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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2004

OR
[_] 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 __

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

At October 25, 2004, the number of shares outstanding of the registrant’s common stock was 2,032,803.


  
     
 

TABLE OF CONTENTS


Part I - Financial Information
Page
       
 
Item 1.
Consolidated Financial Statements:
  
       
   
Condensed Consolidated Balance Sheets, September 30, 2004
  
   
(unaudited) and December 31, 2003 (audited)
3
       
   
Condensed Consolidated Statements of Income for the Three and
 
   
Nine Months Ended September 30, 2004 and 2003 (unaudited)
4
       
   
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
   
for the Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the Nine
  
   
Months Ended September 30, 2004 and 2003 (unaudited)
6
       
   
Notes to Unaudited Condensed Consolidated Financial Statements
7
       
 
Item 2.
Management’s Discussion and Analysis of Financial Condition
  
   
and Results of Operations
8
       
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
13
       
 
Item 4.
Controls and Procedures
14
       
Part II - Other Information
       
 
Item 6.
Exhibits
15
       
 
 
 Signatures
16


 
     
 


PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands) 
 
 
 
ASSETS
    
September 30, 2004
(unaudited) 
    
December 31, 2003
(audited) 
  
Cash and due from banks
 
$
10,284
  
$
11,120
  
Interest-bearing deposits in other financial institutions
    
81
    
57
  
Federal funds sold
   
1,129
    
1,718
  
    Cash and cash equivalents
    
11,494
    
12,895
  
Investment securities available for sale, at fair value
   
92,537
    
99,602
  
Investment securities held to maturity, at cost
   (fair value September 30: $2,804; December 31: $3,816)
    
2,649
    
3,579
  
Federal Home Loan Bank stock, at cost
    
973
    
896
  
Maryland Financial Bank stock, at cost
    
100
    
-
  
Common Stock in the Glen Burnie Statutory Trust I
    
155
    
155
  
Loans, less allowance for credit losses
             
   (September 30: $2,456; December 31: $2,247)
    
183,532
    
172,819
  
Premises and equipment, at cost, less accumulated depreciation
   
3,970
    
4,220
  
Other real estate owned
    
166
    
172
  
Cash value of life insurance
    
4,937
    
4,782
  
Other assets
    
2,931
    
3,132
  
Total assets
  
$
303,444
  
$
302,252
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
               
LIABILITIES:
              
Deposits
  
$
262,746
  
$
256,908
  
Short-term borrowings
    
400
    
6,602
  
Long-term borrowings
    
7,207
    
7,227
  
Junior subordinated debentures owed to unconsolidated subsidiary trust
    
5,155
    
5,155
  
Other liabilities
    
2,334
    
2,413
  
Total liabilities
    
277,842
    
278,305
  
               
COMMITMENTS AND CONTINGENCIES
             
               
STOCKHOLDERS’ EQUITY:
              
Common stock, par value $1, authorized 15,000,000 shares;
              
   Issued and outstanding: September 30: 2,035,324 shares;
              
   December 31: 1,689,281 shares
    
2,035
    
1,689
  
Surplus
    
11,065
    
10,862
  
Retained earnings
    
11,298
    
10,115
  
Accumulated other comprehensive income, net of tax
    
1,204
   
1,281
  
Total stockholders’ equity
    
25,602
    
23,947
  
Total liabilities and stockholders’ equity
 
$
303,444
  
$
302,252
  


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,
  
   
2004
  
 2003
  
2004
  
 2003
  
Interest income on:
                  
  Loans, including fees
  
$
2,922
  
$
2,852
  
$
8,372
  
$
8,501
  
  U.S. Treasury and U.S. Government agency securities
    
593
    
427
    
1,683
    
1,440
  
  State and municipal securities
    
441
    
470
    
1,357
    
1,280
  
  Other
    
109
    
115
    
341
    
364
  
    Total interest income
   
4,065
    
3,864
    
11,753
    
11,585
  
                           
Interest expense on:
                          
  Deposits
    
655
    
804
    
1,963
    
2,567
  
  Short-term borrowings
    
28
    
1
    
55
    
3
  
  Long-term borrowings
    
108
    
109
    
323
    
327
  
  Junior subordinated debentures
    
137
    
137
    
410
    
410
  
    Total interest expense
    
928
    
1,051
    
2,751
    
3,307
  
                           
        Net interest income
    
3,137
    
2,813
    
9,002
    
8,278
  
                           
Provision for credit losses
    
140
    
10
    
340
    
10
  
                           
        Net interest income after provision for credit losses
    
2,997
    
2,803
    
8,662
    
8,268
  
                           
Other income:
                          
  Service charges on deposit accounts
    
264
    
255
    
780
    
762
  
  Other fees and commissions
    
189
    
183
    
521
    
494
  
  Other non-interest income
    
1
    
3
    
5
    
8
  
  Income on life insurance
    
53
    
176
    
155
    
309
  
  Gains on investment securities
    
41
    
63
    
310
    
170
  
    Total other income
    
548
    
680
    
1,771
    
1,743
  
 
Other expenses:
                          
  Salaries and employee benefits
    
1,604
    
1,487
    
4,635
    
4,435
  
  Occupancy
    
157
    
159
    
496
    
535
  
  Other expenses
    
811
    
804
    
2,534
    
2,400
  
    Total other expenses
    
2,572
    
2,450
    
7,665
    
7,370
  
                           
Income before income taxes
   
973
    
1,033
    
2,768
    
2,641
  
                           
Income tax expense
    
204
    
194
    
552
    
413
  
                           
Net income
 
$
769
  
$
839
  
$
2,216
  
$
2,228
  
Basic and diluted earnings per share of common stock
  
$
0.38
  
$
0.42
  
$
1.09
  
$
1.10
  
Weighted average shares of common stock outstanding
    
2,032,801
    
2,021,670
    
2,030,300
    
2,017,946
  
Dividends declared per share of common stock
  
$
0.12
  
$
0.10
  
$
0.34
  
$
0.30
  

See accompanying notes to condensed consolidated financial statements.
 

 
  - 4 -  
 

GLEN BURNIE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)


   
Three Months Ended
 
Nine Months Ended
 
   
September 30,
  
September 30,
  
   
 2004
 
 2003
  
 2004
  
 2003
  
Net income
 
$
769
  
$
839
  
$
2,216
  
$
2,228
  
                           
Other comprehensive income (loss), net of tax
                          
                           
    Unrealized gains (losses) securities:
                          
                           
        Unrealized holding gains (losses) arising
        during period
    
1,370
   
(914
)
  
113
    
(212
)
                           
        Reclassification adjustment for gains
        included in net income
    
(24
)
  
(39
)
  
(190
)
  
(104
)
                           
Comprehensive income (loss)
 
$
2,115
  
$
( 114
)
$
2,139
  
$
1,912
  


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, 
  
   
2004 
  
2003 
  
Cash flows from operating activities:
          
Net income
  
$
2,216
  
$
2,228
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
   Depreciation, amortization, and accretion
   
756
    
622
  
   Compensation expense from vested stock options
    
29
    
(6
)
   Provision for credit losses
    
340
    
10
  
   Gains on disposals of assets, net
    
(310
)
  
(150
)
   Income on investment in life insurance
    
(155
)
  
(309
)
   Changes in assets and liabilities:
              
      Decrease in other assets
    
263
    
244
  
      Decrease in other liabilities
   
(32
)
  
(430
)
               
Net cash provided by operating activities
    
3,107
    
2,209
  
               
Cash flows from investing activities:
              
   Redemption of certificate of deposit
    
-
    
100
  
   Maturities of available for sale mortgage-backed securities
    
5,303
    
22,730
  
   Proceeds from disposals of investment securities
    
17,400
    
9,895
  
   Purchases of investment securities
    
(14,801
)
  
(41,305
)
   Purchases of Federal Home Loan Bank stock
    
(77
)
  
(193
)
   Purchase of MD Financial Bank stock
    
(100
)
  
-
  
   Increase in loans, net
    
(11,053
)
  
(10,580
)
   Proceeds from sale of other real estate
    
-
    
221
  
   Purchases of premises and equipment
    
(236
)
  
(604
)
   Proceeds from life insurance death benefit
    
-
    
607
  
               
Net cash used by investing activities
    
(3,564
)
  
(19,129
)
               
Cash flows from financing activities:
              
   Increase in deposits, net
    
5,838
    
14,997
  
   (Decrease) increase in short-term borrowings
    
(6,202
)
  
2,856
  
   Repayment of long-term borrowings
    
(20
)
  
(18
)
   Dividends paid
    
(742
)
  
(682
)
   Issuance of common stock
    
29
    
46
  
   Common stock dividends reinvested
    
153
    
130
  
               
Net cash (used) provided by financing activities
    
( 944
)
  
17,329
  
               
(Decrease) increase in cash and cash equivalents
    
(1,401
)
  
409
  
               
Cash and cash equivalents, beginning of year
    
12,895
    
15,742
  
               
Cash and cash equivalents, end of period
 
$
11,494
  
$
16,151
  
               


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 unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the unaudited consolidated financial statements have been included in the results of operations for the three and nine months ended September 30, 2004 and 2003.

 Operating results for the three and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

NOTE 2 - EARNINGS PER SHARE

Information for net income and dividends declared per share and weighted average shares outstanding for prior periods have been restated to reflect 337,267 shares of common stock issued in a 20% stock dividend paid in January, 2004.

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

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2004

 

2004

  
Diluted:
          
   Net income
  
$
769,000
  
$
2,216,000
  
   Weighted average common shares outstanding
    
2,032,801
    
2,030,300
  
   Dilutive effect of stock options
    
523
   
716
 
   Average common shares outstanding - diluted
    
2,033,324
    
2,031,016
  
   Diluted net income per share
  
$
0.38
  
$
1.09
  

 Diluted earnings per share calculations were not required for the three and nine months ended September 30, 2003, since there were no options outstanding.

NOTE 3 - EMPLOYEE STOCK PURCHASE BENEFIT PLANS 

 The Company has an employee stock purchase compensation plan. The Bank applies Accounting Principles Board Opinion (“APB”) No. 25 and related Interpretations in accounting for this plan. Compensation cost of $29,000 has been recognized in 2004. If compensation cost for the Company’s stock-based compensation plan had been determined based on the fair value at the grant date for awards under this plan consistent with the methods outlined in SFAS No. 123 Accounting for Stock-Based Compensation, there would be no material change in reported net income.

 During the first quarter of 2004, the Board of Directors finalized additional options to be granted under this plan at $20.70 per share for a period of 11 months, expiring December, 2004. The Company granted 7,944 options under this plan of which 1,409 options have been exercised as of September 30, 2004.
 

 
  - 7 -  
 

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

OVERVIEW

During the third quarter of 2004, the Company had several favorable operating trends continue. Most significantly, net interest income before provision for credit losses grew from $2,813,000 in 2003 to $3,137,000 in 2004, a 11.52% increase. Interest income for the quarter grew from $3,864,000 in 2003 to $4,065,000 in 2004, a 5.20% increase. Interest expense continued to decline despite an increase in deposits due to a declining interest rate environment. In addition, the Company realized increases in other income relating to service charges on deposit accounts and other fees and commissions. The Company realized net income of $769,000 for the third quarter in 2004 compared to $839,000 for the third quarter in 2003, a 8.34% decrease. The decrease was primarily due to death benefit proceeds of approximately $117,000 recognized in income during the third quarter of 2003 from an insurance policy held on an executive officer and not repeated in the 2004 period, combined with an increase in provision for credit losses in 2004 of $140,000 versus $10,000 in 2003. In accordance with regulatory requirements, the Company reports accumulated other comprehensive income or loss in its financial statements. Accumulated other comprehensive income or loss consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s investment portfolio of investment securities. Accumulated other comprehensive (loss) income, net of tax, decreased by $77,000 for the nine month period to $1,204,000 due to a decrease in unrealized holding gains on available for sale securities at September 30, 2004.

FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including regional and national economic conditions, unfavorable judicial decisions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
 
RESULTS OF OPERATIONS 

 General. Glen Burnie Bancorp, a Maryland corporation (the “Company”), and its subsidiaries, The Bank of Glen Burnie (the “Bank”) and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $769,000 ($0.38 basic and diluted earnings per share) for the third quarter of 2004, compared to third quarter 2003 consolidated net income of $839,000 ($0.42 basic and diluted earnings per share). The decrease in consolidated net income for the three month period was due to increases in salaries and employee benefits and the provision for credit losses and decreases in income on life insurance and gains on investment securities, offset by decreases in interest expense on deposits. Year-to-date consolidated net income for the nine months ended September 30, 2004 was $2,216,000 ($1.09 basic and diluted earnings per share), compared to $2,228,000 ($1.10 basic and diluted earnings per share) for the nine months ended September 30, 2003. The decrease for the nine month period was primarily due to an increase in the provision for losses, income tax expense, salaries and employee benefits and other expenses. This was offset by gains on investment securities and interest income on U.S. Government securities and a reduction in interest expense on deposits. All historic earnings per share figures have been adjusted to reflect the Company’s 20% stock dividend paid on January 16, 2004.

 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, 2004 was $3,137,000 and $9,002,000, respectively, compared to $2,813,000 and $8,278,000 for the same respective periods in 2003, an increase of $324,000 (11.52%) for the three-month period and an increase of $724,000 (8.75%) for the nine-month period. The three and nine month increases were due to increases in the interest income on loans (due to recovery of interest income of $97,000 on a charged off loan), U.S. Government securities, and a decrease in deposit expense, partially offset by an increase in interest expense on short-term borrowings.


 
  - 8 -  
 

Interest income increased $201,000 (5.20%) for the three months ended September 30, 2004 and increased $168,000 (1.45%) for the nine months ended September 30, 2004, compared to the same periods in 2003. The three month increase was due to increases in loan income and U.S. Government securities. The nine month increase was due to an increase in interest on U.S. Government securities and interest on State and Municipal securities, offset by a decrease in loan income.

 Interest expense decreased $123,000 (11.70%) for the three months ended September 30, 2004 and declined $556,000 (16.81%) for the nine months ended September 30, 2004, compared to the same 2003 periods. While the balances on deposits increased during the three and nine month periods ending September 30, 2004, the interest rates paid on those deposits continued to decline, resulting in a decrease in deposit expense, partially offset by an increase in short-term borrowings.

Net interest margins for the three and nine months ended September 30, 2004 were 4.67% and 4.61%, compared to tax equivalent net interest margins of 4.50% and 4.48% for the three and nine months ended September 30, 2003. The increase in net interest margins for the three and nine months ended September 30, 2004 are primarily due to an increase in non-interest bearing deposits which are invested in interest income producing assets without a corresponding interest expense.

 Provision For Credit Losses. The Company made provisions of $140,000 and $340,000 during the three and nine month periods ended September 30, 2004 respectively, and a $10,000 provision for credit losses during the three and nine month periods ended September 30, 2003. As of September 30, 2004, the allowance for credit losses equaled 407.97% of non-accrual and past due loans compared to 385.42% at December 31, 2003 and 463.88% at September 30, 2003. During the three and nine month periods ended September 30, 2004, the Company recorded net charge-offs of $7,000 and $131,000, respectively, compared to net charge-offs of $125,000 and $303,000, respectively, during the corresponding periods of the prior year. On an annualized basis, net charge-offs for the 2004 period represent 0.09% of the average loan portfolio.

 Other Income. Other income decreased from $680,000 for the three month period ended September 30, 2003, to $548,000 for the corresponding 2004 period, a $132,000 (19.41%) decrease. For the nine month period, other income increased from $1,743,000 at September 30, 2003 to $1,771,000 at September 30, 2004, a $28,000 (1.61%) increase. The decrease in other income for the three month period was primarily due to a decline in life insurance income of $117,000 due to a death benefit payment received in the 2003 period. The increase in other income for the nine month period was due to increases in other fees and commissions and gains on investment securities, offset by a decrease in income on life insurance.

 Other Expense. Other expense increased from $2,450,000 for the three month period ended September 30, 2003, to $2,572,000 for the corresponding 2004 period, a $122,000 (4.98%) increase. For the nine month period, other expenses increased from $7,370,000 at September 30, 2003 to $7,665,000 at September 30, 2004, an increase of $295,000 (4.00%). The increase for the three month period was due to increases in salaries and benefits. The increase for the nine month period was due to an increase in salaries and benefits and certain other expenses referred to below, partially offset by a decrease in occupancy expense. The increase in salaries and benefits for the nine month period was due to an accrual for the Employee Stock Purchase Plan and pay raises in 2004, offset by a $37,000 decrease in benefit expenses. Other expenses increased in most accounts, with increases in promotions, postage, other ATM expenses, Director fees (as a group) and repossession expenses, which were offset by decreases in the amortization of software, for the nine month period. The occupancy decrease was due in part to the relocation of the Severna Park office and a decrease in 2004 in snow removal expense.

 Income Taxes. During the three and nine months ended September 30, 2004, the Company recorded income tax expense of $204,000 and $552,000, respectively, compared to income tax expense of $194,000 and $413,000, respectively, for the corresponding periods of the prior year. The Company’s effective tax rate for the three and nine month periods in 2004 were 21.0% and 18.8%, respectively, compared to 18.8% and 15.6%, respectively, for the prior year periods. The increase in the effective tax rate is attributable to declines in tax exempt income in 2004.


 
  - 9 -  
 

FINANCIAL CONDITION

 General. The Company’s assets increased to $303,444,000 at September 30, 2004 from $302,252,000 at December 31, 2003, primarily due to an increase in loans, partially offset by a decrease in securities and cash and cash equivalents. The Bank’s net loans totaled $183,532,000 at September 30, 2004, compared to $172,819,000 at December 31, 2003, an increase of $10,713,000 (6.20%), primarily attributable to increases in refinanced mortgages, commercial and industrial mortgages and indirect lending, offset by a decrease in secured demand business loans.

 The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $95,186,000 at September 30, 2004, a $7,995,000 (7.75%) decrease from $103,181,000 at December 31, 2003. 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, 2004, totaled $11,494,000, a decrease of $1,401,000 (10.86%) from the December 31, 2003 total of $12,895,000. The aggregate market value of investment securities held by the Bank as of September 30, 2004 was $95,341,000 compared to $103,418,000 as of December 31, 2003, a $8,077,000 (7.81%) decrease.

 Deposits as of September 30, 2004 totaled $262,746,000, which is an increase of $5,838,000 (2.27%) from $256,908,000 at December 31, 2003. Demand deposits as of September 30, 2004 totaled $74,104,000 which is an increase of $4,455,000 (6.40%) from $69,649,000 at December 31, 2003. NOW accounts as of September 30, 2004 totaled $27,618,000 which is a decrease of $783,000 (2.76%) from $28,401,000 at December 31, 2003. Money market accounts as of September 30, 2004 totaled $20,380,000 which is an increase of $236,000 (1.17%), from $20,144,000 at December 31, 2003. Savings deposits as of September 30, 2004 totaled $55,097,000 an increase of $1,718,000 (3.22%) from $53,379,000 at December 31, 2003. Certificates of deposit over $100,000 totaled $17,054,000 on September 30, 2004, an increase of $1,404,000 (8.97%) from $15,650,000 at December 31, 2003. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $68,290,000 on September 30, 2004, a $1,396,000 (2.00%) decrease from the $69,686,000 total at December 31, 2003.

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


 
  - 10 -  
 


 
     
At September 30, 

 

 
At December 31, 

 

 

 

 
2004 

 

 
2003 

 

 

 

(Dollars in Thousands)

  
               
Restructured loans
 
$
0
  
$
0
  
               
Non-accrual loans:
              
   Real estate - mortgage:
              
      Residential
 
$
126
  
$
34
  
      Commercial
    
259
    
265
  
   Real estate - construction
    
0
    
0
  
   Installment
    
192
    
250
  
   Credit card & related
    
0
    
0
  
   Commercial
    
16
   
23
  
               
    Total non-accrual loans
    
593
    
572
  
               
Accruing loans past due 90 days or more:
              
   Real estate - mortgage:
              
      Residential
    
4
    
5
  
      Commercial
    
0
    
0
  
   Real estate - construction
   
0
    
6
  
   Installment
    
0
    
0
  
   Credit card & related
    
0
    
0
  
   Commercial
    
0
    
0
  
   Other
    
5
    
0
  
               
    Total accruing loans past due 90 days or more
    
9
    
11
  
               
    Total non-accrual and past due loans
  
$
602
  
$
583
  
               
Non-accrual and past due loans to gross loans
    
0.32
%
  
0.33
%
               
Allowance for credit losses to non-accrual and past due loans
    
407.97
%
  
385.42
%
               

 At September 30, 2004, there were no loans outstanding, other than those reflected in the above table, as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. Reflected in the above table are $267,793 of prior period troubled debt restructurings that are now not performing under the terms of their modified agreements.

 Allowance For Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrowers’ ability to pay.

 Transactions in the allowance for credit losses for the nine months ended September 30, 2004 and 2003 were as follows:
 

 
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Nine Months Ended

 

 

 

September 30,

 

 

 

2004

 

2003

 

 

 

(Dollars in Thousands)

  
               
Beginning balance
  
$
2,247
  
$
2,515
  
               
Charge-offs
    
(447
)
  
(639
)
Recoveries
    
316
   
336
 
Net charge-offs
    
(131
)
  
(303
)
Provisions charged to operations
    
340
    
10
  
Ending balance
  
$
2,456
  
$
2,222
  
               
Average loans
  
$
177,143
  
$
161,015
  
Net charge offs to average loans (annualized)
    
0.09
%
  
0.25
%

 Reserve for Unfunded Commitments. As of September 30, 2004, the Bank had outstanding commitments totaling $14,986,539. 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,

 

 

 
2004

 
2003

 

 

 

(Dollars in Thousands)

  
               
Beginning balance
  
$
150
  
$
150
  
               
Provisions charged to operations
    
0
    
0
  
Ending balance
  
$
150
  
$
150
  


Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the third quarter of 2004.

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, 2004, totaled $11,494,000, a decrease of $1,401,000 (10.86%) from the December 31, 2003 total of $12,895,000.

 As of September 30, 2004, the Bank was permitted to draw on a $36,300,000 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, 2004, a $7.0 million long-term convertible advance was outstanding. In addition the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn. Furthermore, as of September 30, 2004, 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.


 
  - 12 -  
 

 The Company’s stockholders’ equity increased $1,655,000 (6.91%) during the nine months ended September 30, 2004, due to an increase in retained earnings and surplus. The Company’s accumulated other comprehensive income, net of tax decreased by $77,000 (6.01%) from $1,281,000 at December 31, 2003 to $1,204,000 at September 30, 2004, as a result of an increase in unrealized holding losses on securities arising during the nine month period. Retained earnings increased by $1,183,000 (11.70%) as the result of the Company’s earnings for the nine months, offset by dividends and a 6 for 5 stock dividend in January 2004. In addition, $153,126 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, 2004, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 9.32%, a Tier 1 risk-based capital ratio of 14.82% and a total risk-based capital ratio of 16.07%.

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, 2003 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the variables most important in the estimation process:

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 Not applicable.


 
  - 13 -  
 
 
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 accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and believe that the system is operating effectively to ensure appropriate disclosure. 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.
 

 
  - 14 -  
 

PART II - OTHER INFORMATION
 
ITEM 6. EXHIBITS
 
Exhibit No.

 
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
 
3.2
Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
 
3.3
Articles Supplementary, dated November 16, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December 8, 1999, File No. 0-24047)
 
3.4
By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
 
4.1
Rights Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and restated as of December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
 
10.1
Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No.33-62280)
 
10.2
The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)
 
10.3
Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
 
10.4
The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047)
 
31.1
Rule 15d-14(a) Certification of Chief Executive Officer
 
31.2
Rule 15d-14(a) Certification of Chief Financial Officer
 
32
Section 1350 Certifications
 
99
Press Release issued October 26, 2004



 
  - 15 -  
 

SIGNATURES

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

 
     
  GLEN BURNIE BANCORP
(Registrant)
 
 		  
 		  
 
Date: October 27, 2004 By:   /s/ F. William Kuethe, Jr.
 
F. William Kuethe, Jr.
  President, Chief Executive Officer
     
 
 
 		  
 		  
 
By:   /s/ John E. Porter
 
John E. Porter
  Chief Financial Officer

 
  - 16 -