10-K405 1 a2042680z10-k405.txt 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________ to ________________. COMMISSION FILE NUMBER: 0-24047 GLEN BURNIE BANCORP (Exact name of registrant as specified in its charter) MARYLAND 52-1782444 ---------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of 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 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Each Exchange on Which Registered None None ---------------- ------------------------ Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS -------------- COMMON STOCK, $1.00 PAR VALUE COMMON STOCK PURCHASE RIGHTS 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 13, 2001 was $12,284,680. The number of shares of common stock outstanding as of March 13, 2001 was 1,102,049. DOCUMENTS INCORPORATED BY REFERENCE To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant's definitive proxy statement for its 2001 Annual Meeting of Shareholders (to be filed). GLEN BURNIE BANCORP 2001 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS -----------------

PART I Item 1. Business 3 Item 2. Properties 17 Item 3. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security-Holders 18 Executive Officers of the Registrant 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations 21 Item 7A. Quantitative And Qualitative Disclosures About Market Risk 27 Item 8. Financial Statements and Supplementary Data 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 27 PART III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports 29 on Form 8-K

PART I ITEM 1. BUSINESS GENERAL Glen Burnie Bancorp (the "Company") is a bank holding company organized in 1990 under the laws of the State of Maryland. It presently owns all the outstanding shares of capital stock of The Bank of Glen Burnie (the "Bank"), a commercial bank organized in 1949 under the laws of the State of Maryland, serving northern Anne Arundel County and surrounding areas from its main office in Glen Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville, Severn, Ferndale and Severna Park, Maryland. The Bank also maintains three remote Automated Teller Machine ("ATM") locations in Gambrills, Jessup and Pasadena, Maryland. The Bank maintains a website at www.thebankofglenburnie.com. The Bank is the oldest independent commercial bank in Anne Arundel County. The Bank is engaged in the commercial and retail banking business as authorized by the banking statutes of the State of Maryland, including the acceptance of demand and time deposits, and the origination of loans to individuals, associations, partnerships and corporations. The Bank's real estate financing consists of residential first and second mortgage loans, home equity lines of credit and commercial mortgage loans. Commercial lending consists of both secured and unsecured loans. During the past several years, the Bank has been a very active originator of automobile loans which it originates through arrangements with local automobile dealers. The Bank's deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). The Company's principal executive office is located at 101 Crain Highway, S.E., Glen Burnie, Maryland 21061. Its telephone number at such office is (410) 766-3300. MARKET AREA The Bank considers its principal market area for lending and deposit products to consist of Northern Anne Arundel County, Maryland, which consists of those portions of the county north of U.S. Route 50. Northern Anne Arundel County includes mature suburbs of the City of Baltimore, which in recent years have experienced modest population growth and are characterized by an aging population. Management believes that the majority of the working population in its market area either commutes to Baltimore or is employed at the nearby Baltimore Washington International Airport. Anne Arundel County is generally considered to have more affordable housing than other suburban Baltimore areas and has begun to attract younger persons and minorities on this basis. This inflow, however, has not been sufficient to affect current population trends. FINANCIAL MODERNIZATION LEGISLATION On November 12, 1999, President Clinton signed legislation which could have a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes affiliations between banking, securities and insurance firms and authorizes bank holding companies and national banks to engage in a variety of new financial activities. Under the G-L-B Act, any bank holding company whose depository institution subsidiaries have satisfactory Community Reinvestment Act ("CRA") records may elect to become a financial holding company if it certifies to the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") that all of its depository institution subsidiaries are well-capitalized and well-managed. Financial holding companies may engage in any activity that the Federal Reserve Board, after consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to a financial activity. Financial holding companies may also engage in activities that are complementary to financial activities and do not pose a substantial risk to the safety and soundness of their depository institution subsidiaries or the financial system generally. The G-L-B Act specifies that activities that are financial in nature include lending and investing activities, insurance and annuity underwriting and brokerage, financial, investment and economic advice, selling interests in pooled investment vehicles, securities underwriting, engaging in activities currently permitted to bank holding companies (including activities in which bank holding companies may currently engage outside the United States) and merchant banking through a securities or insurance underwriting affiliate. The Federal Reserve Board, in consultation with the Department of Treasury, may approve additional financial activities. -3- The G-L-B Act permits well capitalized and well managed national banks with satisfactory CRA records to invest in financial subsidiaries that engage in activities that are financial in nature (or incidental thereto) on an agency basis. National banks that are among the 50 largest insured banks and have at least one issue of investment grade debt outstanding may invest in financial subsidiaries that engage in activities as principal other than insurance underwriting, real estate development or merchant banking. All national banks are given the authority to underwrite municipal revenue bonds. The aggregate total consolidated assets of a national bank's financial subsidiaries may not exceed the lesser of 45% of the bank's total consolidated assets or $50 billion. A national bank would be required to deduct its investments in financial subsidiaries from its regulatory capital. National banks must also adopt procedures for protecting the bank against risks associated with the financial subsidiary and to preserve the separate corporate identity of the financial subsidiary. Financial subsidiaries of state and national banks (which include any subsidiary engaged in an activity not permitted to a national bank directly) would be treated as affiliates for purposes of the limitations on aggregate transactions with affiliates in Sections 23A and 23B of the Federal Reserve Act and for purposes of the anti-tying restrictions of the Bank Holding Company Act. State-chartered banks would be prohibited from investing in financial subsidiaries unless they would be well capitalized after deducting the amount of their investment from capital and observe the other safeguards applicable to national banks. The G-L-B Act imposes functional regulation on bank securities and insurance activities. Banks will only be exempt from SEC regulation as securities brokers if they limit their activities to those described in the G-L-B Act. Banks that advise mutual funds will be subject to the same SEC regulation as other investment advisors. Bank common trust funds will be regulated as mutual funds if they are advertised or offered for sale to the general public. National banks and their subsidiaries will be prohibited from underwriting insurance products other than those which they were lawfully underwriting as of January 1, 1999 and are prohibited from underwriting title insurance or tax-free annuities. National banks may only sell title insurance in states in which state-chartered banks are authorized to sell title insurance. The G-L-B Act directs the federal banking agencies to promulgate regulations governing sales practices in connection with permissible bank sales of insurance. The G-L-B Act imposes new requirements on financial institutions with respect to customer privacy. The G-L-B Act generally prohibits disclosure of customer information to non-affiliated third parties unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to customers annually. Financial institutions, however, will be required to comply with state law if it is more protective of customer privacy than the G-L-B Act. The G-L-B Act directs the federal banking agencies, the National Credit Union Administration, the Secretary of the Treasury, the Securities and Exchange Commission and the Federal Trade Commission, after consultation with the National Association of Insurance Commissioners, to promulgate implementing regulations within six months of enactment. The privacy provisions will become effective six months thereafter. The G-L-B Act contains significant revisions to the Federal Home Loan Bank System. The G-L-B Act imposes new capital requirements on the Federal Home Loan Banks and authorizes them to issue two classes of stock with differing dividend rates and redemption requirements. The G-L-B Act deletes the current requirement that the Federal Home Loan Banks annually contribute $300 million to pay interest on certain government obligations in favor of a 20% of net earnings formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank advances by community financial institutions (under $500 million in assets) to include funding loans to small businesses, small farms and small agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank system voluntary for federal savings associations. The G-L-B Act contains a variety of other provisions including a prohibition against ATM surcharges unless the customer has first been provided notice of the imposition and amount of the fee. The G-L-B Act reduces the frequency of CRA examinations for smaller institutions and imposes certain reporting requirements on depository institutions that make payments to non-governmental entities in connection with the CRA. LENDING ACTIVITIES The Bank offers a full range of consumer and commercial loans. The Bank's lending activities include residential and commercial real estate loans, construction loans, land acquisition and development loans, equipment and automobile lease financing, commercial loans and consumer installment lending including indirect automobile lending. Substantially all of the Bank's loan customers are residents of Anne Arundel County and surrounding areas -4- of Central Maryland. The Bank solicits loan applications for commercial loans from small to medium sized businesses located in its market area. The Bank believes that this is a market in which a relatively small community bank, like the Bank, has a competitive advantage in personal service and flexibility. The Bank's consumer lending currently consists primarily of automobile loans originated through local dealers. The Bank has expanded its indirect automobile loans by entering into arrangements with individual automobile dealers. The Bank's lease financing portfolio consists of loans purchased from third party originators. After several years of portfolio run-off, the Company's loan portfolio increased during the past two fiscal years, as the result of the introduction of an indirect automobile lending program in 1998. The Bank's loan portfolio had decreased in size in prior years primarily due to declines in the size of its construction loan portfolio and in its installment and commercial loan portfolios. The declines in the construction portfolio reflected the significant increase in such lending in fiscal year 1994 which was not sustained in subsequent years. The run-off in the commercial portfolio reflected the Bank's decision to decrease its equipment and automobile lease-based lending because of the difficulties encountered in monitoring the financial condition of borrowers on purchased leases. The declines in the installment and commercial loan portfolios also reflected in part the substantial charge-offs which the Bank took during fiscal years 1996 and 1995. The following table provides information on the composition of the loan portfolio at the indicated dates.

AT DECEMBER 31, 2000 1999 1998 1997 1996 -------------------- -------------------- ---------------------- ------------------- ----------------- (DOLLARS IN THOUSANDS) $ % $ % $ % $ % $ % ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Mortgage: Residential........ $ 36,187 21.74% $ 34,099 22.03% $ 33,931 26.28% $ 38,048 32.68% $ 36,505 27.95% Commercial......... 40,169 24.13 42,342 27.36 43,915 34.02 43,276 37.17 47,757 36.57 Construction and land Development...... 5,257 3.16 6,095 3.94 2,383 1.85 4,888 4.20 5,515 4.22 Consumer: Installment........ 19,119 11.49 16,203 10.47 17,119 13.26 18,862 16.20 22,281 17.06 Credit card........ 281 0.16 1,348 0.88 1,398 1.08 1,397 1.20 1,434 1.10 Indirect automobile 61,725 37.08 50,967 32.93 24,630 19.08 -- -- -- -- Commercial........... 3,726 2.24 3,701 2.39 5,714 4.43 9,964 8.56 17,095 13.09 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross loans.... 166,464 100.00% 154,755 100.00% 129,090 100.00% 116,435 100.00% 130,587 100.00% ======= ======= ====== ====== ====== Unearned income on loans (705) (727) (748) (751) (854) ------ ------ ------ ------ ------ Gross loans net of Unearned income 165,759 154,028 128,342 115,684 129,733 Allowance for credit Losses............. (3,385) (2,922) (2,841) (4,139) (5,061) ------- ------- ------- ------- ------- Loans, net........... $162,374 $151,106 $125,501 $111,545 $124,672 ======== ======== ======== ======== ========

The following table sets forth the maturities for various categories of the loan portfolio at December 31, 2000. Demand loans and loans, which have no stated maturity, are treated as due in one year or less. At December 31, 2000, the Bank had $7,951,011 in loans due after one year with variable rates and $124,663,638 in such loans with fixed rates. The Bank's long-term real estate loans allow the Bank to call the loan after three years in order to adjust the interest rate if necessary. The Bank has generally not exercised its call option and the following table assumes no exercise of the Bank's call option.

DUE WITHIN DUE OVER ONE DUE OVER ONE YEAR TO FIVE FIVE YEARS TOTAL YEARS (IN THOUSANDS) Real Estate - mortgage: Residential................ $2,437 $1,655 $32,095 $36,187 Commercial................. 5,667 6,380 28,122 40,169 Real Estate -- construction.. 425 1,048 3,784 5,257 Installment.................. 2,024 6,952 10,143 19,119 Credit Card.................. 206 28 47 281 Indirect automobile.......... 131 60,310 1,284 61,725 Commercial................... 1,128 482 2,116 3,726 ---- ----- ------- ----- $12,018 $76,855 $77,591 $166,464 ======= ======= ======= ========

-5- REAL ESTATE LENDING. The Bank offers long-term mortgage financing for residential and commercial real estate as well as shorter term construction and land development loans. Residential mortgage and residential construction loans are originated with fixed rates while commercial mortgages may be originated on either a fixed or variable rate basis. Commercial construction loans are generally originated on a variable rate basis. The Bank's long-term, fixed-rate mortgages include a provision allowing the Bank to call the loan after three years in order to adjust the interest rate. The Bank, however, has never exercised this right. Substantially all of the Bank's real estate loans are secured by properties in northern Anne Arundel County, Maryland. Under the Bank's loan policies, the maximum permissible loan-to-value ratio for owner-occupied residential mortgages is 80% of the lesser of the purchase price or appraised value. The Bank, however, will make loans secured by owner-occupied residential real estate with loan-to-value ratios up to 95% provided the borrower obtains private mortgage insurance for the portion of the loan in excess of 80%. For residential investment properties, the maximum loan-to-value ratio is 75%. The maximum permissible loan-to-value ratio for residential and commercial construction loans is 80%. The maximum loan-to-value ratio for permanent commercial mortgages is 75%. The maximum loan-to-value ratio for land development loans is 70% and for unimproved land is 65%. The Bank also offers home equity loans secured by the borrower's primary residence provided that the aggregate indebtedness on the property does not exceed 80% of its value. COMMERCIAL LENDING. The Bank's commercial loan portfolio consists principally of demand and time loans for commercial purposes and purchased lease financings. The Bank's business demand and time lending includes various working capital loans, lines of credit and letters of credit for commercial customers. Demand loans require the payment of interest until called while time loans require a single payment of principal and interest at maturity. Such loans may be made on a secured or an unsecured basis. All such loans are underwritten on the basis of the borrower's creditworthiness rather than the value of the collateral. The Bank's lease financing portfolio includes leases on various types of commercial equipment that have been purchased from various vendors. Because of the difficulties encountered in monitoring the financial condition of borrowers on purchased leases, the Bank is no longer purchasing equipment leases and is allowing this portfolio to run off. INSTALLMENT LENDING. The Bank makes consumer and commercial installment loans for the purchase of automobiles, boats, other consumer durable goods, capital goods and equipment. Such loans provide for repayment in regular installments and are secured by the goods financed. Also included in installment loans are overdraft loans and other credit repayable in installments. As of December 31, 2000, approximately 13.8% of the installment loans in the Bank's portfolio had been originated for commercial purposes and 86.2% had been originated for consumer purposes. INDIRECT AUTOMOBILE LENDING. The Bank commenced its indirect automobile lending program in January 1998. The Bank finances new and used automobiles for terms of up to 60 months. Used vehicles must be no more than five years old and the maximum loan term is reduced for higher mileage vehicles. The Bank does not lend more than the invoice price on new vehicles and on used vehicles will not lend more than the fair market value as published in a nationally recognized used vehicle pricing guide. The Bank requires all borrowers to obtain vendor's single interest coverage protecting the Bank against loss. The Bank originates indirect loans through a network of 14 dealers which are primarily new car dealers located in Anne Arundel County. Participating dealers take loan applications from their customers and transmit them to the Bank for approval. If the loan is approved, the Bank will immediately fund the principal of the loan and credit the dealer's reserve account for the premium due to the dealer. Funds are disbursed from the dealer reserve account on a monthly basis net of any unpaid interest resulting from borrower prepayments or defaults on other loans purchased from the dealer. The Bank does not offer dealer floor plan financing. CREDIT CARD AND RELATED LOANS. Credit card and related loans consist of outstanding balances on credit cards and overdraft lines of credit. The Bank offered no annual fee VISA(R) and MasterCard(R) credit cards to qualified customers. Credit card billing and payment processing was done for the Bank by an unaffiliated third party which received a fee for such services. In February, 2000, however, the Bank sold its portfolio of credit card loans. The Bank's overdraft protection line of credit is offered as a convenience to qualified customers. Although the risk of non-payment for any reason exists with respect to all loans, certain other specific risks are associated with each type of loan. The primary risks associated with commercial loans, including commercial -6- real estate loans, are the quality of the borrower's management and a number of economic and other factors which induce business failures and depreciate the value of business assets pledged to secure the loan, including competition, insufficient capital, product obsolescence, changes in the cost of production, environmental hazards, weather, changes in laws and regulations and general changes in the marketplace. Primary risks associated with residential real estate loans include fluctuating land and property values and rising interest rates with respect to fixed-rate, long-term loans. Residential construction lending exposes the Company to risks related to builder performance. Consumer loans, including indirect automobile loans, are affected primarily by domestic instability and a variety of factors that may lead to the borrower's unemployment, including deteriorating economic conditions in one or more segments of a local or broader economy. Because the Bank deals with borrowers through an intermediary on indirect automobile loans, this form of lending potentially carries greater risks of defects in the application process for which claims may be made against the Bank. Indirect automobile lending may also involve the Bank in consumer disputes under state "lemon" or other laws. The Bank seeks to control these risks by following strict underwriting and documentation guidelines and by only dealing with well-established dealerships who are contractually obligated to indemnify the Bank for such losses. The Bank's lending activities are conducted pursuant to written policies approved by the Board of Directors intended to ensure proper management of credit risk. Loans are subject to a well defined credit process that includes credit evaluation of borrowers, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Regular portfolio reviews are performed by the Senior Credit Officer to identify potential underperforming credits, estimate loss exposure and to ascertain compliance with the Bank's policies. On a quarterly basis, the internal auditor performs an independent loan review in accordance with the Bank's loan review policy. For significant problem loans, management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral, and the effects of economic conditions. The Bank's loan approval policy provides for various levels of individual lending authority. The maximum lending authority granted by the Bank to any one individual is $500,000. A combination of approvals from certain officers may be used to lend up to an aggregate of $750,000. The Bank's Executive Committee is authorized to approve loans up to $1.0 million. Larger loans must be approved by the full Board of Directors. Under Maryland law, the maximum amount which the Bank is permitted to lend to any one borrower and their related interests may generally not exceed 10% of the Bank's unimpaired capital and surplus which is defined to include the Bank's capital, surplus, retained earnings and 50% of its reserve for possible loan losses. Under this authority, the Bank would have been permitted to lend up to $1.87 million to any one borrower at December 31, 2000. By interpretive ruling of the Commissioner of Financial Regulation, Maryland banks have the option of lending up to the amount that would be permissible for a national bank which is generally 15% of unimpaired capital and surplus (defined to include a bank's total capital for regulatory capital purposes plus any loan loss allowances not included in regulatory capital). Under this formula, the Bank would have been permitted to lend up to $3.1 million to any one borrower at December 31, 2000. It is currently the Bank's policy to limit its exposure to any one borrower to no more than $1.3 million in the aggregate unless the loan is approved by a 75% vote of the Board of Directors with respect to new borrowings. At December 31, 2000, the largest amount outstanding to any one borrower and their related interests was $2,396,000 which was within the Bank's lending limit at the time when made. NON-PERFORMING LOANS It is the current policy of the Bank to discontinue the accrual of interest when a loan becomes 120 days or more delinquent and circumstances indicate that collection is doubtful. For years prior to 1997, the Bank's policy was to consider real estate loans on a case-by-case basis subject to collateral. The Bank seeks to control delinquencies through diligent collection procedures. For consumer loans, the Bank sends out payment reminders on the seventh and twelfth days after a payment is due. If a consumer loan becomes 15 days past due, the account is transferred to the Bank's collections department which will contact the borrower by telephone and letter before the account becomes 30 days past due. If a consumer loan becomes more than 30 days past due, the Bank will continue its collection efforts and will move to repossession or foreclosure by the 45th day if the Bank has reason to believe that the collateral may be in jeopardy or the borrower has failed to -7- respond to prior communications. The Bank will move to repossess or foreclose in all instances in which a consumer loan becomes more than 60 days delinquent. After repossession of a motor vehicle, the borrower has a 15-day statutory right to redeem the vehicle and is entitled to 10 days' notice before the sale of a repossessed vehicle. The Bank sells the vehicle as promptly as feasible after the expiration of these periods. If the amount realized from the sale of the vehicle is less than the loan amount, the Bank will seek a deficiency judgment against the borrower. The Bank follows similar collection procedures with respect to commercial loans. The following table sets forth the amount of the Bank's restructured loans, non-accrual loans and accruing loans 90 days or more past due at the dates indicated

AT DECEMBER 31, ------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) Restructured Loans.......................... $ 370 $ 243 $ 137 $344 $ -- ===== ===== ===== ==== ==== Non-accrual loans: Real estate - mortgage: Residential............................... $ 120 $ 237 $ 336 $1,078 $2,065 Commercial................................ 77 135 505 761 1,935 Real estate - construction................ 0 280 316 608 0 Installment............................... 72 315 463 665 168 Credit card & related..................... 0 0 0 0 0 Commercial................................ 101 45 105 369 378 --- ----- --- --- --- Total non-accrual loans.............. 370 1,012 1,725 3,481 4,546 Accruing loans past due 90 days or more Real estate - mortgage: Residential............................... 34 43 0 5 87 Commercial................................ 0 0 0 0 0 Real estate - construction................ 0 0 0 0 0 Installment............................... 0 0 0 0 0 Credit card & related..................... 0 0 18 0 0 Commercial................................ 0 0 0 5 0 Total accruing loans past due 90 days or more................... 34 43 18 5 87 ----- ------ ------ ------ ------ Total non-accrual and past due loans. $ 404 $1,055 $1,743 $3,486 $4,633 ===== ====== ====== ====== ====== Non-accrual and past due loans to gross loans....................... 0.24% 0.68% 1.36% 2.99% 3.55% ===== ===== ===== ===== ===== Allowance for credit losses to non-accrual and past due loans..... 837.87% 276.97% 162.99% 118.73% 109.24% ======= ======= ======= ======= =======

For the year ended December 31, 2000, interest of approximately $48,484, would have been accrued on non-accrual loans if such loans had been current in accordance with their original terms. During such period there was no interest on such loans included in income. During the year ended December 31, 2000, the Bank would have recorded $9,129 in interest on restructured loans if such loans were performing in accordance with their original terms. During 2000, the Bank recognized $93,653 in interest income on restructured loans. Approximately $355,421, or 96%, of the Bank's non-accrual loans at December 31, 2000 were attributable to 10 borrowers. Charge-offs of $0 have previously been taken on these loans. Three (3) of these borrowers with loans totaling $81,040 were in bankruptcy at that date. Because of the legal protections afforded to borrowers in bankruptcy, collections on such loans are difficult and the Bank anticipates that such loans may remain delinquent for an extended period of time. Each of these loans is secured by collateral with a value well in excess of the current active balance of the Bank's loan. At December 31, 2000, there were no loans outstanding not 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 120 -8- 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. At December 31, 2000, the Company had $484,148 in real estate acquired in partial or total satisfaction of debt compared to $558,827 and $1,099,326 in such properties at December 31, 1999 and 1998, respectively. All such properties are recorded at the lower of cost or fair value at the date acquired and carried on the balance sheet as other real estate owned. Losses arising at the date of acquisition are charged against the allowance for credit losses. Subsequent write-downs that may be required and expense of operation are included in non-interest expense. Gains and losses realized from the sale of other real estate owned are included in non-interest income or expense. For a description of the properties comprising other real estate owned at December 31, 2000, see "Item 2. -- Properties." 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 borrower's ability to pay. Transactions in the allowance for credit losses during the last five fiscal years were as follows:

YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) Beginning Balance........................... $ 2,922 $ 2,841 $ 4,139 $ 5,061 $ 3,698 Loans charged off Real estate - mortgage: Residential............................ 19 0 51 270 250 Commercial............................. 4 50 0 0 797 Real estate - construction................ 0 (27) 189 435 0 Installment............................... 470 477 473 171 786 Credit card & related..................... 101 92 0 45 182 Commercial................................ 167 81 382 697 3,453 ---- ----- ----- ----- ----- Total................................ 761 673 1,095 1,618 5,468 ---- ----- ----- ----- ----- Recoveries Real estate - mortgage: Residential............................ 52 32 51 25 22 Commercial............................. 0 16 26 17 81 Real estate - construction................ 470 36 1 0 0 Installment............................... 111 259 116 89 57 Credit card & related..................... 41 4 4 5 2 Commercial................................ 550 107 99 290 73 ---- ----- ----- ----- ----- Total................................ 1,224 454 297 426 235 ---- ----- ----- ----- ----- Net charge offs/(recoveries)................ (463) 219 798 1,192 5,233 Provisions charged to operations............ 0 300 (500) 270 6,596 ---- ----- ----- ----- ----- Ending balance.............................. $ 3,385 $ 2,922 $ 2,841 $ 4,139 $ 5,061 ======= ======= ======= ======= ======= Average loans............................... $159,810 $142,077 $118,372 $119,161 $146,922 Net charge-offs to average loans............ (.28)% 0.15% 0.67% 1.00% 3.56%

The Bank's high level of loan charge-offs during fiscal year 1996 was primarily attributable to its lending relationships with Mr. Brian Davis and various affiliated entities. Such loans primarily consisted of loans for purchases of trucks and other non-real estate secured loans which are categorized under commercial loans in the -9- above table. In addition, during fiscal year 1996, the Bank began charging off all non-real estate secured loans upon 90 days delinquency which contributed to a continued high level of charge-offs. The following table shows the allowance for credit losses broken down by loan category as of December 31, 2000, 1999, 1998, 1997, and 1996 .

AT DECEMBER 31, ---------------------------------------------------------------------------------------------- 2000 1999 ------------- -------------- Percentage Of Loans Percentage Of Loans Portfolio Allowance For In Each Category To Allowance For In Each Category To --------- Each Category Total Loans Each Category Total Loans ------------- ----------- ------------- ----------- (Dollars In Thousands) Real Estate - mortgage: Residential................ $ 199 21.96% $ 200 22.03% Commercial................. 506 24.38 613 27.36 Real Estate -- construction.. 292 3.19 296 3.94 Installment.................. 221 10.61 177 10.47 Credit Card.................. 0 -- 92 0.88 Indirect automobile.......... 1,486 37.63 793 32.93 Commercial................... 288 2.23 526 2.39 Unallocated.................. 393 -- 225 -- ---- ---- ---- ---- Total.................... $3,385 100.00% $2,922 100.00% ====== ======= ====== =======

AT DECEMBER 31, --------------------------------------------------------------------------------------------------- 1998 1997 1996 ---------- ----------- ---------- Percentage Of Percentage Of Percentage Of Loans In Each Loans In Each Loans In Each Allowance For Category To Allowance For Category To Allowance For Category To Porfolio Each Category Total Loans Each Category Total Loans Each Category Total Loans --------- ------------- ----------- ------------- ----------- ------------- ----------- (Dollars In Thousands) Real Estate - mortgage: Residential................ $273 26.28% 389 32.68% 432 27.96% Commercial................. 311 34.02 987 37.17 987 36.57 Real Estate -- construction.. 335 1.85 390 4.20 690 4.22 Installment.................. 143 13.26 159 16.20 448 17.06 Credit Card.................. 60 1.08 47 1.20 49 1.10 Indirect automobile.......... 312 19.08 -- -- -- -- Commercial................... 966 4.43 1,186 8.56 2455 13.09 Unallocated.................. 441 -- 981 -- -- -- ---- ----- ----- ----- ----- ----- Total.................... $2,841 100.00% $4,139 100.00% $5,061 100.00% ====== ====== ====== ====== ====== ======

INVESTMENT SECURITIES The Bank maintains a substantial portfolio of investment securities to provide liquidity as well as a source of earnings. The Bank's investment securities portfolio consists primarily of U.S. Treasury securities, securities issued by U.S. Government agencies including mortgage-backed securities, as well as securities issued by certain states and their political subdivisions. This last portfolio has recently been increased due to a change in the Company's deferred tax position allowing the Company to use the full tax advantage of this portfolio. The following table presents at amortized cost the composition of the investment portfolio by major category at the dates indicated.

AT DECEMBER 31, ------------------------------------------------------------ 2000 1999 1998 ---- ---- ---- (IN THOUSANDS) U.S. Treasury securities........................... $1,746 $2,739 $5,082 U.S. Government agencies and mortgage backed securities ............................ 39,057 40,833 59,008 Obligations of states and political subdivisions... 8,721 -- -- Other securities and stock......................... 3,574 652 936 ----- ----- ----- Total investment securities.................... $53,098 $44,224 $65,026 ======= ======= =======

-10- The following table sets forth the scheduled maturities, book values and weighted average yields for the Company's investment securities portfolio at December 31, 2000.

ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS WEIGHTED WEIGHTED WEIGHTED WEIGHTED BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD ----- ----- ----- ----- ------ ----- ----- ----- U.S. Treasury securities.. $500 5.50% $1,247 6.13% $ -- --% $ -- --% U.S. Government agencies and mortgage backed securities............... -- -- 9,361 5.91% 8,697 6.59% 20,999 6.29% Obligations of states and political subdivisions - - - - 180 4.82% 8,541 5.34% Other securities and stock 652 7.75% 100 5.85% - - 2,822 8.27% ----- ----- ----- ----- ------ ----- ----- ----- Total investment securities $1,152 6.78% $10,708 5.92% $8,877 6.56% $32,362 6.30% ====== ======= ====== ======

TOTAL WEIGHTED BOOK AVERAGE VALUE YIELD ----- ----- U.S. Treasury securities.. $1,746 5.95% U.S. Government agencies and mortgage backed securities............... 39,057 6.26% Obligations of states and political subdivisions 8,721 5.33% Other securities and stock 3,574 8.09% ----- ----- Total investment securities $53,098 6.20% ======

At December 31, 2000, the Bank had no investments in securities of a single issuer (other than the U.S. Government securities and securities of federal agencies and government-sponsored enterprises) which aggregated more than 10% of stockholders' equity. DEPOSITS AND OTHER SOURCES OF FUNDS The funds needed by the Bank to make loans are primarily generated by deposit accounts solicited from the communities surrounding its main office and seven branches in northern Anne Arundel County. Consolidated total deposits were $205,968,000 as of December 31, 2000. The Bank uses borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta to supplement funding from deposits. The Bank was permitted to borrow up to $28.7 million under a line of credit from the FHLB of Atlanta as of December 31, 2000. DEPOSITS. The Bank's deposit products include regular savings accounts (statements), money market deposit accounts, demand deposit accounts, NOW checking accounts, IRA and SEP accounts, Christmas Club accounts and certificates of deposit. Variations in service charges, terms and interest rates are used to target specific markets. Ancillary products and services for deposit customers include safe deposit boxes, money orders and travelers checks, night depositories, automated clearinghouse transactions, wire transfers, ATMs, telephone banking, and a customer call center. The Bank is a member of the Cirrus(R) and Star(R) ATM networks. The Bank obtains deposits principally through its network of eight offices. The Bank does not solicit brokered deposits. At December 31, 2000, the Bank had approximately $15.2 million in certificates of deposit and other time deposits of $100,000 or more including IRA accounts. The following table provides information as to the maturity of all time deposits of $100,000 or more at December 31, 2000. AMOUNT (IN THOUSANDS) -------------- Three months or less................................... $3,835 Over three through six months.......................... 4,406 Over six through 12 months............................. 5,725 Over 12 months......................................... 1,238 ----- Total $15,204 ======= BORROWINGS. In addition to deposits, the Bank from time to time obtains advances from the FHLB of Atlanta of which it is a member. FHLB of Atlanta advances may be used to provide funds for residential housing finance, for small business lending, and to meet specific and anticipated needs. The Bank may draw on a $28.7 million line of credit from the FHLB of Atlanta, which is secured by a floating lien on the Bank's residential first mortgage loans and various federal and agency securities. There was $7.0 million in a long-term convertible advance under this credit arrangement at December 31, 2000. The advance matures in September 2010 and bears a 5.84% rate of interest. On September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a Connecticut statutory trust wholly owned by the -11- Company. The Trust, in turn, issued $5,000,000 of its 10.6% capital securities to institutional investors. The debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010. The Bank also has a secured line of credit in the amount of $5.0 million from another commercial bank but has not drawn on this line. The Bank has a mortgage note on the 103 Crain Highway address of $296,523, as of December 31, 2000. This note is payable monthly through October 2010 and has a 7% interest rate. COMPETITION The Bank faces competition from other community banks and financial institutions and larger intra- and inter- state banks and financial institutions which compete vigorously (currently, sixteen FDIC-insured depository institutions operate within two miles of the Bank's headquarters). Former directors of the Bank, including a former Chief Executive Officer, have established a new bank with a main office in Glen Burnie close to the Bank's headquarters which has solicited business from many Bank customers. With respect to indirect lending, the Bank faces competition from other banks and the financing arms of automobile manufacturers. The Bank competes in this area by offering competitive rates and responsive service to dealers. The Bank's interest rates, loan and deposit terms, and offered products and services are governed, to a large extent, by such competition. The Bank attempts to provide superior service within its community and to know and facilitate services to its customers. It seeks commercial relationships with small to medium size businesses which, it believes, would welcome personal service and flexibility. While it believes it is the seventh largest deposit holder in Anne Arundel County, Maryland, with an estimated 4.84% market share as of June 30, 1999 (the latest date for which relevant data is available from the FDIC), it believes its greatest competition comes from smaller community banks which offer similar personalized services. OTHER ACTIVITIES The Company also owns all outstanding shares of capital stock of GBB Properties, Inc. ("GBB"), another Maryland corporation which was organized in 1994 and which is engaged in the business of acquiring, holding and disposing of real property, typically acquired in connection with foreclosure proceedings (or deeds in lieu of foreclosure) instituted by the Bank or acquired in connection with branch expansions by the Bank. EMPLOYEES At December 31, 2000, the Bank had 131 full-time equivalent employees. Neither the Company nor GBB currently has any employees. REGULATION OF THE COMPANY GENERAL. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "BHCA"). As such, the Company is registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and subject to Federal Reserve Board regulation, examination, supervision and reporting requirements. As a bank holding company, the Company is required to furnish to the Federal Reserve Board annual and quarterly reports of its operations at the end of each period and to furnish such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Company is also subject to regular inspection by Federal Reserve Board examiners. Under the BHCA, a bank holding company must obtain the prior approval of the Federal Reserve Board before: (1) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency of 1994 (the "Riegle-Neal Act") authorized the Federal Reserve Board to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a -12- bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Riegle-Neal Act also prohibits the Federal Reserve Board from approving such an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the Riegle-Neal Act. Under Maryland law, a bank holding company is prohibited from acquiring control of any bank if the bank holding company would control more than 30% of the total deposits of all depository institutions in the State of Maryland unless waived by the Commissioner of Financial Regulation. Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. The State of Maryland did not pass such a law during this period. Interstate acquisitions of branches will be permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions will also be subject to the nationwide and statewide insured deposit concentration amounts described above. The BHCA also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The activities of the Company are subject to these legal and regulatory limitations under the BHCA and the Federal Reserve Board's regulations thereunder. Notwithstanding the Federal Reserve Board's prior approval of specific nonbanking activities, the Federal Reserve Board has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company. Effective with the enactment of the G-L-B Act on November 12, 1999, bank holding companies whose financial institution subsidiaries are well capitalized and well managed and have satisfactory Community Reinvestment Act records can elect to become "financial holding companies" which will be permitted to engage in a broader range of financial activities than are currently permitted to bank holding companies. Financial holding companies are authorized to engage in, directly or indirectly, financial activities. A financial activity is an activity that is: (i) financial in nature; (ii) incidental to an activity that is financial in nature; or (iii) complementary to a financial activity and that does not pose a safety and soundness risk. The G-L-B Act includes a list of activities that are deemed to be financial in nature. Other activities also may be decided by the Federal Reserve Board to be financial in nature or incidental thereto if they meet specified criteria. A financial holding company that intends to engage in a new activity to acquire a company to engage in such an activity is required to give prior notice to the Federal Reserve Board. If the activity is not either specified in the G-L-B Act as being a financial activity or one that the Federal Reserve Board has determined by rule or regulation to be financial in nature, the prior approval of the Federal Reserve Board is required. The Maryland Financial Institutions Code prohibits a bank holding company from acquiring more than 5% of any class of voting stock of a bank or bank holding company without the approval of the Commissioner of Financial Regulation except as otherwise expressly permitted by federal law or in certain other limited situations. The Maryland Financial Institutions Code additionally prohibits any person from acquiring voting stock in a bank or bank holding company without 60 days' prior notice to the Commissioner if such acquisition will give the person control of 25% or more of the voting stock of the bank or bank holding company or will affect the power to direct or -13- to cause the direction of the policy or management of the bank or bank holding company. Any doubt whether the stock acquisition will affect the power to direct or cause the direction of policy or management shall be resolved in favor of reporting to the Commissioner. The Commissioner may deny approval of the acquisition if the Commissioner determines it to be anti-competitive or to threaten the safety or soundness of a banking institution. Voting stock acquired in violation of this statute may not be voted for five years. CAPITAL ADEQUACY. The Federal Reserve Board has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See "Regulation of the Bank -- Capital Adequacy." DIVIDENDS AND DISTRIBUTIONS. The Federal Reserve Board has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the company's capital needs, asset quality, and overall financial condition. Bank holding companies are required to give the Federal Reserve Board notice of any purchase or redemption of their outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company's consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve Board order, directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Bank holding companies whose capital ratios exceed the thresholds for "well capitalized" banks on a consolidated basis are exempt from the foregoing requirement if they were rated composite 1 or 2 in their most recent inspection and are not the subject of any unresolved supervisory issues. REGULATION OF THE BANK GENERAL. As a state-chartered bank with deposits insured by the FDIC but which is not a member of the Federal Reserve System (a "state non-member bank"), the Bank is subject to the supervision of the Commissioner of Financial Regulation and the FDIC. The Commissioner and FDIC regularly examine the operations of the Bank, including but not limited to capital adequacy, reserves, loans, investments and management practices. These examinations are for the protection of the Bank's depositors and not its stockholders. In addition, the Bank is required to furnish quarterly and annual call reports to the Commissioner and FDIC. The FDIC's enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business. The Bank's deposits are insured by the FDIC to the legal maximum of $100,000 for each insured depositor. Some of the aspects of the lending and deposit business of the Bank that are subject to regulation by the Federal Reserve Board and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and savings deposit accounts. In addition, the Bank is subject to numerous federal and state laws and regulations which set forth specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms and discrimination in credit transactions. CAPITAL ADEQUACY. 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. The regulations of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the capital regulations state that only the strongest bank holding companies and banks, with -14- composite examination ratings of 1 under the rating system used by the federal bank regulators, would be permitted to operate at or near such minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization's capital adequacy by its primary regulator. Any bank or bank holding company experiencing or anticipating significant growth would be expected to maintain capital well above the minimum levels. In addition, the Federal Reserve Board has indicated that whenever appropriate, and in particular when a bank holding company is undertaking expansion, seeking to engage in new activities or otherwise facing unusual or abnormal risks, it will consider, on a case-by-case basis, the level of an organization's ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital. The risk-based capital rules of the Federal Reserve Board and the FDIC require bank holding companies and state non-member banks, respectively, to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. Risk-based capital is composed of two elements: Tier 1 capital and Tier 2 capital. Tier 1 capital consists primarily of common stockholders' equity, certain perpetual preferred stock (which must be noncumulative in the case of banks), and minority interests in the equity accounts of consolidated subsidiaries; less all intangible assets, except for certain purchased mortgage servicing rights and credit card relationships. Tier 2 capital elements include, subject to certain limitations, the allowance for losses on loans and leases; perpetual preferred stock that does not qualify as Tier 1 capital and long-term preferred stock with an original maturity of at least 20 years from issuance; hybrid capital instruments, including perpetual debt and mandatory convertible securities; and subordinated debt and intermediate-term preferred stock. The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of 8%, with at least 4% as Tier 1 capital. For the purpose of calculating these ratios: (i) Tier 2 capital is limited to no more than 100% of Tier 1 capital; and (ii) the aggregate amount of certain types of Tier 2 capital is limited. In addition, the risk-based capital regulations limit the allowance for loan losses includable as capital to 1.25% of total risk-weighted assets. FDIC regulations and guidelines additionally specify that state non-member banks with significant exposure to declines in the economic value of their capital due to changes in interest rates may be required to maintain higher risk-based capital ratios. The federal banking agencies, including the FDIC, have proposed a system for measuring and assessing the exposure of a bank's net economic value to changes in interest rates. The federal banking agencies, including the FDIC, have stated their intention to propose a rule establishing an explicit capital charge for interest rate risk based upon the level of a bank's measured interest rate risk exposure after more experience has been gained with the proposed measurement process. Federal Reserve Board regulations do not specifically take into account interest rate risk in measuring the capital adequacy of bank holding companies. The FDIC has issued regulations which classify state non-member banks by capital levels and which authorize the FDIC to take various prompt corrective actions to resolve the problems of any bank that fails to satisfy the capital standards. Under such regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has or exceeds the following capital levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of 5%. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite examination rating. A bank not meeting these criteria is treated as undercapitalized, significantly undercapitalized, or critically undercapitalized depending on the extent to which the bank's capital levels are below these standards. A state non-member bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation will be subject to severe regulatory sanctions. As of December 31, 2000, the Bank was well capitalized as defined by the FDIC's regulations. BRANCHING. Maryland law provides that, with the approval of the Commissioner, Maryland banks may establish branches within the State of Maryland without geographic restriction and may establish branches in other states by any means permitted by the laws of such state or by federal law. The Riegle-Neal Act authorizes the FDIC -15- to approve interstate branching de novo by state banks, only in states which specifically allow for such branching. The Riegle-Neal Act also requires the appropriate federal banking agencies to prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production. These regulations must include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to meet the credit needs of the communities which they serve. DIVIDEND LIMITATIONS. Pursuant to the Maryland Financial Institutions Code, Maryland banks may only pay dividends from undivided profits or, with the prior approval of the Commissioner, their surplus in excess of 100% of required capital stock. The Maryland Financial Institutions Code further restricts the payment of dividends by prohibiting a Maryland bank from declaring a dividend on its shares of common stock until its surplus fund equals the amount of required capital stock or, if the surplus fund does not equal the amount of capital stock, in an amount in excess of 90% of net earnings. In addition, the Bank is prohibited by federal statute from paying dividends or making any other capital distribution that would cause the Bank to fail to meet its regulatory capital requirements. Further, the FDIC also has authority to prohibit the payment of dividends by a state non-member bank when it determines such payment to be an unsafe and unsound banking practice. DEPOSIT INSURANCE. The Bank is required to pay semi-annual assessments based on a percentage of its insured deposits to the FDIC for insurance of its deposits by the Bank Insurance Fund ("BIF"). Under the Federal Deposit Insurance Act, the FDIC is required to set semi-annual assessments for BIF-insured institutions to maintain the designated reserve ratio of the BIF at 1.25% of estimated insured deposits or at a higher percentage of estimated insured deposits that the FDIC determines to be justified for that year by circumstances raising a significant risk of substantial future losses to the BIF. Under the risk-based deposit insurance assessment system adopted by the FDIC, the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC, which is determined by the institution's capital level and supervisory evaluations. Based on the data reported to regulators for the date closest to the last day of the seventh month preceding the semi-annual assessment period, institutions are assigned to one of three capital groups -- "well capitalized, adequately capitalized or undercapitalized." Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution's primary supervisory authority and such other information as the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance fund. Under the current assessment schedule, well-capitalized banks with the best supervisory ratings are not required to pay any premium for deposit insurance. All BIF-insured banks, however, will be required to begin paying an assessment to the FDIC in an amount equal to 2.12 basis points times their assessable deposits to help fund interest payments on certain bonds issued by the Financing Corporation, an agency established by the federal government to finance takeovers of insolvent thrifts. TRANSACTIONS WITH AFFILIATES. A state non-member bank or its subsidiaries may not engage in "covered transactions" with any one affiliate in an amount greater than 10% of such bank's capital stock and surplus, and for all such transactions with all affiliates a state non-member bank is limited to an amount equal to 20% of capital stock and surplus. All such transactions must also be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. An affiliate of a state non-member bank is any company or entity which controls or is under common control with the state non-member bank and, for purposes of the aggregate limit on transactions with affiliates, any subsidiary that would be deemed a financial subsidiary of a national bank. In a holding company context, the parent holding company of a state non-member bank (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the state non-member bank. The BHCA further prohibits a depository institution from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain limited exceptions. LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. Loans to directors, executive officers and principal stockholders of a state non-member bank must be made on substantially the same terms as those prevailing for comparable transactions with persons who are not executive officers, directors, principal stockholders or employees of the Bank unless the loan is made pursuant to a compensation or benefit plan that is -16- widely available to employees and does not favor insiders. Loans to any executive officer, director and principal stockholder together with all other outstanding loans to such person and affiliated interests generally may not exceed 15% of the bank's unimpaired capital and surplus and all loans to such persons may not exceed the institution's unimpaired capital and unimpaired surplus. Loans to directors, executive officers and principal stockholders, and their respective affiliates, in excess of the greater of $25,000 or 5% of capital and surplus (up to $500,000) must be approved in advance by a majority of the board of directors of the bank with any "interested" director not participating in the voting. State non-member banks are prohibited from paying the overdrafts of any of their executive officers or directors. In addition, loans to executive officers may not be made on terms more favorable than those afforded other borrowers and are restricted as to type, amount and terms of credit. ITEM 2. PROPERTIES The following table sets forth certain information with respect to the Bank's offices:

YEAR OWNED/ APPROXIMATE OPENED LEASED BOOK VALUE SQUARE FOOTAGE DEPOSITS ------ ---------- --------------- -------------- -------- MAIN OFFICE: ------------ 101 Crain Highway, S.E. 1953 Owned $1,185,293 10,000 $72,437,291 Glen Burnie, MD 21061 BRANCHES: -------- Odenton 1969 Owned 137,635 6,000 32,520,723 1405 Annapolis Road Odenton, MD 21113 Riviera Beach 1973 Owned 151,988 2,500 23,837,590 8707 Ft. Smallwood Road Pasadena, MD 21122 Crownsville 1979 Owned 394,688 3,000 37,337,022 1221 Generals Highway Crownsville, MD 21032 Severn 1984 Owned 309,332 2,500 19,657,078 811 Reece Road Severn, MD 21144 South Crain 1995 Leased 130,024 2,600 14,672,555 7984 Crain Highway Glen Burnie, MD 21061 Ferndale 1998 Leased 82,294 2,100 3,459,394 7173 Balto & Annapolis Blvd. Glen Burnie, MD 21061 Severna Park 1999 Leased 140,697 1,250 2,366,291 790 Ritchie Highway Severna Park, MD 21146 OPERATIONS CENTERS: ------------------ 106 Padfield Blvd. 1991 Owned 1,341,701 16,200 N/A Glen Burnie, MD 21061 103 Crain Highway, S.E. 2000 Owned 311,976 3,727 N/A Glen Burnie, MD 21061

In December 2000, the Board of Directors of the Bank determined to close the Ferndale Shopping Center branch, effective upon final approval from all Federal and state regulatory agencies. Management determined that certain leasehold improvements made to the Ferndale branch were impaired as prescribed by SFAS No. 121 and have no net realizable value. These leasehold improvements had a book value of $184,535 at December 31, 2000 -17- and will be reflected as an asset impairment loss from continuing operations. The Bank has also accrued approximately $96,000 relating to the estimated cost of closing the Ferndale branch. These costs are included in other operating expenses. GBB Properties, Inc. sold a foreclosed property for $145,000, of which they financed 100%. At December 31, 2000, the loan receivable balance was $139,821. GBB has also purchased land for a future branch site with a book value of $82,774. In April 2000, the Bank sold a foreclosed property for a net gain of $454,040. At December 31, 2000, the Bank owned one foreclosed real estate property with a book value of $344,327. The Bank is holding this commercial property for sale. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company and the Bank are involved in various legal actions relating to their business activities. At December 31, 2000, there were no actions to which the Company or the Bank was a party which involved claims for money damages exceeding 10% of the Company's consolidated current assets in any one case or in any group of proceedings presenting in large degree the same legal and factual issues. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2000. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information about the Company's executive officers.

NAME AGE POSITIONS ---- --- --------- F. William Kuethe, Jr. 68 President and Chief Executive Officer John I. Young 63 Executive Vice President and Chief Operating Officer Michael G. Livingston 47 Senior Vice President and Chief Lending Officer John E. Porter 47 Senior Vice President and Chief Financial Officer

F. WILLIAM KUETHE, JR. has been President and Chief Executive Officer of the Company and the Bank since 1995. He also was director of the Bank from 1963 through 1989. He was President of Glen Burnie Mutual Savings Bank from 1960 through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker with banking experience from 1960 to present, at all levels. He is the father of Frederick W. Kuethe, III, a director of the Company. JOHN I. YOUNG was appointed Executive Vice President and Chief Operating Officer of the Bank in December 1999 after joining the Bank as Senior Vice President in March 1999. Prior to joining the Bank, he had been president of Young-Harris, Inc., a financial industry consulting company since 1980. Mr. Young was president of American Bank Services Corp. from January 1977 to 1980 and was Senior Vice President of Operations of Equitable Trust Bank from 1958 until December 1976. Mr. Young is a member of the Independent Bankers Association of America, the Maryland Bankers Association and an associate member of the Robert Morris Association. He is also the incoming President of the St. Andrew's Society of Baltimore. MICHAEL G. LIVINGSTON was appointed Senior Vice President in January 1998 and has been Chief Lending Officer of the Bank since 1996. He was Regional Vice President and commercial loan officer with Citizens Bank from March 1993 until April 1996. JOHN E. PORTER was appointed Senior Vice President in January 1998. He has been Treasurer and Chief Financial Officer of the Company since 1995 and Vice President, Treasurer and Chief Financial Officer of the Bank since 1990. He has been Secretary/Treasurer of GBB since 1995. -18- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, par value $1.00 per share (the "Common Stock"), is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol "GLBZ." There is not currently an active trading market for the Common Stock. As of March 1, 2001, there were 491 record holders of the Common Stock. The closing price for the Common Stock on that date was $15.00. The following table sets forth the high and low sales prices for the Common Stock for each full quarterly period during 2000 and 1999, based on trades reported on the OTC Bulletin Board or by Legg Mason Wood Walker, Inc., the principal market maker for the Company's stock. The quotations represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. There have been no dividends declared. Also shown are dividends declared per share for these periods. Data has been adjusted to give retroactive effect to a six-for-five stock split effected through a stock dividend paid on January 11, 2000.

2000 1999 ---------------------------------------------- ---------------------------------------------- Quarter Ended High Low Dividends High Low Dividends ------------- ---- --- --------- ---- --- --------- March 31, $19.25 $12.50 $ 0.125 $21.146 $18.542 $ 0.083 June 30, 16.00 13.25 0.150 19.375 19.167 0.083 September 30 16.875 15.00 0.150 19.167 17.917 0.125 December 31 15.250 12.00 0.250 19.167 16.771 0.125

A dividend of $0.15 was declared for stockholders' of record on December 27, 2000 and was payable on January 3, 2001. A special $0.10 dividend was also declared, using the same record date, and was payable on January 10, 2001. The Company intends to pay dividends equal to forty percent (40%) of its profits for each quarter. However, dividends remain subject to declaration by the Board of Directors in its sole discretion and there can be no assurance that the Company will be legally or financially able to make such payments. Payment of dividends may be limited by federal and state regulations which impose general restrictions on a bank's and bank holding company's right to pay dividends (or to make loans or advances to affiliates which could be used to pay dividends). Generally, dividend payments are prohibited unless a bank or bank holding company has sufficient net (or retained) earnings and capital as determined by its regulators. See "ITEM 1. BUSINESS - Supervision and Regulation - Regulation of the Company - Dividends and Distributions" and "ITEM 1. BUSINESS -- Supervision and Regulation - Regulation of the Bank - Dividend Limitations." The Company does not believe that those restrictions will materially limit its ability to pay dividends. 19 ITEM 6. SELECTED FINANCIAL DATA. The following table presents consolidated selected financial data for the Company and its subsidiaries for each of the periods indicated. Dividends and earnings per share have been adjusted to give retroactive effect to stock splits and stock dividends accounted for as stock splits.

YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (DOLLARS IN THOUSAND EXCEPT PER SHARE DATA) OPERATIONS DATA: Net Interest Income............................ $10,801 $ 9,925 $ 9,794 $ 10,567 $ 10,884 Provision for Credit Losses.................... 0 300 (500) 270 6,596 Other Income................................... 3,658 2,828 3,122 1,728 2,230 Other Expense.................................. 10,746 9,822 11,776 11,593 9,019 Net Income (Loss) ............................. 2,275 1,455 833 747 (1,020) SHARE DATA: Basic Net Income (Loss) Per Share.............. $2.07 $1.33 $0.66 $0.59 $(0.80) Diluted Net Income (Loss) Per Share............ 2.07 1.33 0.66 0.59 (0.80) Cash Dividends Declared Per Common Share....... 0.675 0.42 0.42 0.25 0.64 Weighted Average Common Shares Outstanding: Basic.................................... 1,100,804 1,085,078 1,253,275 1,275,017 1,271,744 Diluted.................................. 1,100,804 1,085,078 1,253,637 1,275,017 1,271,744 FINANCIAL CONDITION DATA: Total Assets................................... $239,211 $213,439 $217,571 $231,900 $254,325 Loans Receivable, Net.......................... 162,373 151,107 125,501 111,545 124,672 Total Deposits................................. 205,968 194,090 199,611 207,110 232,746 Long Term Borrowings........................... 7,000 0 0 0 0 Junior Subordinated Debentures................. 5,155 0 0 0 0 Total Stockholders' Equity..................... 17,181 15,102 14,169 18,965 18,586 PERFORMANCE RATIOS: Return on Average Assets....................... 1.02% 0.66% 0.38% 0.32% (0.41)% Return on Average Equity....................... 12.94 9.97 4.54 3.95 (5.29) Net Interest Margin (1) ....................... 5.27 4.96 4.94 5.09 5.04 Dividend Payout Ratio.......................... 32.61 43.48 75.75 50.85 * CAPITAL RATIOS: Average Equity to Average Assets............... 7.87% 6.67% 8.40% 8.01% 7.82% Leverage Ratio................................. 9.30 6.87 5.96 7.60 7.20 Total Risk-Based Capital Ratio................. 13.99 10.80 10.50 16.00 14.00 ASSET QUALITY RATIOS: Allowance for Credit Losses to Gross Loans.................................. 2.04% 1.89% 2.21% 3.55% 3.88% Non-accrual and Past Due Loans to Gross Loans.................................. .24 0.68 1.36 2.99 3.55 Allowance for Credit Losses to Non- Accrual and Past Due Loans................... 837.87 276.97 162.99 118.73 109.24 Net Loan Charge-offs (Recoveries) to Average Loans....... (.28) 0.15 0.67 1.00 3.56

---------- * Not Meaningful (1) Presented on a tax-equivalent basis 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The year 2000 marked the Company's fourth straight year of higher earnings as many favorable operating trends continued. Most notably, 2000 saw significant growth in both the Bank's deposits and loan portfolio. Loan portfolio growth was due primarily to the Bank's indirect automobile lending which was begun in 1998 and has grown to a $61.7 million portfolio by the end of 2000. The Bank's net interest income improved due to a combination of continued loan growth and a continued moderation in deposit costs. Asset quality continued to improve as non-performing loans declined both in dollar terms and as a percentage of the portfolio. Loan recoveries on charge-offs increased as a result of the Bank's improved collections procedures. Earnings for 2000 also benefited from a one-time gain of approximately $590,000 (after applicable income and excise taxes and net of a 25% safe harbor contribution) resulting from the settlement of the Bank's defined benefit pension plan. FORWARD-LOOKING STATEMENTS When used in this discussion and elsewhere in this Annual Report on Form 10-K, 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. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 GENERAL. For the year ended December 31, 2000, the Company reported consolidated net income of $2,274,866 ($2.07 basic and diluted earnings per share) compared to a consolidated income of $1,445,350 ($1.33 basic and diluted earnings per share) for the year ended December 31, 1999 and a consolidated net profit of $833,192 ($0.66 basic and diluted earnings per share) for the year ended December 31, 1998. NET INTEREST INCOME. The primary component of the Company's net income is its net interest income, which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them. Net interest income is determined by the spread between the yields earned on the Company's interest-earning assets and the rates paid on interest-bearing liabilities as well as the relative amounts of such assets and liabilities. Net interest income, divided by average interest-earning assets, represents the Company's net interest margin. Consolidated net interest income for the year ended December 31, 2000 was $10,801,098 compared to $9,925,203 for the year ended December 31, 1999 and $9,793,550 for the year ended December 31, 1998. The $875,895 increase for the most recent year was due to an increase in loan income, federal funds sold and other interest income, partially offset by an increase in other interest expense for long-term borrowing and junior subordinated debt interest expense. The $131,653 increase in net interest income for 1999 over 1998 was due to a reduction of $545,200 in interest expense on deposit accounts from $6,048,828 in 1998 to $5,503,628 in 1999 due to a decrease in deposit balances, partially offset by a reduction in interest income of $340,464. Interest income from loans increased by $1,225,706 from $10,590,864 in 1998 to $11,816,570 in 1999 due to a $23,705,000, or 20.0%, increase in the average balance of loans outstanding during 1999. During 1998, the Bank instituted an automobile indirect lending program which accounted for the bulk of the 1999 increase in loans. 21 Interest expense increased from $5,623,174 in 1999 to $5,901,617 in 2000, a $278,443, or 4.95% increase, primarily due to increased deposit volume. Interest expense decreased from $6,095,291 in 1998 to $5,623,174 in 1999, a $472,117 or 7.75% decrease, primarily due to a decrease in deposit expense (due to a decrease in interest earning deposit balances). Net interest margin for the year ended December 31, 2000 was 5.27% compared to 4.96% and 4.94% for the years ended December 31, 1999 and 1998, respectively. The following table allocates changes in income and expense attributable to the Company's interest-earning assets and interest-bearing liabilities for the periods indicated between changes due to changes in rate and changes in volume. Changes due to rate/volume are allocated to changes due to volume.

YEAR ENDED DECEMBER 31, 2000 VS. 1999 1999 VS. 1998 -------------------------------------------------------------------------------------- CHANGE DUE TO: CHANGE DUE TO: ---------------- -------------------- INCREASE/ INCREASE/ DECREASE RATE VOLUME DECREASE RATE VOLUME ---------- ----- ------ -------- ---- ------ (IN THOUSANDS) ASSETS Interest-earning assets: Federal funds sold....................... $ 85 $ 43 $ 42 $ (146) $ (22) $ (124) ------ ------- ----- --------- -------- --------- Interest-bearing deposits................ (28) (28) -- (251) 4 (255) ------- ------- ------ --------- --------- --------- Investment securities: U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities............... (797) (135) (662) (945) (42) (903) Obligations of states and political subdivisions(1) .... 159 -- 159 (326) -- (326) All other investment securities............ 86 3 83 (14) 1 (15) ------- ------- ------- ------- ------ ------ Total investment securities.......... (552) (132) (420) (1,285) (41) (1,244) Loans, net of unearned income: Demand, time and lease................... 24 115 (91) (360) (23) (337) Mortgage and construction................ 133 65 68 (284) (248) (36) Installment and credit card.............. 1,491 89 1,402 1,868 (509) 2,377 ----- -- ----- ------- ----- ------ Total gross loans(2) ................ 1,648 269 1,379 1,224 (780) 2,004 ----- -- ----- ------- ----- ------ Allowance for credit losses.............. -- -- -- -- -- -- --------- ------- ------- ------- ------ ------- Total net loans...................... 1,648 269 1,379 1,224 (780) 2,004 --------- ------- ------- -------- ------- ------ Total interest-earning assets.............. $ 1,153 $ 152 1,001 $ (458) $ (839) $ 381 ======== ======= ======== ======== ======= ======= LIABILITIES: Interest-bearing deposits: Savings and NOW.......................... $ 10 $ 6 $ 4 $ (279) $ (280) $ 1 Money market............................. (78) (7) (71) (19) (19) 0 Other time deposits...................... 127 66 61 (248) (221) (27) ------ ----- ------- ------- ------- -------- Total interest-bearing deposits...... 59 65 (6) (546) (520) (26) Non-interest-bearing deposits.............. -- -- -- -- -- -- Borrowed funds............................. 220 (19) 239 72 1 71 ------- ----- ------- ----------- -------- -------- Total interest-bearing liabilities......... $ 279 $ 46 $ 233 $ (474) $ (519) $ 45 ====== ===== ====== ======== ======= ========

---------- (1) Tax equivalent basis. (2) Non-accrual loans included in average balances. 22 The following table provides information for the designated periods with respect to the average balances, income and expense and annualized yields and costs associated with various categories of interest-earning assets and interest-bearing liabilities.

YEAR ENDED DECEMBER 31, ------------------------ 2000 ------------------------ AVERAGE YIELD/ BALANCE INTEREST COST --------- --------- -------- (DOLLARS IN THOUSANDS) ASSETS: Interest-earning assets: Federal funds sold ..................... $ 3,185 $ 201 6.31% Interest-bearing deposits .............. 472 22 4.66 --------- --------- -------- Investment securities: U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities .......... 42,098 2,738 6.50 Obligations of states and political subdivisions(1) ..................... 2,766 159 5.74 All other investment securities .......... 1,587 118 7.43 --------- --------- -------- Total investment securities ........ 46,451 3,015 6.49 --------- --------- -------- Loans, net of unearned income: Demand, time and lease ................. 3,894 465 11.94 Mortgage and construction .............. 81,427 7,161 8.79 Installment and credit card ............ 74,489 5,839 7.83 --------- --------- -------- Total gross loans(2) ............... 159,810 13,465 8.42 Allowance for credit losses ........ 3,260 --------- Total net loans .................... 156,550 13,465 8.60 --------- -------- Total interest-earning assets ............ 206,658 16,703 8.08 --------- -------- Cash and due from banks .................. 6,734 Other assets ............................. 9,962 --------- Total assets ................... $223,354 ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing deposits: Savings and NOW ........................ $ 62,257 $ 1,188 1.90% Money market ........................... 16,919 450 2.65 Other time deposits .................... 73,292 3,924 5.35 --------- --------- -------- Total interest-bearing deposits .... 152,468 5,562 3.64 Borrowed funds ........................... 1,880 339 4.81 --------- --------- -------- Total interest-bearing liabilities . 154,348 5,902 3.82 --------- --------- Non-interest-bearing deposits ............ 48,071 Other liabilities ....................... 3,348 Stockholders' equity ..................... 17,587 -------- Total liabilities and equity ............. $223,354 ======== Net interest income ...................... $ 10,801 ======== Net interest spread ...................... 4.26% ==== Net interest margin ...................... 5.27% ====

YEAR ENDED DECEMBER 31, ------------------------ 1999 ------------------------ AVERAGE YIELD/ BALANCE INTEREST COST --------- --------- -------- ASSETS: Interest-earning assets: Federal funds sold ..................... $ 2,330 $ 116 4.97% Interest-bearing deposits .............. 440 26 5.91 --------- --------- -------- Investment securities: U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities .......... 57,347 3,542 6.18 Obligations of states and political subdivisions(1) ..................... -- -- -- All other investment securities .......... 737 56 7.60 --------- --------- -------- Total investment securities ........ 58,084 3,598 6.19 --------- --------- -------- Loans, net of unearned income: Demand, time and lease ................. 4,353 391 8.98 Mortgage and construction .............. 80,814 7,041 8.71 Installment and credit card ............ 56,910 4,385 7.71 --------- --------- -------- Total gross loans(2) ............... 142,077 11,817 8.32 Allowance for credit losses ........ 2,800 --------- Total net loans .................... 139,277 11,817 8.48 --------- --------- -------- Total interest-earning assets ............ 200,131 15,557 7.77 --------- --------- -------- Cash and due from banks .................. 7,288 Other assets ............................. 9,890 --------- Total assets ................... $217,309 ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing deposits: Savings and NOW ........................ $ 61,902 $1,169 1.89% Money market ........................... 19,581 527 2.69 Other time deposits .................... 72,320 3,807 5.26 --------- --------- -------- Total interest-bearing deposits .... 153,803 5,503 3.58 Borrowed funds ........................... 2,043 119 5.82 --------- --------- -------- Total interest-bearing liabilities . 155,846 5,622 3.61 --------- --------- Non-interest-bearing deposits ............ 44,270 Other liabilities ....................... 2,695 Stockholders' equity ..................... 14,498 -------- Total liabilities and equity ............. $217,309 ======== Net interest income ...................... $ 9,935 ======== Net interest spread ...................... 4.16% ==== Net interest margin ...................... 4.96% ====

YEAR ENDED DECEMBER 31, ------------------------ 1998 ------------------------ AVERAGE YIELD/ BALANCE INTEREST COST --------- --------- -------- ASSETS: Interest-earning assets: Federal funds sold ..................... $ 4,414 $ 262 5.94% Interest-bearing deposits .............. 5,433 277 5.10 --------- --------- -------- Investment securities: U.S. Treasury securities, obligations of U.S. government agencies and mortgage-backed securities .......... 71,774 4,303 6.24 Obligations of states and political subdivisions(1) ..................... 3,550 326 9.18 All other investment securities .......... 936 254 6.70 --------- --------- -------- Total investment securities ........ 76,260 4,883 6.40 --------- --------- -------- Loans, net of unearned income: Demand, time and lease ................. 7,909 751 9.50 Mortgage and construction .............. 81,212 7,325 9.02 Installment and credit card ............ 29,251 2,517 8.60 --------- --------- -------- Total gross loans(2) ............... 118,372 10,593 8.95 Allowance for credit losses ........ 3,668 --------- Total net loans .................... 114,704 10,593 9.24 --------- --------- -------- Total interest-earning assets ............ 200,811 16,015 7.98 Cash and due from banks .................. 6,406 --------- -------- Other assets ............................. 11,207 --------- Total assets ................... $ 218,424 ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing deposits: Savings and NOW ........................ $ 61,752 $ 1,448 2.34 Money market ........................... 19,575 546 2.79 Other time deposits .................... 72,834 4,055 5.57 --------- --------- -------- Total interest-bearing deposits .... 154,161 6,049 3.92 Borrowed funds ........................... 811 47 5.80 --------- --------- -------- Total interest-bearing liabilities . 154,972 6,096 3.93 --------- --------- Non-interest-bearing deposits ............ 42,095 Other liabilities ....................... 3,014 Stockholders' equity ..................... 18,343 --------- Total liabilities and equity ............. $218,424 ======== Net interest income ...................... $ 9,919 ======== Net interest spread ...................... 4.04% ==== Net interest margin ...................... 4.94% ====

---------- 1 Tax equivalent basis. The incremental tax rate applied was 38.62% for 1999 and 1998. 2 Non-accrual loans included in average balance. PROVISION FOR CREDIT LOSSES. During the year ended December 31, 2000, the Company made no provision for credit losses compared to $300,000 and $(500,000) in provisions during the years ended December 31, 1999 and 1998, respectively. The level of the provision for 1999 reflects the loan growth during the year. The recapture of loss reserves during 1998 reflects improved asset quality and lower charge-off activity during 1998. At December 31, 2000, the allowance for loan losses equaled 837.87% of non-accrual and past due loans compared to 276.97% and 162.99% at December 31, 1999 and 1998, respectively. During the year ended December 31, 2000, the 23 Company recorded net recoveries of 4$63,184 compared to $219,429 and $798,336 in net charge-offs during the years ended December 31, 1999 and 1998. OTHER INCOME. Other income increased from $2,827,881 in 1999 to $3,657,878 in 2000, a $829,997, or 29.35% increase. The increase was largely due to other fees and commissions (primarily Bank customer user fees and gain on the sale of foreclosed property) increasing by $536,316. Also included in other income for 2000 was a settlement gain of $1,600,126 on the pension plan termination, compared to a non-recurring curtailment gain in 1999 of $1,311,997 upon termination of the Bank's pension plan.. Other income decreased from $3,122,369 in 1998 to $2,827,881 in 1999, a $294,488, or 9.43% decrease. This decrease is attributable primarily to a combination of (i) net losses of $63,968 on sales of investment securities during 1999 as compared to net gains of $527,320 in 1998, (ii) the $1,311,997 non-recurring curtailment gain mentioned above, and (iii) a nonrecurring gain of $1,126,077 in 1998 upon the settlement of certain insurance matters (including $1,125,000 received from the Bank's fidelity bond company in settlement of claims related to the activities of a former employee). OTHER EXPENSES. Other expenses increased from $9,821,690 in 1999 to $10,746,049 in 2000, a $924,359 or 9.41% increase, due to an increase in employee benefits and the closing of the Bank's Ferndale branch. Other expenses decreased from $11,776,480 in 1998 to $9,821,690 in 1999, a $1,954,790 or 16.60% decrease. This decrease was primarily due to the absence in 1999 of the $1,225,003 litigation charges incurred in 1998 and $1,448,519 in professional service fees relating primarily to litigation in 1998. This was partially offset by increases in salaries, wages and employee benefits. Other noninterest expenses also decreased significantly from $4,112,919 in 1998 to $2,850,745 in 1999 due to a $1,448,519 or 66.95% reduction in other professional fees, partially offset by increases in 1999 in other expense items. The 1998 litigation charges related to the settlement of claims against the Bank in connection with payment of checks over fraudulent endorsements. INCOME TAXES. During the year ended December 31, 2000, the Company recorded income tax expense of $1,438,061. Part of this was due to nonrecurring income realized in 2000 and was offset, in part, by the tax benefits from the Company's investments in state and municipal securities. During the year ended December 31, 1999, the Company recorded income tax expense of $1,186,044 compared to tax expense of $806,247 during the year ended December 31, 1998. The increased tax level was due to the higher level of pre-tax income in 1999. The Company's income tax expense for 1998 also included $351,738 in disallowed claims for refunds of prior years' state taxes. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000, 1999 AND 1998 The Company's total assets increased to $239,211,180 at December 31, 2000 after declining to $213,439,456 at December 31, 1999 from $217,571,063 at December 31, 1998. The increase in assets during the year ended December 31, 2000 is a result primarily of an increase in loans and investment securities. The Company's loan portfolio grew to $162,373,731 at December 31, 2000 compared to $151,106,560 at December 31, 1999 and $125,501,252 at December 31, 1998. The growth in the loan portfolio is attributable almost entirely to the Bank's indirect automobile lending program, which was introduced in January 1998 and grew to $61,725,204 at December 31, 2000. The Company's total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $53,247,198 at December 31, 2000, a $9,272,703 or 21.08% increase from $43,974,495 at December 31, 1999. The funds from this increase are attributable to the FHLB of Atlanta borrowing and the Subordinated Deferrable Interest Debenture issuance discussed in "Liquidity and Capital Resources", below. During the year ended December 31, 1999, investment securities totaling $32,524,280 either matured or were sold with the funds primarily reinvested in loans rather than additional investment securities. Proceeds were also used to fund, in part, net deposit outflows of $5,521,120. During 1999, total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $43,974,495, a $21,511,332 or 32.8%, decrease from $65,485,827 at December 31, 1998. Deposits as of December 31, 2000 totaled $205,968,337, an increase of $11,878,342, or 6.12%, for the year. Demand deposits as of December 31, 2000 totaled $52,962,491, a $7,818,198 or 17.32% increase from $45,144,293 at December 31, 1999. NOW and Super NOW accounts as of December 31, 2000 increased by $1,082,107 or 5.82% to $19,644,885. Money market accounts decreased by $862,275, or 4.89%, to total 24 $16,766,390 on December 31, 2000. Savings deposits decreased by $429,137, or 1.04%. Time deposits over $100,000 totaled $11,995,756 on December 31, 2000, an increase of $5,650,577 from December 31, 1999. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $63,911,176 on December 31, 2000, a $1,381,128 or a 2.1%, decrease from December 31, 1999. The Company experienced a $2,078,298, or 13.76% increase in total stockholders' equity for the year ended December 31, 2000. The increase was attributed to an increase of $306,309 in the unrealized gain in securities available for sale and an increase of $1,531,134 in retained earnings. The Company experienced a $933,776, or 6.59% increase in total stockholders' equity for the year ended December 31, 1999. ASSET/LIABILITY MANAGEMENT Net interest income, the primary component of the Company's net income, arises from the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative amounts of such assets and liabilities. The Company manages its assets and liabilities by coordinating the levels of and gap between interest-rate sensitive assets and liabilities to minimize changes in net interest income and in the economic value of its equity despite changes in market interest rates. The Bank's Asset/Liability and Risk Management Committee meets on a monthly basis to monitor compliance with the Board's objectives. Among other tools used by the Asset/Liability and Risk Management Committee to monitor interest rate risk is a "gap" report which measures the dollar difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing within a given time period. Generally, during a period of rising interest rates, a negative gap position would adversely affect net interest income, while a positive gap would result in an increase in net interest income, while, conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income. During recent periods, the Company has maintained a negative gap position that has benefited earnings as interest rates have fallen. In order to reduce its negative gap position, the Company has recently begun investing in mortgage-backed and other government securities which have rates that adjust to market rates. The Company also maintains a significant portfolio of available-for-sale securities that can be quickly converted to more liquid assets if needed. The following table sets forth the Bank's interest-rate sensitivity at December 31, 2000.

OVER 3 TO OVER 1 OVER 5 0-3 MONTHS 12 MONTHS THROUGH 5 YEARS YEARS TOTAL ---------- --------- ---------------- ----- ----- (DOLLARS IN THOUSANDS) ASSETS: Cash and due from banks..................... $ -- $ -- $ -- $ -- $ 9,559 Federal funds and overnight deposits........ 5,950 -- -- -- 5,950 Securities.................................. 652 500 13,012 39,183 53,347 Loans....................................... 7,939 3,824 82,278 71,718 165,759 Fixed Assets................................ -- -- -- -- 4,269 Other Assets................................ -- -- -- -- 327 --------- ----------- ----------- ---------- --------- Total assets............................ $14,541 $4,324 $95,290 $110,901 $239,211 ======= ====== ======= ======== ======== LIABILITIES: Demand deposit accounts..................... $ -- $ -- $ -- $ -- $ 52,962 NOW accounts................................ 19,645 -- -- -- 19,645 Money market deposit accounts............... 16,766 -- -- -- 16,766 Savings accounts............................ 40,688 -- -- -- 40,688 IRA accounts................................ 3,233 5,628 8,502 1,487 18,850 Certificates of deposit..................... 15,164 24,575 13,268 4,050 57,057 Other liabilities........................... -- -- -- -- 10,907 Junior Subordinated Debenture............... -- -- -- -- 5,155 Stockholders' equity.................... -- -- -- -- 17,181 ---------- ----------- ----------- ---------- --------- Total liabilities and Stockholders' equity.................. $95,496 $30,203 $21,770 $5,537 $239,211 ======= ======= ======= ====== ======== GAP........................................... $ (80,995) $ (25,879) $73,520 $105,364 Cumulative GAP................................ (80,995) (106,874) (33,354) 72,010 Cumulative GAP as a % of total assets................................ (33.8)% (44.7)% (13.9)% 30.1%

25 The foregoing analysis assumes that the Bank'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 within three months although it is the Company's experience that such accounts may be less sensitive to changes in market rates. 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 the primary source of funds supporting the Bank's lending and investment activities. The Bank also uses borrowings from the FHLB of Atlanta to supplement deposits, residential and small business lending, and to meet specific and anticipated needs. The Bank's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold 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. Cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of December 31, 2000, totaled $15,509,139, an increase of $6,625,817 or 74.58%, from the December 31, 1999 total of $8,883,322. Most of this increase was due to the Federal Funds sold balance, which totaled $5,899,000 at December 31, 2000 compared to $555,627 at the end of 1999. As of December 31, 2000, the Bank was permitted to draw on a $28,705,000 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 and its portfolio of U.S. Government and Agency Securities. As of December 31, 2000, a $7.0 million long-term convertible advance was outstanding under this line. In addition the Bank has a secured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn. Furthermore, on September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a Connecticut statutory trust wholly owned by the Company. The Trust, in turn, issued $5,000,000 of its 10.6% capital securities to institutional investors. The debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010. As of December 31, 2000, the full $5,155,000 was outstanding. Federal banking regulations require the Company and the Bank to maintain specified levels of capital. At December 31, 2000, the Company was in compliance with these requirements with a leverage ratio of 9.31%, a Tier 1 risk-based capital ratio of 12.74% and total risk-based capital ratio of 13.99%. At December 31, 2000, the Bank met the criteria for designation as a well capitalized depository institution under FDIC regulations. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, nearly all of the Company's assets and liabilities are monetary in mature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. 26 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this Item 8 are included in the Company's Consolidated Financial Statements and set forth in the pages indicated in Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned "Proposal I -- Election of Directors" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 2001 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the sections captioned "Director Compensation" and "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the sections captioned "Voting Securities and Principal Holders Thereof" and "Securities Ownership of Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section captioned "Transactions with Management" in the Proxy Statement. 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. FINANCIAL STATEMENTS.

Page ---- Independent Auditors' Report F-1 Consolidated Balance Sheets as of December 31, 2000, 1999 and 1998 F-2 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 F-3 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000,1999 and 1998 F-4 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements F-8

(a) 2. FINANCIAL STATEMENT SCHEDULES. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. (a) 3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K. 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 By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998, 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) 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 Change-in-Control Severance Plan (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1997, 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) 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Registrant's Registration Statement on Form S-1, File No. 333-37073) 23 Consent of Trice Geary & Myers LLC (b) REPORTS ON FORM 8-K. None. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 26, 2001 By:/s/ F. WILLIAM KUETHE, JR. ------------------------------ F. William Kuethe, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE /s/ F. WILLIAM KUETHE, JR. President, Chief Executive Officer March 26, 2001 -------------------------- F. William Kuethe, Jr. and Director /s/ JOHN I. YOUNG Executive Vice President, Chief March 26, 2001 -------------------------------------- John I. Young Operating Officer and Director /s/ JOHN E. PORTER Senior Vice President and Chief March 26, 2001 ------------------------------------ John E. Porter Financial Officer /s/ JOHN E. DEMYAN Chairman of the Board and Director March 26, 2001 ------------------------ John E. Demyan /s/ THEODORE L. BERTIER, JR. Director March 26, 2001 ------------------------------------ Theodore L. Bertier, Jr . /s/ SHIRLEY E. BOYER Director March 26, 2001 ------------------------ Shirley E. Boyer Director March , 2001 ------------------------------ Thomas Clocker /s/ ALAN E. HAHN Director March 26, 2001 -------------------------------------- Alan E. Hahn Director March , 2001 ------------------------------ Charles L. Hein /s/ F. W. KUETHE, III Director March 26, 2001 ------------------------- F. W. Kuethe, III 30 /s/ WILLIAM N. SCHERER, SR. Director March 26, 2001 ---------------------------- William N. Scherer, Sr. /s/ KAREN B. THORWARTH Director March 26, 2001 ------------------------ Karen B. Thorwarth Director March , 2001 --------------------------- Mary Lou Wilcox

31 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Glen Burnie Bancorp and Subsidiaries Glen Burnie, Maryland We have audited the accompanying consolidated balance sheets of Glen Burnie Bancorp and subsidiaries as of December 31, 2000, 1999, and 1998, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Glen Burnie Bancorp and subsidiaries as of December 31, 2000, 1999, and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Trice Geary & Myers LLC Salisbury, Maryland February 1, 2001 F - 1 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------------------- December 31, 2000 1999 1998 --------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 9,559,329 $ 8,317,450 $ 8,197,344 Interest bearing deposits in other financial institutions 50,947 10,245 4,958,337 Federal funds sold 5,898,863 555,627 2,863,635 ------------ ------------ ------------ Cash and cash equivalents 15,509,139 8,883,322 16,019,316 Certificates of deposit in other financial institutions 100,000 -- -- Investment securities available for sale, at fair value 21,308,961 14,664,953 31,988,139 Investment securities held to maturity (fair value 2000 $31,019,121; 1999 $27,041,751; 1998 $32,539,731) 31,285,937 28,657,242 32,561,288 Federal Home Loan Bank stock, at cost 652,300 652,300 936,400 Common stock in the Glen Burnie Statutory Trust I 155,000 -- -- Ground rents, at cost 249,900 254,025 257,025 Loans, less allowance for credit losses 2000 $3,384,815; 1999 $2,921,631; 1998 $2,841,060 162,373,731 151,106,560 125,501,252 Premises and equipment, at cost, less accumulated depreciation 4,268,403 4,253,324 4,420,382 Accrued interest receivable on loans and investment securities 1,681,219 1,279,067 1,401,660 Deferred income tax benefits 126,933 49,137 892,912 Other real estate owned 484,148 558,827 1,099,326 Other assets 1,015,509 3,080,699 2,493,363 ------------ ------------ ------------ TOTAL ASSETS $239,211,180 $213,439,456 $217,571,063 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing demand $ 52,962,491 $ 45,144,293 $ 45,360,776 Interest-bearing 153,005,846 148,945,702 154,250,339 ------------ ------------ ------------ Total deposits 205,968,337 194,089,995 199,611,115 Short-term borrowings 487,978 2,464,936 1,143,904 Long-term borrowings 7,296,523 -- -- Dividends payable 213,345 136,666 123,039 Accrued interest payable on deposits 195,166 152,555 160,597 Accrued interest payable on junior subordinated debentures 166,986 -- -- Other liabilities 2,547,098 1,492,855 2,363,735 ------------ ------------ ------------ TOTAL LIABILITIES 216,875,433 198,337,007 203,402,390 ------------ ------------ ------------ COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENT Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures 5,155,000 -- -- ------------ ------------- ------------ Stockholders' equity: Common stock, par value $1, authorized 15,000,000 shares; issued and outstanding 2000 1,110,049 shares; 1999 1,093,496 shares; 1998 894,938 shares 1,110,049 1,093,496 894,938 Surplus 10,373,549 10,149,247 9,788,889 Retained earnings 5,544,305 4,013,171 3,202,488 Accumulated other comprehensive income (loss) 152,844 (153,465) 282,358 ------------ ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 17,180,747 15,102,449 14,168,673 ------------ ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $239,211,180 $ 213,439,456 $217,571,063 ============ ============= ============

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 2 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

---------------------------------------------------------------------------------------- Years Ended December 31, 2000 1999 1998 ---------------------------------------------------------------------------------------- INTEREST INCOME ON: Loans, including fees $ 13,464,699 $ 11,816,570 $ 10,590,864 U.S. Treasury securities 129,283 279,412 461,808 U.S. Government agency securities 2,608,332 3,254,811 4,024,712 State and municipal securities 159,053 -- 202,052 Federal funds sold 200,978 115,613 261,880 Other 140,370 81,971 347,525 ---------- ---------- ---------- Total interest income 16,702,715 15,548,377 15,888,841 ---------- ---------- ---------- INTEREST EXPENSE ON: Deposits 5,562,428 5,503,628 6,048,828 Short-term borrowings 66,513 119,546 46,463 Long-term borrowings 105,690 -- -- Junior subordinated debentures 166,986 -- -- ---------- ---------- ---------- Total interest expense 5,901,617 5,623,174 6,095,291 ---------- ---------- ---------- NET INTEREST INCOME 10,801,098 9,925,203 9,793,550 PROVISION FOR CREDIT LOSSES -- 300,000 (500,000) ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 10,801,098 9,625,203 10,293,550 ---------- ---------- ---------- OTHER INCOME: Service charges on deposit accounts 859,734 891,913 908,733 Other fees and commissions 1,224,255 687,939 560,239 Gains (losses) on investment securities (26,237) (63,968) 527,320 Curtailment gain on pension plan termination -- 1,311,997 -- Settlement gain on pension plan termination 1,600,126 -- -- Proceeds from insurance settlements -- -- 1,126,077 ---------- ---------- ---------- Total other income 3,657,878 2,827,881 3,122,369 ---------- ---------- ---------- OTHER EXPENSES: Salaries and wages 4,085,541 3,925,075 3,742,152 Employee benefits 2,131,481 1,596,044 1,309,591 Occupancy 615,201 573,052 502,216 Furniture and equipment 871,655 876,774 884,599 Litigation charges -- -- 1,225,003 Other expenses 3,042,171 2,850,745 4,112,919 ---------- ---------- ---------- Total other expenses 10,746,049 9,821,690 11,776,480 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 3,712,927 2,631,394 1,639,439 FEDERAL AND STATE INCOME TAX EXPENSE 1,438,061 1,186,044 806,247 ---------- ---------- ---------- NET INCOME $ 2,274,866 $ 1,445,350 $ 833,192 ============ ============ ============ BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 2.07 $ 1.33 $ 0.66 ============ ============ ============

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 3 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------- NET INCOME $2,274,866 $ 1,445,350 $ 833,192 ---------- ----------- --------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Reclassification relating to adoption of SFAS No. 133 at October 1, 1998 -- -- 270,038 Unrealized holding gains (losses) arising during the period (net of deferred taxes (benefits) 2000 $182,437; 1999 ($296,905); 1998 ($6,043)) 290,199 (472,279) (9,644) Reclassification adjustment for (gains) losses included in net income (net of deferred taxes (benefits) 2000 ($10,128); 1999 ($22,919); 1998 $127,598) 16,110 36,456 (202,968) ---------- ----------- --------- Total other comprehensive income (loss) 306,309 (435,823) 57,426 ---------- ----------- --------- COMPREHENSIVE INCOME $2,581,175 $ 1,009,527 $ 890,618 ========== =========== =========

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 4 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

Common Stock Shares Par Value Surplus ---------- ---------- --------- Balances, December 31, 1997 $ 1,092,768 $ 1,092,768 $14,770,821 Net income -- -- -- Shares issued under employee stock purchase plan 935 935 18,934 Shares issued under stockholder stock purchase plan 7,388 7,388 185,623 Shares repurchased and retired (213,168) (213,168) (5,367,596) Cash dividends, $.42 per share -- -- -- Dividends reinvested under dividend reinvestment plan 7,015 7,015 159,500 Vested stock options -- -- 21,607 Other comprehensive income, net of tax -- -- -- ------- ------- --------- Balances, December 31, 1998 894,938 894,938 9,788,889 ------- ------- --------- Net income -- -- -- Shares issued under employee stock purchase plan 2,015 2,015 39,351 Shares issued under stockholder stock purchase plan 9,470 9,470 219,730 Shares repurchased and retired (8) (8) (130) Cash dividends, $.42 per share -- -- -- Dividends reinvested under dividend reinvestment plan 4,832 4,832 101,317 Stock split effected in form of 20% stock dividend 182,249 182,249 -- Expired stock options -- -- (14,201) Vested stock options -- -- 14,291 Other comprehensive loss, net of tax -- -- -- ------- ------- --------- BALANCES, DECEMBER 31, 1999 1,093,496 1,093,496 10,149,247 --------- --------- ---------- NET INCOME -- -- -- SHARES ISSUED UNDER STOCKHOLDER STOCK PURCHASE PLAN 2,659 2,659 47,330 CASH DIVIDENDS, $.675 PER SHARE -- -- -- DIVIDENDS REINVESTED UNDER DIVIDEND REINVESTMENT PLAN 13,894 13,894 187,861 EXPIRED STOCK OPTIONS -- -- (10,889) OTHER COMPREHENSIVE INCOME, NET OF TAX -- -- -- ------- ------- --------- BALANCES, DECEMBER 31, 2000 1,110,049 $ 1,110,049 $10,373,549 ========= =========== ===========

Accumulated Other Total Retained Comprehensive Stockholders' Earnings Income (Loss) Equity ---------- ------------- ------------ Balances, December 31, 1997 $2,876,069 $ 224,932 $18,964,590 Net income 833,192 -- 833,192 Shares issued under employee stock purchase plan -- -- 19,869 Shares issued under stockholder stock purchase plan -- -- 193,011 Shares repurchased and retired -- -- (5,580,764) Cash dividends, $.42 per share (506,773) -- (506,773) Dividends reinvested under dividend reinvestment plan -- -- 166,515 Vested stock options -- -- 21,607 Other comprehensive income, net of tax -- 57,426 57,426 ------- ------- --------- Balances, December 31, 1998 3,202,488 282,358 14,168,673 --------- ------- ----------- Net income 1,445,350 -- 1,445,350 Shares issued under employee stock purchase plan -- -- 41,366 Shares issued under stockholder stock purchase plan -- -- 229,200 Shares repurchased and retired -- -- (138) Cash dividends, $.42 per share (452,418) -- (452,418) Dividends reinvested under dividend reinvestment plan -- -- 106,149 Stock split effected in form of 20% stock dividend (182,249) -- -- Expired stock options -- -- (14,201) Vested stock options -- -- 14,291 Other comprehensive loss, net of tax -- (435,823) (435,823) ------- ------- --------- BALANCES, DECEMBER 31, 1999 4,013,171 (153,465) 15,102,449 --------- ------- ----------- NET INCOME 2,274,866 -- 2,274,866 SHARES ISSUED UNDER STOCKHOLDER STOCK PURCHASE PLAN -- -- 49,989 CASH DIVIDENDS, $.675 PER SHARE (743,732) -- (743,732) DIVIDENDS REINVESTED UNDER DIVIDEND REINVESTMENT PLAN -- -- 201,755 EXPIRED STOCK OPTIONS -- -- (10,889) OTHER COMPREHENSIVE INCOME, NET OF TAX -- 306,309 306,309 ------- ------- --------- BALANCES, DECEMBER 31, 2000 $5,544,305 $ 152,844 $17,180,747 ========== ========= ===========

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 5 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,274,866 $ 1,445,350 $ 833,192 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization, and accretion 744,678 831,034 953,579 Compensation (benefit) expense from vested stock options, net (10,889) 90 21,607 Provision for credit losses -- 300,000 (500,000) Losses on other real estate owned 27,679 -- 6,000 Deferred income taxes (benefits) (73,725) 921,194 456,350 (Gains) losses on disposals of assets, net (255,803) 43,273 (478,839) Changes in assets and liabilities: (Increase) decrease in accrued interest receivable (402,152) 122,593 155,311 (Increase) decrease in other assets 2,020,004 (741,174) (732,269) Increase (decrease) in accrued interest payable 209,597 (8,042) (17,325) Increase (decrease) in other liabilities 834,018 (674,080) 1,209,969 ------------ ---------- ---------- Net cash provided by operating activities 5,368,273 2,240,238 1,907,575 ------------ ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturities of held to maturity mortgage-backed securities 1,521,930 2,490,926 674,870 Maturities of other held to maturity investment securities 500,000 7,754,438 20,485,350 Maturities of available for sale mortgage-backed securities 1,621,643 5,018,593 6,749,884 Maturities of other available for sale investment securities 500,000 1,991,087 1,525,000 Sales of debt securities 4,540,643 14,985,136 25,899,152 Purchases of held to maturity investment securities (1,652,173) (6,357,408) (27,992,219) Purchases of held to maturity mortgage-backed securities (2,990,625) -- (9,521,417) Purchases of other available for sale investment securities (12,836,928) (5,498,437) (4,527,891) Redemption of FHLB stock -- 284,100 -- Purchase of certificate of deposit (100,000) -- -- Purchase of common stock in the Glen Burnie Statutory Trust I (155,000) -- -- Increase in loans, net (11,267,171) (25,729,005) (13,453,506) Proceeds from sales of other real estate 537,000 402,693 -- Purchases of other real estate -- (59,523) (359,579) Proceeds from sales of premises and equipment -- 42,920 -- Purchases of premises and equipment (599,373) (439,450) (993,614) ------------ ---------- ---------- Net cash used by investing activities (20,380,054) (5,113,930) (1,513,970) ------------ ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in noninterest-bearing deposits, NOW accounts, money market accounts, and savings accounts, net 7,608,893 (4,524,635) (4,194,857) Increase (decrease) in time deposits, net 4,269,449 (996,485) (3,304,300) Increase (decrease) in short-term borrowings (1,976,958) 1,321,032 254,506 Proceeds from long-term borrowings 7,000,000 -- -- Repayments of long-term borrowings (3,477) -- -- Cash dividends paid (667,053) (438,791) (464,880) Common stock dividends reinvested 201,755 106,149 166,515 Repurchase and retirement of common stock -- (138) (5,580,764) Issuance of guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures 5,155,000 -- -- Issuance of common stock 49,989 270,566 212,880 ------------ ---------- ---------- Net cash provided (used) by financing activities 21,637,598 (4,262,302) (12,910,900) ------------ ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,625,817 (7,135,994) (12,517,295) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,883,322 16,019,316 28,536,611 ------------ ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,509,139 $ 8,883,322 $16,019,316 ============ ============ ===========

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 6 GLEN BURNIE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

------------------------------------------------------------------------------------------------ Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------ SUPPLEMENTARY CASH FLOW INFORMATION: Interest paid $5,692,020 $ 5,631,216 $6,112,616 Income taxes paid 205,000 -- -- Total increase (decrease) in unrealized appreciation (depreciation) on securities available for sale 499,038 (710,042) 93,559 ------------------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F - 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Bank of Glen Burnie (the "Bank") provides financial services to individuals and corporate customers located in Anne Arundel County and surrounding areas of Central Maryland, and is subject to competition from other financial institutions. The Bank is also subject to the regulations of certain Federal and State of Maryland (the "State") agencies and undergoes periodic examinations by those regulatory authorities. The accounting policies of the Bank conform to generally accepted accounting principles and to general practices within the banking industry. Significant accounting policies not disclosed elsewhere in the consolidated financial statements are as follows: Principles of Consolidation: The consolidated financial statements include the accounts of Glen Burnie Bancorp (the "Company") and its subsidiaries, The Bank of Glen Burnie and GBB Properties, Inc., a company engaged in the acquisition and disposition of other real estate. Intercompany balances and transactions have been eliminated. The Parent Only financial statements (see Note 22) of the Company account for the subsidiaries using the equity method of accounting. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Securities Held to Maturity: Bonds, notes, and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the effective interest rate method over the period to maturity. Securities transferred into held to maturity from the available for sale portfolio are recorded at fair value at time of transfer with unrealized gains or losses reflected in equity and amortized over the remaining life of the security. Securities Available for Sale: Marketable debt securities not classified as held to maturity are classified as available for sale. Securities available for sale may be sold in response to changes in interest rates, loan demand, changes in prepayment risk, and other factors. Changes in unrealized appreciation (depreciation) on securities available for sale are reported in other comprehensive income. Realized gains (losses) on securities available for sale are included in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. The gains and losses on securities sold are determined by the specific identification method. Premiums and discounts are recognized in interest income using the effective interest rate method over the period to maturity. Additionally, declines in the fair value of individual investment securities below their cost that are other than temporary are reflected as realized losses in the consolidated statements of income. F - 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Other Securities: Federal Home Loan Bank ("FHLB") stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of Statement of Financial Accounting Standards ("SFAS") No 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, because its ownership is restricted and it lacks a market. FHLB stock can be sold back only at its par value of $100 per share and only to the FHLB or another member institution. Loans and Allowance for Credit Losses: Loans are generally carried at the amount of unpaid principal, adjusted for deferred loan fees, which are amortized over the term of the loan using the effective interest rate method. Interest on loans is accrued based on the principal amounts outstanding. It is the Bank's policy to discontinue the accrual of interest when a loan is specifically determined to be impaired or when principal or interest is delinquent for 120 days or more. When a loan is placed on nonaccrual status all interest previously accrued but not collected is reversed against current period interest income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Cash collections on such loans are applied as reductions of the loan principal balance and no interest income is recognized on those loans until the principal balance has been collected. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. The carrying value of impaired loans is based on the present value of the loan's expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral. 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 borrower's ability to pay. While management believes it has established the allowance for credit losses in accordance with generally accepted accounting principles and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future the Bank's regulators or its economic environment will not require further increases in the allowance. Other Real Estate Owned ("OREO"): OREO comprises properties acquired in partial or total satisfaction of problem loans. The properties are recorded at the lower of cost or fair value (appraised value) at the date acquired. Losses arising at the time of acquisition of such properties are charged against the allowance for credit losses. Subsequent write-downs that may be required and expenses of operation are included in other income or expenses. Gains and losses realized from the sale of OREO are included in other income or expenses. Loans converted to OREO through foreclosure proceedings totaled $59,523 and $359,579 for the years ended December 31, 1999 and 1998, respectively. No sales of OREO were financed by the Bank for 2000, 1999, or 1998, however, sales of OREO were financed by GBB Properties, Inc. totaling $145,000 for 2000. In April 2000, the Bank sold a foreclosed property for a gain of $490,000, which is included in other fees and commissions. F - 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the terms of the leases or their estimated useful lives. Expenditures for improvements which extend the life of an asset are capitalized and depreciated over the asset's remaining useful life. Gains or losses realized on the disposition of premises and equipment are reflected in the consolidated statements of income. Expenditures for repairs and maintenance are charged to other expenses as incurred. Computer software is recorded at cost and amortized over three to five years. Intangible Assets: Cost incurred related to goodwill represents the excess of the cost of a branch acquired over the fair value of the net assets at date of acquisition. Goodwill of $544,652 is being amortized on the straight-line method over 10 years. Accumulated amortization was $285,942, $231,477, and $177,012 at December 31, 2000, 1999, and 1998, respectively. Amortization expense totaled $54,465 for each of the years ended December 2000, 1999, and 1998. Long-Lived Assets: The carrying value of long-lived assets and certain identifiable intangibles, including goodwill, is reviewed by the Bank for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as prescribed in SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Income Taxes: The provision for Federal and State income taxes is based upon the results of operations, adjusted for tax-exempt income. Deferred income taxes are provided by applying enacted statutory tax rates to temporary differences between financial and taxable bases. Temporary differences which give rise to deferred tax assets relate principally to the allowance for credit losses, unearned income on loans, other real estate owned, accrued compensation and pension benefits, unused expense deductions, operating losses, and tax credit carryovers. Temporary differences which give rise to deferred tax liabilities relate principally to accumulated depreciation, accretion of discount on investment securities, and prepaid pension expense. Credit Risk: The Bank has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank had deposits and Federal funds sold of approximately $712,000, $330,000, and $11,055,000 with three separate financial institutions as of December 31, 2000. Cash and Cash Equivalents: The Bank has included cash and due from banks, interest bearing deposits in other financial institutions, and Federal funds sold as cash and cash equivalents for the purpose of reporting cash flows. F - 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings per share: Basic earnings per common share are determined by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated including the average dilutive common stock equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method. Financial Statement Presentation: Certain amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation. NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS The Federal Reserve requires the Bank to maintain noninterest-bearing cash reserves against certain categories of average deposit liabilities. Such reserves averaged approximately $3,039,000, $2,477,000, and $2,094,000 during the years ended December 31, 2000, 1999, and 1998, respectively. NOTE 3. INVESTMENT SECURITIES Investment securities are summarized as follows:

Gross Gross Amortized Unrealized Unrealized Fair DECEMBER 31, 2000 Cost Gains Losses Value ----------------- ---- ----- ------ ----- AVAILABLE FOR SALE: U.S. TREASURY $ 497,871 $ 9,638 $ - $ 507,509 U.S. GOVERNMENT AGENCY 6,975,277 45,107 38,008 6,982,376 STATE AND MUNICIPAL 8,038,349 254,201 - 8,292,550 CORPORATE TRUST PREFERRED 2,821,428 - 1,481 2,819,947 MORTGAGE-BACKED 2,727,023 - 20,444 2,706,579 --------- ------- ------ --------- $21,059,948 $ 308,946 $ 59,933 $21,308,961 =========== ========= ======== =========== HELD TO MATURITY: U.S. TREASURY $ 1,248,529 $ 14,446 $ 620 $ 1,262,355 U.S. GOVERNMENT AGENCY 17,834,666 83,636 311,617 17,606,685 STATE AND MUNICIPAL 682,431 27,437 - 709,868 MORTGAGE-BACKED 11,520,311 51,804 131,902 11,440,213 ----------- ------ ------- ---------- $31,285,937 $ 177,323 $ 444,139 $31,019,121 =========== ========= ========= ===========

F - 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. INVESTMENT SECURITIES (continued)

Gross Gross Amortized Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value ----------------- ---- ----- ------ ----- AVAILABLE FOR SALE: U.S. Treasury $ 991,895 $ - $ 9,378 $ 982,517 U.S. Government agency 5,491,665 - 209,145 5,282,520 Mortgage-backed 8,431,417 24,870 56,371 8,399,916 --------- ------ ------ --------- $14,914,977 $ 24,870 $ 274,894 $14,664,953 =========== ========== ========= =========== HELD TO MATURITY: U.S. Treasury $1,747,488 $ 4,241 $ 5,081 $ 1,746,648 U.S. Government agency 16,851,527 - 1,139,994 15,711,533 Mortgage-backed 10,058,227 - 474,657 9,583,570 ---------- --------- ------- --------- $28,657,242 $ 4,241 $1,619,732 $27,041,751 =========== ========= ========== ===========

Gross Gross Amortized Unrealized Unrealized Fair December 31, 1998 Cost Gains Losses Value ----------------- ---- ----- ------ ----- AVAILABLE FOR SALE: U.S. Treasury $ 2,584,565 $ 129,844 $ - $ 2,714,409 U.S. Government agency 16,430,674 249,927 8,340 16,672,261 Mortgage-backed 12,512,882 90,225 1,638 12,601,469 ---------- ------ ----- ---------- $31,528,121 $ 469,996 $ 9,978 $31,988,139 =========== ========= ======= =========== HELD TO MATURITY: U.S. Treasury $ 2,497,627 $ 54,164 $ - $ 2,551,791 U.S. Government agency 15,486,672 41,176 92,043 15,435,805 Mortgage-backed 14,576,989 19,248 44,102 14,552,135 ---------- ------ ------ ---------- $32,561,288 $ 114,588 $ 136,145 $32,539,731 =========== ========== ========= ===========

Effective October 1, 1998, the Bank adopted the provisions of SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which provides for a special opportunity to reclassify held to maturity securities to available for sale. In connection therewith, the Bank reclassified held to maturity securities with amortized cost approximating $20,300,000 as available for sale, resulting in an increase in accumulated other comprehensive income of approximately $270,000, net of deferred taxes of approximately $170,000. Contractual maturities of investment securities at December 31, 2000, 1999, and 1998 are shown below. Actual maturities may differ from contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities have no stated maturity and primarily reflect investments in various Pass-through and Participation Certificates issued by the Federal National Mortgage Association and the Government National Mortgage Association. Repayment of mortgage-backed securities is affected by the contractual repayment terms of the underlying mortgages collateralizing these obligations and the current level of interest rates. F - 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. INVESTMENT SECURITIES (continued)

AVAILABLE FOR SALE HELD TO MATURITY AMORTIZED FAIR AMORTIZED FAIR DECEMBER 31, 2000 COST VALUE COST VALUE ----------------- ---- ----- ---- ----- DUE WITHIN ONE YEAR $ - $ - $ 499,841 $ 499,478 DUE OVER ONE TO FIVE YEARS 6,973,148 6,976,182 3,634,136 3,684,832 DUE OVER FIVE TO TEN YEARS 679,801 696,287 7,490,924 7,449,653 DUE OVER TEN YEARS 10,679,976 10,929,913 8,140,725 7,944,945 MORTGAGE-BACKED, DUE IN MONTHLY INSTALLMENTS 2,727,023 2,706,579 11,520,311 11,440,213 --------- --------- ---------- ---------- $21,059,948 $21,308,961 $31,285,937 $31,019,121 =========== =========== =========== ===========

AVAILABLE FOR SALE HELD TO MATURITY Amortized Fair Amortized Fair December 31, 1999 Cost Value Cost Value ----------------- ---- ----- ---- ----- Due within one year $ - $ - $ 500,047 $ 500,134 Due over one to five years 5,483,560 5,310,974 3,653,770 3,577,422 Due over five to ten years 1,000,000 954,063 6,990,185 6,635,625 Due over ten years - - 7,455,013 6,745,000 Mortgage-backed, due in monthly installments 8,431,417 8,399,916 10,058,227 9,583,570 --------- --------- ---------- --------- $14,914,977 $14,664,953 $28,657,242 $27,041,751 =========== =========== =========== ===========

AVAILABLE FOR SALE HELD TO MATURITY Amortized Fair Amortized Fair December 31, 1998 Cost Value Cost Value ----------------- ---- ----- ---- ----- Due within one year $ 1,499,909 $ 1,509,844 $ 1,250,357 $ 1,259,844 Due over one to five years 13,445,861 13,690,797 1,247,271 1,291,953 Due over five to ten years 4,069,469 4,186,029 7,489,009 7,517,969 Due over ten years - - 7,997,662 7,917,830 Mortgage-backed, due in monthly installments 12,512,882 12,601,469 14,576,989 14,552,135 ------------ ---------- ---------- ---------- ---------- $31,528,121 $ 31,988,139 $32,561,288 $32,539,731 =========== ============== =========== ===========

Proceeds from sales of securities prior to maturity were $4,540,643, $14,985,138, and $25,889,152 for the years ended December 31, 2000, 1999, and 1998, respectively. Losses of $26,237 were realized on those sales for 2000. Gains of $59,647 and losses of $123,614 were realized on those sales for 1999. Gains of $418,519 and losses of $5,011 were realized on those sales for 1998. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade. Income tax benefit (expense) relating to net gains/losses on sales of investment securities was $10,133, $24,704, and ($159,697) for the years ended December 31, 2000, 1999, and 1998, respectively. Securities with amortized costs of approximately $1,271,000, $1,742,000, and $2,994,000 were pledged as collateral for short-term borrowings and financial instruments with off-balance sheet risk at December 31, 2000, 1999, and 1998, respectively. The Bank has no derivative financial instruments required to be disclosed under SFAS No. 119, DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS. F - 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. LOANS Major categories of loans are as follows:

2000 1999 1998 ---- ---- ---- Mortgage: Residential $ 36,187,294 $ 34,098,848 $ 33,931,494 Commercial 40,168,603 42,342,103 43,915,342 Construction and land development 5,256,921 6,094,894 2,382,657 Lease financing 70,675 341,277 1,059,382 Demand and time 3,655,180 3,359,785 4,654,006 Installment 81,124,897 68,518,095 43,147,377 ---------- ---------- ---------- 166,463,570 154,755,002 129,090,258 Unearned income on loans (705,024) (726,811) (747,946) -------- -------- -------- 165,758,546 154,028,191 128,342,312 Allowance for credit losses (3,384,815) (2,921,631) (2,841,060) ---------- ---------- ---------- $162,373,731 $151,106,560 $125,501,252 ============ ============ ============

During 1998 the Bank instituted an automotive indirect lending program where vehicle collateralized loans made by dealers to consumers are acquired by the Bank. The Bank's installment loan portfolio included approximately $61,725,000, $50,967,000, and $24,630,000 of such loans at December 31, 2000, 1999, and 1998, respectively. The Bank makes loans to customers located primarily in Anne Arundel County and surrounding areas of Central Maryland. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region. Executive officers, directors, and their affiliated interests enter into loan transactions with the Bank in the ordinary course of business. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers. They do not involve more than normal risk of collectibility or present other unfavorable terms. At December 31, 2000, 1999, and 1998, the amounts of such loans outstanding were $1,319,700, $1,417,716, and $1,495,082, respectively. During 2000, loan additions and repayments were $69,500 and $167,516, respectively. The allowance for credit losses is as follows:

2000 1999 1998 ---- ---- ---- Balance, beginning of year $ 2,921,631 $ 2,841,060 $ 4,139,396 Provision for credit losses - 300,000 (500,000) Recoveries 1,223,618 454,277 296,617 Loans charged off (760,434) (673,706) (1,094,953) -------- -------- ---------- Balance, end of year $ 3,384,815 $ 2,921,631 $ 2,841,060 ============= ============= =============

Loans on which the accrual of interest has been discontinued amounted to $370,053, $1,011,826, and $1,724,782 at December 31, 2000, 1999, and 1998, respectively. Interest that would have been accrued under the terms of these loans totaled $48,484, $168,644, and $269,112 for the years ended December 31, 2000, 1999, and 1998, respectively. F - 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. LOANS (continued) Information regarding loans classified by the Bank as impaired are summarized as follows:

2000 1999 1998 ---- ---- ---- Loans classified as impaired $ 207,579 $ 1,043,944 $ 2,528,851 Allowance for credit losses on impaired loans 77,633 217,907 423,571 Average balance of impaired loans 63,105 1,842,757 2,417,615 Following is a summary of cash receipts on impaired loans and how they were applied: Cash receipts applied to reduce principal balance $ 6,389 $ 83,828 $ 62,811 Cash receipts recognized as interest income 581 - 37,313 ------- -------- ------------ Total cash receipts $ 6,970 $ 83,828 $ 70,124 ======= ======== ============

At December 31, 2000, the total recorded investment in troubled debt restructurings amounted to $369,594. The average recorded investment in troubled debt restructurings amounted to $383,642 for the year ended December 31, 2000. The allowance for credit losses relating to troubled debt restructurings was $66,479 at December 31, 2000. Interest income on troubled debt restructurings of $93,653 was recognized for cash payments received in 2000. All investments in troubled debt were performing under the terms of the modified agreements. At December 31, 1999, the total recorded investment in troubled debt restructurings amounted to $243,137. The average recorded investment in troubled debt restructurings amounted to $252,477 for the year ended December 31, 1999. The allowance for credit losses relating to troubled debt restructurings was $73,635 at December 31, 1999. Interest income on troubled debt restructurings of $17,660 was recognized for cash payments received in 1999. All investments in troubled debt were performing under the terms of the modified agreements. At December 31, 1998, the total recorded investment in troubled debt restructurings amounted to $136,874. The average recorded investment in troubled debt restructurings amounted to $134,625 for the year ended December 31, 1998. The allowance for credit losses relating to troubled debt restructurings was $70,000 at December 31, 1998. Interest income on troubled debt restructurings of $10,670 was recognized for cash payments received in 1998. All investments in troubled debt were performing under the terms of the modified agreements, with the exception of one loan classified as impaired in the amount of $156,947 as of December 31, 1998. The Bank has no commitments to loan additional funds to the borrowers of restructured, impaired, or non-accrual loans. F - 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. PREMISES AND EQUIPMENT A summary of premises and equipment is as follows:

Useful lives 2000 1999 1998 ----- ---- ---- ---- Land $ 684,977 $ 591,377 $ 509,803 Buildings 5-50 years 4,112,520 4,004,737 3,900,421 Equipment and fixtures 5-30 years 4,479,403 4,385,699 4,125,205 Construction in progress 246,461 10,333 21,675 ------- ------ ------ 9,523,361 8,992,146 8,584,104 Accumulated depreciation (5,254,958) (4,738,822) (4,163,722) ---------- ---------- ---------- $ 4,268,403 $ 4,253,324 $4,420,382 ============ ============ ==========

Depreciation expense was $551,784, $575,100, and $596,716 for the years ended December 31, 2000, 1999, and 1998, respectively. Amortization of software and intangible assets was $197,286, $187,046, and $179,369 for the years ended December 31, 2000, 1999, and 1998, respectively. The Bank leases its South Crain Highway and Severna Park branches. Minimum lease obligations under the South Crain Highway branch is $71,800 per year through September 2004, adjusted annually by the CPI. Minimum lease obligations under the Severna Park branch are $36,560 per year through September 2004, adjusted annually by the CPI. The Bank is also required to pay all maintenance costs under all these leasing arrangements. Total rent expense was $122,060, $85,980, and $53,591 for the years ended December 31, 2000, 1999, and 1998, respectively. During 2000, the Bank purchased a building and land for $307,957, anticipated to be used for future banking operations (see Note 7). During 1999, GBB Properties, Inc. purchased land for $82,774, anticipated to be used for a future branch location. In December 2000, the Board of Directors of the Company voted to close the Ferndale Shopping Center branch, effective upon final approval from all Federal and state regulatory agencies. At December 31, 2000, management determined that certain leasehold improvements made to the Ferndale branch were impaired as prescribed by SFAS No. 121 and have no net realizable value. These leasehold improvements had a book value of $184,535 at December 31, 2000 and will be reflected as an asset impairment loss from continuing operations. The Bank has also accrued approximately $96,000 relating to the estimated cost of closing the Ferndale branch. These costs are included in other operating expenses (see Note 13). NOTE 6. SHORT-TERM BORROWINGS Short-term borrowings are as follows:

2000 1999 1998 ---- ---- ---- Notes payable - U.S. Treasury $ 487,978 $ 464,936 $ 143,904 FHLB advances - 2,000,000 1,000,000 ------- --------- --------- $ 487,978 $ 2,464,936 $1,143,904 ============= =========== ==========

F - 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. SHORT-TERM BORROWINGS (continued) The Bank owned 6,523 shares of common stock of the FHLB at December 31, 2000. The Bank is required to maintain an investment of .3% of total assets, adjusted annually. This investment was a condition for obtaining a variable rate credit facility with the FHLB. The credit available under this facility is determined at 12% of the Bank's total assets, adjusted quarterly based on call reports, or approximately $28,705,000 at December 31, 2000. There were $7,000,000 in long-term advances under this credit arrangement at December 31, 2000 (see Note 7). At December 31, 1999 and 1998 the Bank had short-term advances of $2,000,000 and $1,000,000, bearing interest at 4.55% and 5.15%, respectively, and maturing within the next year. The credit facility is secured by a floating lien on the Bank's residential mortgage loan portfolio and by investment securities with amortized cost of approximately $250,000, $750,000, and $1,000,000 at December 31, 2000, 1999, and 1998, respectively. Average short-term borrowings were approximately $640,000, $1,506,000, and $256,000 during 2000, 1999, and 1998, respectively. Notes payable to the U.S. Treasury are Federal treasury tax and loan deposits accepted by the Bank from its customers to be remitted on demand to the Federal Reserve Bank. The Bank pays interest on these balances at a slight discount to the Federal funds rate. The note payable is secured by investment securities with an amortized cost of approximately $997,000, $995,000, and $1,494,000 at December 31, 2000, 1999, and 1998, respectively. The Bank also has available $5,000,000 in a short-term credit facility, secured by Federal funds sold, from another bank for short term liquidity needs, if necessary. There were no borrowings outstanding under this credit arrangement at December 31, 2000, 1999, and 1998. NOTE 7. LONG-TERM BORROWINGS Long-term borrowings are as follows:

2000 ---------- Federal Home Loan Bank of Atlanta, convertible advance $7,000,000 Note payable-individual, interest at 7%, payments of $3,483, including principal and interest, due monthly through October 2010, secured by real estate to be used for future banking operations. 296,523 ------- $7,296,523 ==========

The Federal Home Loan Bank of Atlanta convertible advance has a final maturity of September 2010 and an interest rate of 5.84%, payable quarterly, which is fixed for two years through September 2002. At that time, the Federal Home Loan Bank of Atlanta has the option of converting the rate to a three month LIBOR; however, if converted, the borrowing can be repaid without penalty. The proceeds of the convertible advance were used to purchase higher yielding investment securities. At December 31, 2000, the scheduled maturities of long-term borrowings are approximately as follows:

2000 ---------- 2001 $ 21,700 2002 23,300 2003 25,000 2004 26,800 2005 28,700 2006 and thereafter 7,171,023 ---- --------- $ 7,296,523 ===============

F - 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. DEPOSITS Major classifications of interest-bearing deposits are as follows:

2000 1999 1998 ---------- ---------- ---------- NOW and SuperNOW $ 19,644,885 $ 18,562,778 $ 20,600,751 Money Market 16,766,390 17,628,665 20,049,677 Savings 40,687,639 41,116,776 40,965,943 Certificates of Deposit, $100,000 or more 11,995,756 6,345,179 5,758,269 Other time deposits 63,911,176 65,292,304 66,875,699 ---------- ---------- ---------- $153,005,846 $148,945,702 $154,250,339 ============ ============ ============

Interest expense on deposits is as follows: 2000 1999 1998 ------- ------- ------- NOW and SuperNOW $ 217,558 $ 230,708 $ 377,632 Money Market 449,850 527,466 546,382 Savings 961,028 938,117 1,069,853 Certificates of Deposit, $100,000 or more 557,693 435,885 443,489 Other time deposits 3,376,299 3,371,452 3,611,472 --------- --------- --------- $ 5,562,428 $ 5,503,628 $ 6,048,828 ================= =========== ===========

At December 31, 2000, the scheduled maturities of time deposits are approximately as follows:

2000 ---------- 2001 $ 48,330,000 2002 14,803,000 2003 6,997,000 2004 1,776,000 2005 and thereafter 4,001,000 ---- --------- $ 75,907,000 ============

Deposit balances of executive officers and directors and their affiliated interests totaled approximately $734,000, $369,000, and $356,000 at December 31, 2000, 1999, and 1998, respectively. The Bank had no brokered deposits at December 31, 2000, 1999, and 1998. F - 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. INCOME TAXES The components of income tax expense for the years ended December 31, 2000, 1999, and 1998 are as follows:

2000 1999 1998 ---- ---- ---- Current: Federal $ 1,271,219 $ 264,850 $ (1,841) State 240,567 - 351,738 ------- ------- ------- Total current 1,511,786 264,850 349,897 --------- ------- ------- Deferred income taxes (benefits): Federal 51,660 793,015 352,880 State (125,385) 128,179 103,470 -------- ------- ------- Total deferred (73,725) 921,194 456,350 ------- ------- ------- Income tax expense $ 1,438,061 $ 1,186,044 $ 806,247 ============ =========== ==========

The 1998 current State provision consisted of disallowed prior years' refund claims. A reconciliation of income tax expense computed at the statutory rate of 34% to the actual income tax expense for the years ended December 31, 2000, 1999, and 1998 is as follows:

2000 1999 1998 ---- ---- ---- Income before income taxes $ 3,712,927 $ 2,631,394 $ 1,639,439 ============ =========== ============ Taxes computed at Federal income tax rate $ 1,262,395 $ 894,674 $ 557,409 Federal excise tax on pension plan termination and settlement 238,636 196,800 - Increase (decrease) resulting from: Tax-exempt income (49,261) - (61,361) State income taxes, net of Federal income tax benefit 76,021 84,598 300,437 AMT credits (87,421) - - Other (2,309) 9,972 9,762 ------ ----- ----- Income tax expense $ 1,438,061 $ 1,186,044 $ 806,247 ============ =========== ==========

Sources of deferred income taxes and the tax effects of each for the years ended December 31, 2000, 1999, and 1998 are as follows:

2000 1999 1998 ---- ---- ---- Depreciation $ (46,174) $ (11,998) $ 13,318 Securities discount accretion 7,066 2,858 (19,471) Provision for credit losses (18,725) 139,705 658,694 Deferred compensation and pension benefit plans (646,776) 542,275 (76,205) Charitable contributions 29,372 32,430 (15,844) Write-downs on other real estate owned (9,462) 4,773 (2,317) Alternative minimum tax credits 610,974 126,090 (16,764) Net operating loss carryover - 85,061 (85,061) ------- ------ ------- Deferred income tax expense (benefit) $ (73,725) $ 921,194 $ 456,350 ========== ========= =========

F - 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. INCOME TAXES (continued) The components of the net deferred income tax benefits as of December 31, 2000, 1999, and 1998 are as follows:

2000 1999 1998 ---- ---- ---- Deferred income tax benefits: Allowance for credit losses $ 2,986 $ - $ 123,966 Deferred compensation and benefit plans 326,055 276,334 728,247 Other real estate owned 9,462 - 4,773 Charitable contributions - 29,372 61,802 Alternative minimum tax credits 60,239 671,213 797,303 Net operating loss carryover - - 85,061 Net unrealized depreciation on investment securities available for sale - 96,560 - ------- ------ -------- Total deferred income tax benefits 398,742 1,073,479 1,801,152 ------- --------- --------- Deferred income tax liabilities: Accumulated depreciation 146,156 192,330 204,328 Allowance for credit losses - 15,739 - Securities discount accretion 29,483 22,417 19,559 Prepaid pension plan contributions - 597,056 506,694 Net unrealized appreciation on investment securities available for sale 96,170 - 177,659 ------ ------- ------- Total deferred income tax liabilities 271,809 827,542 908,240 ------- ------- ------- Net deferred income tax benefits, included in other assets. $ 126,933 $ 245,937 $ 892,912 ============ ========== ==========

Management has determined that no valuation allowance is required as it is more likely than not that the net deferred income tax benefits will be fully realizable in future years. NOTE 10. PENSION AND PROFIT SHARING PLANS Through 1998, the Bank had a defined benefit pension plan covering substantially all of its employees. Benefits were based on the employee's average rate of earnings for the five consecutive years before retirement. The Bank's funding policy was to contribute annually an amount between the minimum and maximum actuarially determined contribution, using the frozen entry age actuarial cost method. Assets of the plan were held in a trust fund principally comprised of growth and income mutual funds managed by another bank. The Bank officially terminated the plan on December 27, 1999 and received IRS approval for plan termination in February 2000. The Bank settled all accrued benefits under the plan in October 2000. The Bank has established a defined contribution plan as a replacement plan. Upon termination of the pension plan all participants became 100% vested. All accrued benefits under the terminated and settled pension plan were provided to participants through the purchase of annuities, or, in the case of actively employed participants, at their option, in the form of a lump sum rollover to the new defined contribution plan. As a result of the termination of the defined benefit plan in 1999, the Bank has recognized a curtailment gain of $1,311,997, included in other income. The Bank has also accrued a 25% safe harbor contribution of $328,000, included in employee benefit expense, and excise taxes of $196,800, payable on curtailment gains recognized, included in Federal and state income tax expense. F - 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. PENSION AND PROFIT SHARING PLANS (continued) As a result of the settlement of the defined benefit plan in October 2000, the Bank has recognized a settlement gain of $1,600,126, included in other income. The Bank has also accrued a 25% safe harbor contribution of $397,728, included in employee benefit expense, and excise taxes of $238,636, payable on settlement gains recognized, included in Federal and state income tax expense. The following table sets forth the financial status of the pension plan at December 31, 2000, 1999, and 1998:

2000 1999 1998 ---- ---- ---- Projected benefit obligation at January 1, $ 4,791,364 $ 4,423,566 $4,124,137 Service cost - - 208,699 Interest - 261,367 346,128 Actual benefit payments (4,710,262) (144,739) (189,504) Interest on distributions - (7,223) (6,850) Decrease from curtailment - (1,435,130) - Increase from change in discount rate - 1,607,050 - Other adjustments (81,102) 86,473 (59,044) ------- ------ ------- Projected benefit obligation at December 31, $ - $ 4,791,364 $4,423,566 ======= ============ ========== Accumulated benefit obligation: Vested $ - $ 4,791,364 $4,315,501 Nonvested - - 108,065 -------- ------ ------- $ - $ 4,791,364 $4,423,566 ======= ============ ========== Plan assets at January 1, $ 7,045,921 $ 5,699,073 $4,670,182 Actual contributions - - - Actual distributions (7,622,385) (144,739) (189,504) Actual returns 576,464 1,491,587 1,218,395 ------- --------- --------- Plan assets at December 31, $ - $ 7,045,921 $5,699,073 ======= ============ ========== Plan assets at fair value $ - $ 7,045,921 $5,699,073 Projected benefit obligation - (4,791,364) (4,423,566) ------- ---------- ---------- Plan assets in excess of projected benefit obligation - 2,254,557 1,275,507 Unrecognized prior service cost - - 123,133 Unrecognized net gain - (684,244) (1,425,979) Unrecognized net asset from transition - (24,336) (36,505) -------------------------------------- ------ -------- -------- Prepaid (accrued) pension expense included in other assets $ - $ 1,545,977 $ (63,844) =========== ============ ========== Net pension expense includes the following: Service cost $ - $ - $ 201,699 Interest cost - 254,144 339,278 Actual return on assets (576,464) (1,491,587) (1,218,395) Net amortization and deferral 874,288 939,619 830,649 ------- ------- ------- Net pension expense (benefit) $ 297,824 $ (297,824) $ 153,231 ========== ============ ==========

F - 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. PENSION AND PROFIT SHARING PLANS (continued) Assumptions used in the accounting for net pension expense were:

2000 1999 1998 ---- ---- ---- Discount rates N/A 5.5% 8.5% Rate of increase in compensation levels N/A 6.5% 6.5% Long-term rate of return on assets N/A 8.5% 8.5%

The Bank also has a defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code that is funded through a profit sharing agreement and voluntary employee contributions. Effective January 1, 1999, the plan was amended to provide for discretionary employer matching contributions to be determined annually by the Board of Directors. The Bank's contributions to the plan are determined annually by the Board of Directors. The plan covers substantially all employees. The Bank's contributions to the plan included in employee benefit expense were $230,971, $187,704, and $102,757 for the years ended December 31, 2000, 1999, and 1998, respectively. NOTE 11. POST-RETIREMENT HEALTH CARE BENEFITS The Bank provides health care benefits to employees who retire at age 65. The plan is funded only by the Bank's monthly payments of insurance premiums due. The following table sets forth the financial status of the plan at December 31, 2000, 1999, and 1998:

2000 1999 1998 ---- ---- ---- Accumulated post-retirement benefit obligation: Retirees $ 299,422 $ 308,960 $ 239,773 Other active participants, fully eligible - - 27,741 Other active participants, not fully eligible 659,531 786,293 493,449 ------- ------- ------- 958,953 1,095,253 760,963 Unrecognized net gain 250,074 11,504 347,097 Unrecognized transition obligation (467,585) (500,984) (534,383) Unrecognized past service cost 102,822 109,746 - ------- ------- ------- Accrued post-retirement benefit cost $ 844,264 $ 715,519 $ 573,677 =========== ========== ========== Net post-retirement benefit expense for the years ended December 31, 2000, 1999, and 1998 includes the following: Service cost $ 73,360 $ 71,739 $ 56,771 Interest cost 60,006 67,844 48,979 Amortization of unrecognized transition obligation 33,399 33,399 33,399 Amortization of net gain (6,879) - (13,052) Amortization of past service cost (6,924) (6,924) - ------ ------ ------ Net post-retirement benefit expense $ 152,962 $ 166,058 $ 126,097 =========== ========== ========== Assumptions used in the accounting for net post-retirement benefit expense were: Health care cost trend rate 5.0% 5.0% 5.0% Discount rate 6.5% 6.5% 6.8%

F - 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. POST-RETIREMENT HEALTH CARE BENEFITS (continued) If the assumed health care cost trend rate were increased to 6% for 2000, 1999, and 1998, the total of the service and interest cost components of net periodic post-retirement health care benefit cost would increase by $28,474, $37,610, and $28,471 for the years ended December 31, 2000, 1999, and 1998, respectively, and the accumulated post-retirement benefit obligation would increase to $181,436, $203,668, and $154,568 as of December 31, 2000, 1999, and 1998, respectively. NOTE 12. OTHER BENEFIT PLANS (see also Note 15) In March 1998, the Bank established and funded a grantor trust for $1,500,000 as part of a change in control severance plan covering substantially all employees. Participants in the plan are entitled to cash severance benefits upon termination of employment, for any reason other than just cause, should a "change in control" of the Company occur. In March 1998, the Company and Bank also established and the Bank funded a grantor trust for $2,000,000 for indemnification of the officers and directors of the Bank and/or Company for any litigation expenses incurred in connection with any "change of control" of the Company. Subsequent to the repurchase of the Company's common stock under a "Redemption Agreement" and entering into a standstill agreement (see Note 15), and effective as of December 31, 1998, all assets held by these trusts were returned to the Bank. The severance trust continues to exist on an unfunded status, while the litigation trust was terminated on December 31, 1998. In March 1998, the Bank established and funded a grantor trust for $285,000 as part of an employment agreement with the then Chief Operating Officer of the Bank. The agreement provided for the payment of benefits upon termination of employment, for a reason other than just cause, after a "change in control" of the Company. In January 2000, the Bank terminated this grantor trust, due to the resignation of the Chief Operating Officer of the Bank during 1999. Balances held in the trust of approximately $307,000 at time of termination were subsequently returned to the Bank. NOTE 13. OTHER OPERATING EXPENSES Other operating expenses include the following:

2000 1999 1998 Professional services $ 642,609 $ 714,929 $ 2,163,448 Stationery, printing and supplies 224,453 251,388 241,029 Postage and delivery 269,710 235,110 239,519 FDIC assessment 67,393 22,481 81,162 Directors fees and expenses 114,442 134,092 151,737 Marketing 251,113 342,737 305,794 Data processing 231,097 222,709 205,839 Correspondent bank services 95,245 98,896 114,689 Telephone 100,026 102,757 95,572 Liability insurance 98,446 91,783 89,149 Losses and expenses on real estate owned (OREO) 58,334 38,218 33,414 Asset impairment loss on Ferndale branch and related closing expenses (see Note 5) 280,460 - - Other 608,843 595,645 391,567 ------- ------- ------- $ 3,042,171 $ 2,850,745 $ 4,112,919 ============ =========== ===========

F - 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. LITIGATION CHARGES In 1998, the Company accrued for losses of $420,000 and incurred additional actual losses of $805,003 relating to legal claims involving fraudulent check endorsement issues and/or bankruptcies. These nonrecurring charges were included in other expenses for 1998. In 1999, the Company settled on these claims for $220,000. NOTE 15. REPURCHASE AND RETIREMENT OF COMPANY COMMON STOCK During 1998, the Company was pursued by another competing financial institution (the institution) in a hostile take-over attempt. In November 1998, the Company reached an agreement with the institution to repurchase 213,168 shares of its common stock, or approximately 19.5% of its then outstanding shares, for an aggregate purchase price of $5,580,764. In conjunction with the redemption agreement, the Company and the institution also entered into a standstill agreement through November 2008. Under the standstill agreement, the Company will make payments over five years totaling $675,510 beginning with a payment of $150,000 in January 1999 and four subsequent annual payments of $131,378. During 2000 and 1999, the Company made payments totaling $131,378 and $281,378, respectively, relating to the standstill agreement. These payments are included in other expenses. NOTE 16. COMMITMENTS AND CONTINGENCIES Financial instruments: The Bank is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Outstanding loan commitments, unused lines of credit and letters of credit are as follows:

December 31, -------------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Loan commitments: Construction and land development $ 450,000 $ 740,000 $ 1,537,400 Other mortgage loans 79,000 739,800 1,671,050 ---------- ---------- ---------- $ 529,000 $ 1,479,800 $ 3,208,450 ========== ========== ========== Unused lines of credit: Home-equity lines $ 3,417,102 $ 3,215,502 $ 3,029,929 Commercial lines 7,615,035 9,981,462 6,149,939 Unsecured consumer lines 908,600 824,978 851,390 ---------- ---------- ---------- $ 11,940,737 $ 14,021,942 $ 10,031,258 ========== ========== ========== Letters of credit: $ 1,237,878 $ 1,384,969 $ 2,012,626 ========== ========== ==========

F - 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. COMMITMENTS AND CONTINGENCIES (continued) Loan commitments and lines of credit are agreements to lend to customers as long as there is no violation of any conditions of the contracts. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Many of the loan commitments and lines of credit are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include deposits held in financial institutions, U.S. Treasury securities, other marketable securities, accounts receivable, inventory, property and equipment, personal residences, income-producing commercial properties, and land under development. Personal guarantees are also obtained to provide added security for certain commitments. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other securities is deemed necessary. The Bank's exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. As of December 31, 2000, 1999, and 1998, the Bank has provided as an allowance for credit losses related to these financial instruments with off-balance sheet risk $105,642, $71,623, and $67,168, respectively, which is reflected as a reduction of loans. Sale of credit card portfolio: On February 15, 2000, the Bank sold its credit card portfolio to another financial institution. The outstanding balance of the portfolio as of the date of settlement was $1,064,857. As a result of the sale, the Bank was required to fund a loan loss reserve from part of the settlement proceeds for all non-business accounts with the financial institution of approximately $48,000. This reserve is for a one year period with any remaining reserve returned to the Bank. The Bank has no additional responsibilities for any loan losses in excess of the initial reserves. As of December 31, 2000, the loan loss reserve was depleted. In addition to the loan loss reserve for non-business accounts, the Bank was also required to guarantee all business accounts for a one year period. Total Bank exposure for business accounts is approximately $427,000 with a total outstanding balance of approximately $70,000 as of December 31, 2000. F - 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES On September 7, 2000, Glen Burnie Statutory Trust I, a Connecticut business trust newly formed and wholly owned by the Company, issued $5,155,000 of capital securities at 10.6% to institutional investors. The proceeds were upstreamed to the Company as junior subordinated debt under the same terms and conditions. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Statutory Trust I's obligations with respect to the capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as "Guaranteed Preferred Beneficial Interests in Glen Burnie Bancorp's Junior Subordinated Debentures." The sole asset of the Statutory Trust I is $5,155,000 of junior subordinated debentures issued by the Company. These junior subordinated debentures carry an interest rate of 10.6%, payable semiannually, with a non call provision over the first 10 year period, and a declining 10 year premium call thereafter. Both the capital securities Statutory Trust I and the junior subordinated debentures are scheduled to mature on September 7, 2030, unless called by the Company not earlier than September 7, 2010. Cost associated with the issuance of the trust preferred securities totaling $150,000 were capitalized and are being amortized through 2030. The unamortized balance is included in Other Assets in the Consolidated Balance Sheets. NOTE 18. STOCKHOLDERS' EQUITY Restrictions on dividends: Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agencies. Regulatory approval is required to pay dividends which exceed the Bank's net profits for the current year plus its retained net profits for the preceding two years. Retained earnings from which dividends may not be paid without prior approval were approximately $2,694,000 and $2,276,000 at December 31, 2000 and 1999, respectively, based on the earnings restrictions and minimum capital ratio requirements noted below. Change in par value of common stock: In December 1999, the Company changed the par value of its common stock from $10 par value to $1 par value. The $9 per share of par value has been reclassified as surplus. Prior year financial statements presented have been restated to conform to the current year's presentation. Stock repurchase program: In December 2000, the Company instituted a Stock Repurchase Program. Under the program, the Company may spend up to $250,000 to repurchase its outstanding stock. The repurchases may be made from time to time at a price not to exceed $16 per share. The Company will terminate the Program by December 2001 or earlier. During January 2001, the company repurchased 4,000 shares at an average price of $14.50. F - 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. STOCKHOLDERS EQUITY (continued) Employee stock purchase benefit plans: During 1998, the Company established a stock-based compensation plan, which is described below. The Bank applies Accounting Principles Board Opinion ("APB") No. 25 and related Interpretations in accounting for this plan. Net compensation cost (benefit) of ($10,889), $90, and $21,607 have been recognized in the accompanying consolidated financial statements in 2000, 1999, and 1998, respectively. 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. Employees who have completed one year of service are eligible to participate in the employee stock purchase plan. The number of shares of common stock granted under options will bear a uniform relationship to compensation. The plan allows employees to buy stock under options granted at the lesser of 85% of the fair market value of the stock on the date of grant or exercise. Options granted will expire no later than 27 months from the grant date or upon termination of employment. Activity under this plan is as follows:

Grant Shares Price Granted on July 1, 1998, expiring October 1, 1999 5,794 $ 21.25 Expired (32) Exercised (935) ------- Outstanding December 31, 1998 4,827 $ 21.25 Exercised (1,040) $ 21.25 Expired (3,787) $ 21.25 Granted on August 12, 1999, expiring November 12, 2000 4,095 $ 19.76 Exercised (975) ------- Outstanding December 31, 1999 3,120 $ 19.76 Expired (3,120) $ 19.76 ------- Outstanding December 31, 2000 - =======

At December 31, 2000, 1999, and 1998, there were 27,708, 27,708, and 24,065 shares of common stock reserved for issuance under the plan, respectively. The Board of Directors may suspend or discontinue the plan at its discretion. Dividend reinvestment and stock purchase plan: The Company's dividend reinvestment and stock purchase plan allows all participating stockholders the opportunity to receive additional shares of common stock in lieu of cash dividends at 95% of the fair market value on the dividend payment date. During 2000, 1999, and 1998, 13,894, 4,832, and 7,015 shares of common stock, respectively, were purchased under the plan. At December 31, 2000, 1999, and 1998, there were 111,897, 125,791, and 109,658 shares of common stock reserved for issuance under the plan, respectively. F - 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. STOCKHOLDERS EQUITY (continued) The Board of Directors may suspend or discontinue the plan at its discretion. Stockholder purchase plan: The Company's stockholder purchase plan allows participating stockholders an option to purchase newly issued shares of common stock. The number of shares that may be purchased pursuant to options shall be determined by the Board of Directors. Options granted will expire no later than three months from the grant date. Each option will entitle the stockholder to purchase one share of common stock, and will be granted in proportion to stockholder share holdings. At the discretion of the Board of Directors, stockholders may be given the opportunity to purchase unsubscribed shares.

Grant Shares Price Granted on November 30, 1998, expiring January 29, 1999 110,396 $ 26.125 Exercised (7,388) -------- Outstanding December 31, 1998 103,008 $ 26.125 Exercised (3,347) $ 26.125 Expired (99,661) $ 26.125 Granted on June 24, 1999, expiring September 24, 1999 50,000 $ 23.250 Exercised (3,722) Expired (46,278) $ 23.250 Granted on September 24, 1999, expiring December 24, 1999 50,000 $ 23.000 Exercised (2,401) Expired (47,599) $ 23.000 -------- Outstanding December 31, 1999 - Granted on January 24, 2000, expiring March 24, 2000 50,000 $ 18.800 Exercised (1,538) Expired (48,462) $ 18.800 Granted on March 21, 2000, expiring June 23, 2000 50,000 $ 18.800 Exercised (1,121) Expired (48,879) $ 18.800 -------- Outstanding December 31, 2000 - ========

At December 31, 2000, 1999, and 1998 there were 121,111, 123,770, and 112,612 shares of common stock reserved for issuance under the plan, respectively. The Board of Directors may suspend or discontinue the plan at its discretion. F - 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. STOCKHOLDERS EQUITY (continued) Regulatory capital requirements: The Company and Bank are subject to various regulatory capital requirements administered by Federal and State banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting principles. The Company's and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 2000, 1999, and 1998, that the Company and Bank meet all capital adequacy requirements to which it is subject. As of December 31, 2000, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed the Bank's category. A comparison of capital as of December 31, 2000, 1999, and 1998 with minimum requirements is approximately as follows:

TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ------- -------- ------- -------- ------- AS OF DECEMBER 31, 2000 TOTAL CAPITAL (TO RISK WEIGHTED ASSETS) COMPANY $24,092,000 14.0% $13,772,000 8.0% N/A BANK 23,655,000 13.7% 13,863,000 8.0% $17,328,000 10.0% TIER I CAPITAL (TO RISK WEIGHTED ASSETS) COMPANY 21,925,000 12.7% 6,886,000 4.0% N/A BANK 21,474,000 12.4% 6,932,000 4.0% 10,397,000 6.0% TIER I CAPITAL (TO AVERAGE ASSETS) COMPANY 21,925,000 9.3% 9,424,000 4.0% N/A BANK 21,474,000 9.1% 9,424,000 4.0% 11,780,000 5.0%

F - 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. STOCKHOLDERS EQUITY (continued)

TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ------- -------- ------- -------- ------- As of December 31, 1999 Total Capital (to Risk Weighted Assets) Company $16,912,000 10.8% $12,527,000 8.0% N/A Bank 16,586,000 10.3% 12,870,000 8.0% $16,087,000 10.0% Tier I Capital (to Risk Weighted Assets) Company 14,942,000 9.5% 6,265,000 4.0% N/A Bank 14,563,000 9.0% 6,437,000 4.0% 9,655,000 6.0% Tier I Capital (to Average Assets) Company 14,942,000 6.8% 8,815,000 4.0% N/A Bank 14,563,000 6.6% 8,813,000 4.0% 11,016,000 5.0% As of December 31, 1998 Total Capital (to Risk Weighted Assets) Company $14,785,000 10.5% $11,265,000 8.0% N/A Bank 14,495,000 10.4% 11,150,000 8.0% $13,938,000 10.0% Tier I Capital (to Risk Weighted Assets) Company 13,018,000 9.3% 5,599,000 4.0% N/A Bank 12,736,000 9.1% 5,598,000 4.0% 8,397,000 6.0% Tier I Capital (to Average Assets) Company 13,018,000 6.0% 8,722,000 4.0% N/A Bank 12,736,000 5.8% 8,723,000 4.0% 10,904,000 5.0%

NOTE 19. EARNINGS PER COMMON SHARE Earnings per common share are calculated as follows:

2000 1999 1998 ----------- ----------- ---------- Basic: Net income $ 2,274,866 $ 1,445,350 $ 833,192 Weighted average common shares outstanding 1,100,804 1,085,078 1,253,275 Basic net income per share $ 2.07 $ 1.33 $ 0.66 Diluted: Net income $ 833,192 Weighted average common shares outstanding 1,253,275 Dilutive effect of stock options 362 ---------- Average common shares outstanding - diluted 1,253,637 Diluted net income per share $ 0.66

Diluted earnings per share calculations were not required for 2000 since there were no outstanding options at December 31, 2000. F - 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19. EARNINGS PER COMMON SHARE (continued) Diluted earnings per share calculations were not required for 1999, due to all options having an anti-dilutive effect and the Company having a simple capital structure. During 1998, options relating to the stockholder purchase plan have an anti-dilutive effect, and therefore were not included in the diluted calculation. NOTE 20. FAIR VALUES OF FINANCIAL INSTRUMENTS In accordance with the disclosure requirements of SFAS No. 107, the estimated fair value and the related carrying values of the Company's financial instruments are as follows:

2000 1999 1998 ---------------------------------------------------------------------------------- CARRYING FAIR Carrying Fair Carrying Fair AMOUNT VALUE Amount Value Amount Value ---------------------------------------------------------------------------------- FINANCIAL ASSETS: CASH AND DUE FROM BANKS $9,559,329 $9,559,329 $8,317,450 $8,317,450 $8,197,344 $8,197,344 INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS 50,947 50,947 10,245 10,245 4,958,337 4,958,337 FEDERAL FUNDS SOLD 5,898,863 5,898,863 555,627 555,627 2,863,635 2,863,635 CERTIFICATES OF DEPOSIT IN OTHER FINANCIAL INSTITUTIONS 100,000 100,000 - - - - INVESTMENT SECURITIES AVAILABLE FOR SALE 21,308,961 21,308,961 14,664,953 14,664,953 31,988,139 31,988,139 INVESTMENT SECURITIES HELD TO MATURITY 31,285,937 31,019,121 28,657,242 27,041,751 32,561,288 32,539,731 FEDERAL HOME LOAN BANK STOCK 652,300 652,300 652,300 652,300 936,400 936,400 COMMON STOCK - STATUTORY TRUST I 155,000 155,000 - - - - GROUND RENTS 249,900 249,900 254,025 254,025 257,025 257,025 LOANS, LESS ALLOWANCE FOR CREDIT LOSSES 162,373,731 162,525,000 151,106,560 138,422,000 125,501,252 125,980,000 ACCRUED INTEREST RECEIVABLE 1,681,219 1,681,219 1,279,067 1,279,067 1,401,660 1,401,660 FINANCIAL LIABILITIES: DEPOSITS 205,968,337 205,969,000 194,089,995 194,002,000 199,611,115 201,124,000 SHORT-TERM BORROWINGS 487,978 487,978 2,464,936 2,464,936 1,143,904 1,143,904 LONG-TERM BORROWINGS 7,296,523 7,296,523 - - - - DIVIDENDS PAYABLE 213,345 213,345 136,666 136,666 123,039 123,039 ACCRUED INTEREST PAYABLE 195,166 195,166 152,555 152,555 160,597 160,597 ACCRUED INTEREST PAYABLE ON JUNIOR SUBORDINATED DEBENTURES 166,986 166,986 - - - - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN GLEN BURNIE BANCORP JUNIOR SUBORDINATED DEBENTURES 5,155,000 5,155,000 - - - - UNRECOGNIZED FINANCIAL INSTRUMENTS: COMMITMENTS TO EXTEND CREDIT 12,469,737 12,364,095 15,501,742 15,430,119 13,239,708 13,172,540 STANDBY LETTERS OF CREDIT 1,237,878 1,237,878 1,384,969 1,384,969 2,012,626 2,012,626

F - 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) For purposes of the disclosures of estimated fair value, the following assumptions were used. Loans: The estimated fair value for loans is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Investment securities: Estimated fair values are based on quoted market prices. Deposits: The estimated fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair value of certificates of deposit is based on the rates currently offered for deposits of similar maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. Other assets and liabilities: The estimated fair values for cash and due from banks, interest-bearing deposits in other financial institutions, Federal funds sold, accrued interest receivable and payable, and short-term borrowings are considered to approximate cost because of their short-term nature. Other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill, and similar items. NOTE 21. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board (FASB) issued Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES. This statement replaces Statement No. 125. The Statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and required disclosures. Statement No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 with the exception of certain financial statement disclosures, which are effective for fiscal years ending after December 15, 2000. The Bank is currently in compliance with this pronouncement. F - 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22. PARENT COMPANY FINANCIAL INFORMATION The Balance Sheets, Statements of Income, and Statements of Cash Flows for Glen Burnie Bancorp (Parent Only) are presented below:

Balance Sheets ----------------------------------------------------------------------------------------------------------------- December 31, 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 110,768 $ 184,555 $ 239,226 Investment in The Bank of Glen Burnie 22,013,186 14,722,533 13,886,563 Investment in GBB Properties, Inc. 238,645 235,706 165,637 Investment in the Glen Burnie Statutory Trust I 155,000 - - Due from subsidiaries 198,479 96,321 4,789 Other assets 150,000 - - ------------ ----------- ----------- TOTAL ASSETS $22,866,078 $15,239,115 $14,296,215 ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Dividends payable $ 213,345 $ 136,666 $ 123,039 Accrued interest payable on junior subordinated debentures 166,986 - - Due to subsidiary 150,000 - 4,503 ------------ ----------- ----------- TOTAL LIABILITIES 530,331 136,666 127,542 ------------ ----------- ----------- Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures 5,155,000 - - ------------ ----------- ----------- Stockholders' equity: Common stock 1,110,049 1,093,496 894,938 Surplus 10,373,549 10,149,247 9,788,889 Retained earnings 5,544,305 4,013,171 3,202,488 Accumulated other comprehensive income, net of taxes (benefits) 152,844 (153,465) 282,358 ------------ ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 17,180,747 15,102,449 14,168,673 ------------ ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,866,078 $15,239,115 $14,296,215 ============ =========== ===========

Statements of Income ---------------------------------------------------------------------------------------------------------------- Years Ended December 31, 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------- Dividends and distributions from subsidiaries $ 475,000 $ 350,000 $ 5,740,764 Standstill agreement expense (131,378) (281,378) - Interest expense on junior subordinated debentures (166,986) - - Other expenses, net of revenues of $279 in 1998 (2,100) (1,078) (840) ------------ ----------- ----------- Income before income taxes and equity in undistributed net income of subsidiaries 174,536 67,544 5,739,924 Income tax benefit 102,158 96,035 286 Change in undistributed net income of subsidiaries 1,998,172 1,281,771 (4,907,018) ------------ ----------- ----------- NET INCOME $ 2,274,866 $ 1,445,350 $ 833,192 ============ =========== ===========

F - 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22. PARENT COMPANY FINANCIAL INFORMATION (continued)

Statements of Cash Flows --------------------------------------------------------------------------------------------------------------- Years Ended December 31, 2000 1999 1998 --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,274,866 $ 1,445,350 $ 833,192 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) decrease in other assets (150,000) - 1,259 Increase in due from subsidiaries (102,158) (91,533) (4,789) Increase (decrease) in due to subsidiaries 150,000 (4,503) 2,600 Increase in accrued interest payable 166,986 - - Change in undistributed net income of subsidiaries (1,998,172) (1,281,771) 4,907,018 ----------- ----------- --------- Net cash provided by operating activities 341,522 67,543 5,739,280 ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of common stock in the Glen Burnie Statutory Trust I (155,000) - - Capital contributed to subsidiary (5,000,000) (60,000) - ----------- ----------- --------- Net cash used by investing activities (5,155,000) (60,000) - ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from dividend reinvestment plan 201,755 106,149 166,515 Issuance of guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures 5,155,000 - - Proceeds from sales of common stock 49,989 270,566 212,880 Repurchase and retirement of common stock - (138) (5,580,764) Dividends paid (667,053) (438,791) (464,880) ----------- ----------- --------- Net cash provided (used) in financing activities 4,739,691 (62,214) (5,666,249) ----------- ----------- --------- INCREASE (DECREASE) IN CASH (73,787) (54,671) 73,031 CASH, BEGINNING OF YEAR 184,555 239,226 166,195 ----------- ----------- --------- CASH, END OF YEAR $ 110,768 $ 184,555 $ 239,226 =========== =========== =========

F - 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23. QUARTERLY RESULTS OF OPERATIONS (Unaudited) The following is a summary of the Consolidated unaudited quarterly results of operations:

2000 THREE MONTHS ENDED, --------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 --------------------------------------------------------------------------------------------------------------- INTEREST INCOME $4,415 $4,141 $4,318 $3,829 INTEREST EXPENSE 1,688 1,478 1,392 1,344 NET INTEREST INCOME 2,727 2,663 2,926 2,485 PROVISION FOR CREDIT LOSSES - - - - NET SECURITIES GAINS (LOSSES) - (26) - - INCOME (LOSS) BEFORE INCOME TAXES 1,159 685 1,330 539 NET INCOME 612 466 830 367 NET INCOME PER SHARE (BASIC AND DILUTED) $0.70 $0.42 $0.66 $0.29 1999 Three months ended, -------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31 -------------------------------------------------------------------------------------------------------------- Interest income $3,894 $3,957 $3,802 $3,895 Interest expense 1,428 1,410 1,379 1,406 Net interest income 2,466 2,547 2,423 2,489 Provision for credit losses 300 - - - Net securities gains (93) 2 2 25 Income (loss) before income taxes 1,156 626 553 296 Net income 487 403 361 194 Net income per share (basic and diluted) $0.52 $0.37 $0.29 $0.15 1998 Three months ended, -------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) December 31 September 30 June 30 March 31 -------------------------------------------------------------------------------------------------------------- Interest income $3,977 $3,986 $3,930 $3,996 Interest expense 1,499 1,537 1,520 1,540 Net interest income 2,478 2,449 2,410 2,456 Provision for credit losses - (500) - - Net securities gains 111 165 219 32 Income (loss) before income taxes 460 895 371 (86) Net income 84 516 230 3 Net income per share (basic and diluted) $0.10 $0.47 $0.21 $0.00

F - 35