27%224.42% at December 31, 20072008 and 240.20%181.56% at September 30, 2007.March 31, 2008.  During the three and nine month period ended September 30, 2008,March 31, 2009, the Company recorded net charge-offs of $224,000 and $607,000,$195,000, compared to net charge-offs of $93,000 and $222,000$310,000 during the corresponding period of the prior year.  On an annualized basis, net charge-offs for the 20082009 period represent 0.38%0.33% of the average loan portfolio.

Other Income.  Other income decreased from $639,000$468,000 for the three month period ended September 30, 2007,March 31, 2008, to $557,000$414,000 for the corresponding 20082009 period, a $82,000 (12.83%) decrease. For the nine month period, other income decreased from $1,625,000 at September 30, 2007, to $1,539,000 for the corresponding 2008 period, an $86,000 (5.29%$54,000 (11.54%) decrease.  The decrease for the three month period was primarily due to a decrease in service charges and lower gains on investment securities.other fees.

Other Expenses.  Other expenses decreased from $2,653,000 for the three month period ended March 31, 2008, to $2,619,000 for the corresponding 2009 period, a $34,000 (1.28%) decrease.  The decrease for the ninethree month period was primarily due to a decrease in other feessalaries and commissionsemployee benefits and service charges partially offseta $30,000 write-down on the value of a Trust Preferred security held by gains on investment securities.the Bank due to a default by one of the financial institutions in the Trust Preferred pool.

Other Expenses. Other expenses increased from $2,625,000 for the three month period ended September 30, 2007, to $5,354,000 for the corresponding 2008 period, a $2,729,000 (103.96%) increase. For the nine month period, other expenses increased from $7,823,000 at September 30, 2007, to $10,619,000 for the corresponding 2008 period, a $2,796,000 (35.74%) increase. The increase for the three and nine month periods were primarily due to the write-down of $2,816,000 taken by the Company on three series of Fannie Mae and Freddie Mac preferred stock held by the Company, as required under SFAS 115. These securities, which were AAA rated at the time of purchase, had a cost of $3,000,000 as of June 30, 2008 and had declined in value to $184,000 as of the close of business on September 30, 2008 as a result of the appointment of the Federal Housing Finance Agency as conservator over both Fannie Mae and Freddie Mac, which was announced on September 7, 2008. Based on these developments, the Company recorded an other-than-temporary impairment and took a non-cash charge to earnings related to these preferred securities for the quarter ending September 30, 2008.

Income Taxes.  Income tax expense for the quarter ended September 30, 2008March 31, 2009 was $203,000$55,000 compared to $264,000$89,000 for the same period in 20072008 reflecting the effect of the increased reserveprovision for loan loss. For the third quarter, the write down on investments in the three series of preferred stock issued by Fannie Mae and Freddie Mac was treated as a capital loss. In the fourth quarter of 2008 a $1,110,000 tax benefit will impact tax expense and net income. For the first three quarters of 2008 income taxes were $431,000 compared to $555,000 for the same period in 2007. This decrease was primarily the result of lower income caused by the increase in loan loss reserve.losses.  The effective tax rate for the quarter in 2009 was 22.5% and 19.0%10.78%, compared to 14.24% for the nineprior year period.  The decrease in the effective tax rate for the three month period ending September 30, 2008, both based on netwas due to a decrease in the amount of income excludingsubject to the $2,816,000 write down on investments described above. marginal tax rate.

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 thirdfirst quarter of 2008,2009, comprehensive (loss) income, net of tax, totaled ($2,586,000)10,000), compared to the September 30, 2007March 31, 2008 total of $1,464,000. Year-to-date comprehensive (loss) income, net of tax, totaled ($2,228,000), as of September 30, 2008, compared to the September 30, 2007 total of $1,772,000.$783,000.  The decrease for the three and nine month period was due primarily to the net loss. The nine month period was also affected by the increase in unrealized holding losses on available for sale securities.

FINANCIAL CONDITION

General.  The Company’s assets increased to $329,258,000$346,100,000 at September 30, 2008March 31, 2009 from $307,274,000$332,502,000 at December 31, 2007,2008, primarily due to an increase in loans deferred taxes and cash and cash equivalents, partially offset by a decrease in securities.  The Bank’s net loans totaled $232,034,000$237,748,000 at September 30, 2008,March 31, 2009, compared to $199,753,000$235,133,000 at December 31, 2007,2008, an increase of $32,281,000 (16.16%$2,615,000 (1.11%), primarily attributable to an increase in purchase money mortgages, refinanced mortgages commercial mortgages,with lesser increase in  mortgage participations purchased and mortgage participations sold,demand loans, partially offset by a decrease in indirect loans.loans (primarily auto loans).

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The Company’s total investment securities portfolio (including both investment(investment securities available for sale and investment securities held to maturity)sale) totaled $61,924,000$68,300,000 at September 30, 2008,March 31, 2009, a $15,942,000 (20.47%$10,351,000 (17.86%) decreaseincrease from $77,866,000$57,949,000 at December 31, 2007.2008.  This decreaseincrease was part of a planned processfunded by the increase in deposits received during the quarter that exceeded the amount needed to fund loan demand. In the third quarter, the Company sold its remaining positions in securities classified as held to maturity. Inasmuch as these positions were liquidated prior to maturity in a manner which did not meet the prescribed requirements of SFAS 115, the Company will be precluded for a period of time from classifying any securities positions as held to maturity. The aggregate market value of investment securities held by the Bank as of September 30, 2008 was $61,924,000 compared to $77,908,000 as of December 31, 2007, a $15,984,000 (20.52%) decrease.growth.    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 September 30, 2008,March 31, 2009, totaled $18,218,000,$21,658,000, an increase of $3,423,000 (23.14%$420,000 (1.98%) from the December 31, 20072008 total of $14,795,000$21,238,000.

Deposits as of September 30, 2008March 31, 2009 totaled $268,895,000,$287,433,000, which is an increase of $15,978,000 (6.32%$17,665,000 (6.55%) from $252,917,000$269,768,000 at December 31, 2007.2008. Demand deposits as of September 30, 2008March 31, 2009 totaled $70,495,000,$66,697,000, which is anincrease of $1,735,000 (2.52%$3,158,000 (4.97%) from $68,760,000$63,539,000 at December 31, 2007.2008. NOW accounts as of September 30, 2008March 31, 2009 totaled $21,882,000,$23,789,000, which is a decreasean increase of $1,273,000 (5.50%$2,710,000 (12.86%) from $23,155,000$21,079,000 at December 31, 2007.2008.  Money market accounts as of September 30, 2008March 31, 2009 totaled $13,569,000,$13,997,000, which is an increase of $621,000 (4.8%$1,233,000 (9.66%), from $12,948,000$12,764,000 at December 31, 2007.2008.  Savings deposits as of September 30, 2008March 31, 2009 totaled $47,145,000,$47,327,000, which is a decreasean increase of $237,000 (0.50%$1,525,000 (3.33%) from $47,382,000$45,802,000 at December 31, 2007. 2008.  Certificates of deposit over $100,000 totaled $25,067,000$31,108,000 on September 30, 2008,March 31, 2009, which is an increase of $4,413,000 (21.37%$3,225,000 (11.57%) from $20,654,000$27,883,000 at December 31, 2007.2008.  Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $90,737,000$104,515,000 on September 30, 2008,March 31, 2009, which is a $10,721,000 (13.40%$5,814,000 (5.90%) increase from the $80,016,000$98,701,000 total at December 31, 2007. The2008.  Management believes that the growth in deposits was due in part to a promotion for certificates of deposit and individual retirement accounts, coupled with the financial crisisrecent instability in the stock market that took place duringand the quarter ended September 30, 2008.resulting reallocation of investment portfolios by the Bank’s customers.


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

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  At March 31,  At December 31, 
  2009  2008 
  (Dollars in Thousands) 
       
Restructured loans $-  $- 
         
Non-accrual loans:        
Real-estate - mortgage:        
Residential $-  $- 
Commercial  659   659 
Real-estate - construction  -   - 
Installment  342   208 
Home Equity  -   - 
Commercial  -   - 
         
Total non-accrual loans  1,001   867 
         
Accruing loans past due 90 days or more:        
Real-estate - mortgage:        
Residential  3   3 
Commercial  -   - 
Real-estate - construction  -   5 
Installment  20   26 
Credit card and related  -   - 
Commercial  74   - 
Other  -   - 
         
Total accruing loans past due 90 days or more  97   34 
         
Total non-accrual loans and past due loans $1,098  $901 
         
Non-accrual and past due loans to gross loans  0.47%  0.38%
         
Allowance for credit losses to non-accrual and past due loans  180.05%  224.42%
  At September 30, At December 31, 
  2008 2007 
  (Dollars in Thousands) 
      
Restructured loans 
$
-
 $578 
        
Non-accrual loans:       
Real-estate - mortgage:       
Residential 
$
-
 $- 
Commercial  
-
  - 
Real-estate - construction  
-
  - 
Installment  95  212 
Home Equity  48  - 
Commercial  
-
  - 
        
Total non-accrual loans  143  212 
        
Accruing loans past due 90 days or more:       
Real-estate - mortgage:       
Residential  13  512 
Commercial  -  - 
Real-estate - construction  1  - 
Installment  -  - 
Credit card and related  
-
  - 
Commercial  
-
  128 
Other  
-
  - 
        
Total accruing loans past due 90 days or more  14  640 
        
Total non-accrual loans and past due loans $157 $852 
        
Non-accrual and past due loans to gross loans  0.07% 0.43%
        
Allowance for credit losses to non-accrual and past due loans  919.11% 188.27%

At September 30, 2008,March 31, 2009, there were no$282,000 in 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.

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Transactions in the allowance for credit losses for the ninethree months ended September 30,March 31, 2009 and 2008 and 2007 were as follows:

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 Nine Months Ended September 30,  Three Months Ended March 31, 
 2008 2007  2009  2008 
 (Dollars in Thousands)  (Dollars in Thousands) 
           
Beginning balance $1,604 $1,839  $2,022  $1,604 
               
Charge-offs  (867) (457) (268) (399)
Recoveries  260  235   73   89 
Net charge-offs  (607) (222) (195) (310)
Provisions charged to operations  446  50   150   55 
               
Ending balance $1,443 $1,667  $1,977  $1,349 
               
Average loans $212,788 $195,852  $235,942  $201,688 
               
Net charge-offs to average loans (annualized)  0.38% 0.15%  0.33%  0.61%

Reserve for Unfunded Commitments.  As of September 30, 2008,March 31, 2009, the Bank had outstanding commitments totaling $22,778,000.$22,829,000.  These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments.  The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:

  Nine Months Ended September 30, 
  2008 2007 
  (Dollars in Thousands) 
      
Beginning balance $200 $200 
        
Provisions charged to operations  -  - 
        
Ending balance $200 $200 

  Three Months Ended March 31, 
  2009  2008 
  (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 thirdfirst quarter of 2008.2009.

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 September 30, 2008.

- 13 -
March 31, 2009.
 
     Over 1            Over 1       
   Over 3 to Through Over       Over 3 to  Through  Over    
 0-3 Months 12 Months 5 Years 5 Years Total  0-3 Months  12 Months  5 Years  5 Years  Total 
  (Dollars in Thousands)  (Dollars in Thousands) 
Assets:
                           
Cash and due from banks $- $- $- $- $18,166  $-  $-  $-  $-  $17,056 
Federal funds and overnight deposits  52 - - - 52  4,602  -  -  -  4,602 
Securities  - - 3,863 58,061 61,924  -  -  4,072  64,228  68,300 
Loans  11,740 8,666 89,665 121,963 232,034  12,601  6,774  88,232  130,141  237,748 
Fixed assets  - - - - 3,129  -  -  -  -  3,326 
Other assets  -  -  -  -  13,953   -   -   -   -   15,068 
                                
Total assets $11,792 $8,666 $93,528 $180,024 $329,258  $17,203  $6,774  $92,304  $194,369  $346,100 
                                
Liabilities:
                                
Demand deposit accounts $- $- $- $- $70,495  $-  $-  $-  $-  $66,697 
NOW accounts  21,882 - - - 21,882  23,789  -  -  -  23,789 
Money market deposit accounts  13,569 - - - 13,569  13,997  -  -  -  13,997 
Savings accounts  47,145 - - - 47,145  47,327  -  -  -  47,327 
IRA accounts  3,764 9,508 17,339 1,076 31,687  3,145  11,535  20,934  728  36,342 
Certificates of deposit  22,859 28,836 32,126 296 84,117  16,792  50,651  31,669  169  99,281 
Short-term borrowings  350 - - - 350  180  -  -  -  180 
Long-term borrowings  9 28 7,044 20,000 27,081  9  29  7,024  20,000  27,062 
Other liabilities  - - - - 1,722  -  -  -  -  1,365 
Junior subordinated debenture  - - 5,155 - 5,155  -  -  5,155  -  5,155 
Stockholders’ equity:
  -  -  -  -  26,055   -   -   -   -   24,905 
                                
Total liabilities and stockholders' equity $109,578 $38,372 $61,664 $21,372 $329,258 
Total liabilities and                    
stockholders' equity $105,239  $62,215  $64,782  $20,897  $346,100 
                                
GAP $(97,786)$(29,706)$31,864 $158,652    $(88,036) $(55,441) $27,522  $173,472     
Cumulative GAP $(97,786)$(127,492)$(95,628)$63,024    $(88,036) $(143,477) $(115,955) $57,517     
Cumulative GAP as a % of total assets  -29.70% -38.72% -29.04% 19.14%     -25.44%  -41.46%  -33.50%  16.62%    

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,December 31, 2008, 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  4.0%  1.5%  2.2%  1.1%
% Change in Economic Value of Equity  -25.5%  -11.6%  7.9%  -0.9%
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LIQUIDITY AND CAPITAL RESOURCES

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

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

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of three months or less and money market mutual funds.  The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time.  The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of September 30, 2008,March 31, 2009, totaled $18,218,000,$21,658,000, an increase of $3,423,000 (23.14%$420,000 (1.98%) from the December 31, 20072008 total of $14,795,000.$21,238,000.

As of September 30, 2008,March 31, 2009, the Bank was permitted to draw on a $63,800,000$66,460,000 line of credit from the FHLB of Atlanta. Borrowings under the line are secured by a floating lien on the Bank’s residential mortgage loans. As of September 30, 2008,March 31, 2009, there were $27.0 million in long-term convertible advances outstanding with various monthly and quarterly call features and with final maturities ranging from November 2017 through August 2018.  In addition, the Bank has antwo unsecured federal funds linelines of credit in the amount of $7.0$10.0 million from anothertwo commercial bank.banks, of which nothing was outstanding as of March 31, 2009. Furthermore, as of September 30, 2008,March 31, 2009, 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 $3,681,000 (12.38%$3,003,000 (10.76%) during the ninethree months ended September 30, 2008,March 31, 2009, due mainly to an increase in accumulated other comprehensive loss, net of tax benefits, and an increase in common stock,retained earnings, offset by decreases in retained earningscommon stock and surplus.  The Company’s accumulated other comprehensive loss, net of tax benefits increased by ($1,250,000) (288.02%$465,000 (61.43%) from ($434,000)757,000) at December 31, 20072008 to ($1,684,000)1,222,000) at September 30, 2008,March 31, 2009, as a result of a decrease in the market value of securities classified as available for sale.  Retained earnings decreasedincreased by $2,556,000 (16.23%$186,000 (1.32%) as the result of the Company’s net lossesincome for the ninethree months, dividends,partially offset by dividends.  Common stock and surplus declined due to the repurchase of 297,679 shares of the Company’s common stock split paid in January 2008, and the adjustment done for postretirement benefits.a total of $2,769,067.  In addition, $129,779$45,156 was transferred within stockholders’ equity in consideration for shares to be issued under the Company’s dividend reinvestment plan in lieu of cash dividends.

The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively.  The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets.  At September 30, 2008,March 31, 2009, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 10.27%9.77%, a Tier 1 risk-based capital ratio of 14.19%13.74% and a total risk-based capital ratio of 14.89%14.64%.

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, 20072008 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:

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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.

SUBSEQUENT EVENT

As discussed above, the Company’s financial results include a write-down of $2,816,000 taken on September 30, 2008 on investments in the three series of Fannie Mae and Freddie Mac preferred stock held by the Company, as required by SFAS 115. On October 3, 2008 the Emergency Economic Stabilization Act of 2008 (EESA) was enacted. Section 301 of EESA provides tax relief for banking organizations that have suffered losses on certain holdings of Fannie Mae and Freddie Mac preferred stock by changing the character of those losses from capital to ordinary for Federal income tax purposes. As a result, the Company will recognize a tax credit for $1,110,000 during the quarter ending December 31, 2008 arising from the $2,816,000 write-down taken in the quarter ended September 30, 2008. Had EESA been enacted during the third quarter, the Company would have recognized $132,000 in net income for the nine month period ending September 30, 2008.

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 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 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the three months ended September 30, 2008:March 31, 2009:

Period
 
Total 
Number of 
Shares 
Purchased
 
Average 
Price 
Paid per 
Share
 
Total Number of 
Shares Purchased 
as Part of Publicly 
Announced Plans or 
Programs
 
Maximum 
Approximate Dollar 
Value of Shares that 
May Yet Be 
Purchased Under 
the Plans or 
Programs
 
July 1, 2008 – July 31, 2008  - $-  - $717,932 
August 1, 2008 – August 31, 2008  19,000 $11.63  19,000 $497,018 
September 1, 2008 – September 30, 2008  - $-  - $497,018 
Total  19,000 $11.63  19,000 $497,018 
Period 
Total
Number of
Shares
Purchased
  
Average
Price
Paid per
Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Maximum
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Plans or
Programs
 
January 1, 2009 – January 31, 2009  5,500  $9.85   5,500  $3,495,683 
February  1, 2009 – February  28, 2009  5,000  $9.30   5,000  $3,449,176 
March 1, 2009 – March 31, 2009  287,179  $9.29   287,179  $780,798 
Total  297,679  $9.30   297,679  $780,798 

On February 19, 2008, the Company announced a stock buyback program and authorized the purchase of up to $1,000,000 of common stock at a price not to exceed $12.50 per share.  Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions.  UnlessThis program was extended by the Company’s Board of Directors from the program willoriginal expiration date of December 31, 2008 and is now scheduled to terminate on the earlier of December 31, 20082009 or when $1,000,000the available balance in market purchase price of shares of common stock have been repurchased by the Company pursuant to the program (unless extended or terminated by the Board of Directors).  The funds authorized for repurchases were increased from $1,000,000 to $4,127,309, and as of March 31, 2009 $780,798 remains available under the program (unless increased or decreased by the Board of Directors).  Other than the purchase of 274,179 shares in a single private transaction in March 2009 for $2,549,865, all of the shares were purchased in the open market.

ITEM 6.           EXHIBITS

Exhibit No. 
3.1Articles 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(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)
3.3Articles 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)
3.4By-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)
4.1Rights 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)
10.1Glen 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)
10.2The 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)
10.3Amended 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)
10.4The 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)
10.5Stock Repurchase Agreement, dated March 18, 2009, between the Registrant and Eugene P. Nepa
31.1Rule 15d-14(a) Certification of Chief Executive Officer
31.2Rule 15d-14(a) Certification of Chief Financial Officer
32.1Section 1350 Certifications
99.1Press Release dated April 28, 2009

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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: November 14, 2008April 28, 2009By:/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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