10-Q 1 gbb6300310q.txt GLEN BURNIE BANCORP JUNE 30, 2003 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 2003 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-24047 GLEN BURNIE BANCORP (Exact name of registrant as specified in its charter) Maryland 52-1782444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Crain Highway, S.E. Glen Burnie, Maryland 21061 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 766-3300 Inapplicable (Former name, former address and former fiscal year if changed from last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes No X --- --- At July 30, 2003, the number of shares outstanding of the registrant's common stock was 1,683,668. TABLE OF CONTENTS Part I - Financial Information Page ---- Item 1. Consolidated Financial Statements: ------- Condensed Consolidated Balance Sheets, June 30, 2003 (unaudited) and December 31, 2002 (audited) 3 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2003 and 2002 (unaudited) 4 Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2003 and 2002 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (unaudited) 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition ------- and Results of Operations 8 Item 3. Quantitative And Qualitative Disclosure About Market Risk 12 ------- Item 4. Disclosure Controls and Procedures 13 ------- Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders 14 ------- Item 6. Exhibits and Reports on Form 8-K 14 ------- Signatures 15 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GLEN BURNIE BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

June 30, 2003 December 31, 2002 ASSETS (unaudited) (audited) ----------- --------- Cash and due from banks $12,349 $11,297 Interest-bearing deposits in other financial institutions 67 41 Federal funds sold 2,577 4,404 ------- ------- Cash and cash equivalents 14,993 15,742 Certificates of deposit in other financial institutions 100 100 Investment securities available for sale, at fair value 101,563 84,658 Investment securities held to maturity, at cost (fair value June 30: $5,133; December 31: $7,616) 4,813 7,202 Federal Home Loan Bank stock, at cost 896 703 Common Stock in the Glen Burnie Statutory Trust I 155 155 Loans, less allowance for credit losses (June 30: $2,337; December 31: $2,515) 161,846 158,287 Premises and equipment, at cost, less accumulated depreciation 4,160 4,143 Other real estate owned 175 413 Cash value of life insurance 5,158 5,025 Other assets 2,951 2,978 -------- -------- Total assets $296,810 $279,406 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $256,302 $241,420 Short-term borrowings 1,813 837 Long-term borrowings 7,239 7,251 Guaranteed preferred beneficial interests in Glen Burnie Bancorp junior subordinated debentures 5,155 5,155 Other liabilities 2,784 2,953 -------- -------- Total liabilities 273,293 257,616 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $1, authorized 15,000,000 shares; Issued and outstanding: June 30: 1,682,773 shares; December 31: 1,677,173 shares 1,683 1,677 Surplus 10,736 10,638 Retained earnings 8,933 7,947 Accumulated other comprehensive income, net of tax 2,165 1,528 -------- -------- Total stockholders' equity 23,517 21,790 -------- -------- Total liabilities and stockholders' equity $296,810 $279,406 ======== ======== See accompanying notes to condensed consolidated financial statements.

3 GLEN BURNIE BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) (Unaudited)

Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Interest income on: Loans, including fees $2,830 $3,091 $5,649 $6,206 U.S. Treasury and U.S. Government agency securities 526 674 1,013 1,279 State and Municipal securities 435 281 810 539 Other 118 132 249 275 ------ ------ ------ ------ Total interest income 3,909 4,178 7,721 8,299 ------ ------ ------ ------ Interest expense on: Deposits 864 1,039 1,763 2,163 Short-term borrowings 1 1 2 3 Long-term borrowings 110 107 218 213 Junior subordinated debentures 137 137 273 273 ------ ------ ------ ------ Total interest expense 1,112 1,284 2,256 2,652 ------ ------ ------ ------ Net interest income 2,797 2,894 5,465 5,647 Provision for credit losses 0 0 0 0 ------ ------ ------ ------ Net interest income after provision for credit losses 2,797 2,894 5,465 5,647 ------ ------ ------ ------ Other income: Service charges on deposit accounts 249 251 507 500 Other fees and commissions 236 148 444 286 Other non-interest income 3 1 5 4 Gain on termination of post-retirement plan 0 0 0 764 Gains on investment securities 15 2 107 6 ------ ------ ------ ------ Total other income 503 402 1,063 1,560 ------ ------ ------ ------ Other expenses: Salaries and employee benefits 1,483 1,494 2,948 2,918 Occupancy 164 146 376 292 Other expenses 798 894 1,596 1,794 ------ ------ ------ ------ Total other expenses 2,445 2,534 4,920 5,004 ------ ------ ------ ------ Income before income taxes 855 762 1,608 2,203 Income tax expense 122 175 219 628 ------ ------ ------ ------ Net income $ 733 $ 587 $1,389 $1,575 ====== ===== ====== ====== Basic and diluted earnings per share of common stock $.44 $.35 $.83 $.94 ==== ==== ==== ==== Weighted average shares of common stock outstanding 1,680,270 1,666,052 1,678,807 1,664,911 ========= ========= ========= ========= Dividends declared per share of common stock $.12 $.10 $.24 $.20 ==== ==== ==== ==== See accompanying notes to condensed consolidated financial statements.

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

Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income $733 $587 $1,389 $1,575 Other comprehensive income (loss), net of tax Unrealized gains (losses) securities: Unrealized holding gains arising during period 873 995 703 759 Reclassification adjustment for gains included in net income (56) (1) (66) (2) ------ ------ ------ ------ Comprehensive income $1,550 $1,581 $2,026 $2,332 ====== ====== ====== ====== See accompanying notes to condensed consolidated financial statements.

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

Six Months Ended June 30, 2003 2002 ---- ---- Cash flows from operating activities: Net income $1,389 $1,575 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and accretion 157 53 Compensation expense from vested stock options 0 39 Provision for credit losses 0 0 Gains on disposals of assets, net (88) (3) Income on investment in life insurance (133) 0 Changes in assets and liabilities: Increase in other assets (245) (411) Decrease in other liabilities (91) (703) ------- ---- Net cash provided by operating activities 989 550 --- --- Cash flows from investing activities: Maturities of available for sale mortgage-backed securities 14,762 4,687 Proceeds from disposals of investment securities 5,562 4,136 Purchases of investment securities (33,530) (20,204) Purchase of Federal Home Loan Bank stock (193) (51) (Increase) decrease in loans, net (3,559) 3,283 Purchases of premises and equipment (469) (176) Proceeds from sale of other real estate 220 3 ------- ------- Net cash used by investing activities (17,207) (8,322) -------- ------- Cash flows from financing activities: Increase in deposits, net 14,882 3,968 Increase (decrease) in short-term borrowings 976 (252) Repayment of long-term borrowings (12) (12) Dividends paid (481) (362) Common stock dividends reinvested 86 72 Issuance of common stock 18 32 ------- ------ Net cash provided by financing activities 15,469 3,446 ------- ------ Decrease in cash and cash equivalents (749) (4,326) Cash and cash equivalents, beginning of year 15,742 18,220 ------- ------- Cash and cash equivalents, end of period $14,993 $13,894 ======= ======= See accompanying notes to condensed consolidated financial statements.

6 GLEN BURNIE BANCORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, changes in stockholders' equity, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the unaudited consolidated financial statements have been included in the results of operations for the three and six months ended June 30, 2003 and 2002. Operating results for the three and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. NOTE 2 -EARNINGS PER SHARE Basic earnings per share of common stock are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by including the average dilutive common stock equivalents outstanding during the periods. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method.

Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Diluted: Net income $ 733,000 $587,000 $1,389,000 $1,575,000 Weighted average common shares outstanding 1,680,270 1,666,052 1,678,807 1,664,911 Dilutive effect of stock options 3,190 2,573 3,190 1,286 --------- --------- ---------- ---------- Average common shares outstanding - diluted 1,683,460 1,668,625 1,681,997 1,666,197 Diluted net income per share $0.44 $0.35 $0.83 $0.94 ===== ===== ===== =====

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In management's opinion, the Company and the Bank are currently in compliance with all applicable provisions of this pronouncement. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS General. Glen Burnie Bancorp, a Maryland corporation (the "Company"), and its subsidiaries, The Bank of Glen Burnie (the "Bank") and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $733,000 ($.44 basic and diluted earnings per share) for the second quarter of 2003, compared to second quarter 2002 consolidated net income of $587,000 ($0.35 basic and diluted earnings per share). The increase in consolidated net income was due to an increase in other income partially offset by a decrease in interest income earned on loans, and a reduction in interest expense and other expenses. Year-to-date consolidated net income for the six months ended June 30, 2003 was $1,389,000 ($0.83 basic and diluted earnings per share), compared to $1,575,000 ($0.94 basic and diluted earnings per share) for the six months ended June 30, 2002. The decrease for the six month period is primarily due to a gain of $764,000 arising from the negative amendment on the Bank's post-retirement health insurance benefit plan which was recognized in the first quarter of 2002 and not repeated in the 2003 period, partially offset by the recognition of other income and investment securities gains for the 2003 period. Net Interest Income. The Company's consolidated net interest income prior to provision for credit losses for the three and six months ended June 30, 2003 was $2,797,000 and $5,465,000, respectively, compared to $2,894,000 and $5,647,000 for the same periods in 2002, a decrease of $97,000 (or 3.35%) for the three-month period, and a decrease of $182,000 (or 3.22%) for the six-month period. These decreases were primarily attributable to a decrease in interest income earned on loans offset by a decline in rates paid on deposits. In addition, the decreases for the three and six-month periods were partially due to a reallocation of approximately $5,000,000 in interest producing assets to the Bank's bank owned life insurance (BOLI) program. Income from BOLI is classified as other income. Interest income decreased $269,000 (6.44%) for the three months ended June 30, 2003, and decreased $578,000 (6.96%) for the six months ended June 30, 2003, compared to the same periods in 2002. The decrease for the three-month and six-month period was primarily due to declining average outstanding balances on loans and declining interest rate environment partially offset by increased income on state and municipal securities. In addition, the decrease for the three-month period was partially due to a reallocation of approximately $5,000,000 in interest producing assets to the Bank's BOLI program. Income from BOLI is classified as other income. Interest income on loans decreased $261,000 (8.44%) for the three months ended June 30, 2003 and decreased $557,000 (8.98%) for the six months ended June 30, 2003, compared to the same periods in 2002. Interest expense decreased $172,000 (13.40%) for the three months ended June 30, 2003, and decreased $396,000 (14.93%) for the six months ended June 30, 2003, compared to the 2002 periods, due to an overall decline in interest rates paid on deposits as a result of the declining interest rate environment. The net interest margin is calculated as interest income less interest expense expressed as a percentage of interest earning assets. When interest income increases at a greater rate than interest expense, net interest margins increase, and when interest expense increases at a greater rate than interest income, net interest margins decrease. Net interest margins for the three and six months ended June 30, 2003 were 4.57% and 4.55%, respectively, compared to tax equivalent net interest margins of 5.07% and 4.98%, for the three and six month periods ended June 30, 2002. The decreases in net interest margins for the three and six month periods ended June 30, 2003 were primarily due to the repricing of the yield on the Bank's loans and securities investments resulting in lower yields, while the Bank's interest expense, represented by interest paid on deposits, did not reprice at a proportionately lower yields. Provision for Credit Losses. The Company made no additional provision for credit losses during the three and six month periods ended June 30, 2003 and 2002. As of June 30, 2003, the allowance for credit losses equaled 343.68% of non-accrual and past due loans compared to 429.13% at December 31, 2002 and 693.23% at June 30, 2002. During the three and six month periods ended June 30, 2003, the Company recorded net charge-offs of $43,000 and $178,000, respectively, compared to net charge-offs of $66,000 and $172,000, respectively, during the corresponding periods of the prior year. On an annualized basis, net charge-offs for the 2003 period represent 0.22% of the average loan portfolio. 8 Other Income. Other income for the three month period increased from $402,000 at June 30, 2002, to $503,000 at June 30, 2003, an increase of $101,000 (25.12%). For the six month period, other income decreased from $1,560,000 at June 30, 2002 to $1,063,000 at June 30, 2003, a decrease of $497,000 (31.86%). The increase for the three month period was due to income on BOLI. The decrease for the six month period is primarily due to a gain of $764,000 arising from the negative amendment on the Bank's post-retirement health insurance benefit plan which was recognized in the first quarter of 2002 and not repeated in the 2003 period, partially offset by the recognition of BOLI income and investment securities gains for the 2003 period. Other Expense. Other expenses for the three month period decreased from $2,534,000 at June 30, 2002, to $2,445,000 at June 30, 2003, a decrease of $89,000 (3.51%). For the six month period, other expenses decreased from $5,004,000 at June 30, 2002 to $4,920,000 at June 30, 2003, a decrease of $84,000 (1.68%). The decrease for the three and six month period was due to an overall general decrease in various other expenses partially offset by an increase in occupancy expenses. Income Taxes. During the three and six months ended June 30, 2003, the Company recorded income tax expense of $122,000 and $219,000, respectively, compared to an income tax expense of $175,000 and $628,000, respectively, for the corresponding periods of the prior year. The decrease in income tax expenses reflect the Company's earnings plus an increased tax advantaged portfolio in the investment securities during the current year's periods. The six month period reflects the post-retirement plan recognized in the first quarter of 2002. The Company's effective tax rate for the three and six month periods in 2003 were 14.27% and 13.62%, respectively, compared to 22.97% and 28.51%, respectively, for the prior year periods. FINANCIAL CONDITION General. The Company's assets increased to $296,810,000 at June 30, 2003 from $279,406,000 at December 31, 2002 primarily due to an increase in investment securities available for sale, while an increase in loans was offset by a decrease in cash and cash equivalents and investment securities held to maturity. The Bank's net loans totaled $161,846,000 at June 30, 2003, compared to $158,287,000 at December 31, 2002, an increase of $3,559,000 (2.25%), primarily attributable to an increase in mortgage refinancing activity offset by a decrease in indirect auto loans. The Company's total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $106,376,000 at June 30, 2003, a $14,516,000 or 15.8% increase from $91,860,000 at December 31, 2002. The Bank's cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of June 30, 2003, totaled $14,993,000, a decrease of $749,000 (4.76%) from the December 31, 2002 total of $15,742,000. The aggregate market value of investment securities held by the Bank as of June 30, 2003 was $106,696,000 compared to $92,274,000 as of December 31, 2002, a $14,422,000 (15.63%) increase. Deposits as of June 30, 2003 totaled $256,302,000 which is an increase of $14,882,000 (6.16%) from $241,420,000 at December 31, 2002. Demand deposits as of June 30, 2003 totaled $66,676,000 which is an increase of $7,614,000 (12.89%) from $59,062,000 at December 31, 2002. NOW accounts as of June 30, 2003 totaled $24,084,000 which is an increase of $13,000 (.05%) from $24,071,000 at December 31, 2002. Money market accounts as of June 30, 2003 totaled $22,528,000, which is an increase of $2,639,000 (13.27%), from $19,889,000 at December 31, 2002. Savings deposits as of June 30, 2003 totaled $52,285,000, an increase of $4,669,000 (9.8%) from $47,616,000 at December 31, 2002. Certificates of deposit over $100,000 totaled $17,737,000 on June 30, 2003, an increase of $39,000 (0.22%) from $17,698,000 at December 31, 2002. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $72,315,000 on June 30, 2003, a $767,000 (1.05%) decrease from the $73,082,000 total at December 31, 2002. Asset Quality. The following table sets forth the amount of the Bank's restructured loans, non-accrual loans and accruing loans 90 days or more past due at the dates indicated. 9

At June 30, At December 31, 2003 2002 ---- ---- (Dollars in Thousands) Restructured loans $0 $41 == === Non-accrual loans: Real estate - mortgage: Residential $425 $264 Commercial 0 178 Real estate - construction 8 7 Installment 54 112 Credit card & related 0 0 Commercial 186 10 ---- ---- Total non-accrual loans 673 571 ---- ---- Accruing loans past due 90 days or more: Real estate - mortgage: Residential 1 1 Commercial 0 0 Real estate - construction 6 0 Installment 0 14 Credit card & related 0 0 Commercial 0 0 Other 0 0 ---- ---- Total accruing loans past due 90 days or more 7 15 ---- ---- Total non-accrual and past due loans $680 $586 ==== ==== Non-accrual and past due loans to gross loans 0.41% 0.36% ===== ===== Allowance for credit losses to non-accrual and past due loans 343.68% 429.10% ======= =======

At June 30, 2003, there were no loans outstanding, other than those reflected in the above table, as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. Allowance For Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance, based on evaluations of the collectibility of loans and prior loan loss experience, is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect the borrowers' ability to pay. 10 Transactions in the allowance for credit losses for the six months ended June 30, 2003 and 2002 were as follows:

Six Months Ended June 30, 2003 2002 ---- ---- (Dollars in Thousands) Beginning balance $2,515 $2,938 Charge-offs (405) (323) Recoveries 227 151 ------ ------ Net charge-offs (178) (172) Provisions charged to operations 0 0 ------ ------ Ending balance $2,337 $2,766 ====== ====== Average loans $158,956 $162,366 Net charge-offs to average loans (annualized) 0.22% 0.21%

Reserve for Unfunded Commitments. As of June 30, 2003, the Bank had outstanding commitments totaling $16,355,749. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank's allowance for credit losses arising from these unfunded commitments: Six Months Ended June 30, 2003 2002 ---- ---- (Dollars in Thousands) Beginning balance $150 $150 Provisions charged to operations 0 0 ---- ---- Ending balance $150 $150 ==== ==== LIQUIDITY AND CAPITAL RESOURCES The Company currently has no business other than that of the Bank and does not currently have any material funding commitments. The Company's principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank is subject to various regulatory restrictions on the payment of dividends. The Bank's principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans, interest received on investment securities and proceeds from maturing investment securities. Its principal funding commitments are for the origination or purchase of loans and the payment of maturing deposits. Deposits are considered a primary source of funds supporting the Bank's lending and investment activities. The Bank's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of three months or less and money market mutual funds. The levels of such assets are dependent on the Bank's operating financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank's cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of June 30, 2003, totaled $14,993,000, a decrease of $749,000 (4.76%) from the December 31, 2002 total of $15,742,000. 11 As of June 30, 2003, the Bank was permitted to draw on a $35,500,000 line of credit from the FHLB of Atlanta. Borrowings under the line are secured by a floating lien on the Bank's residential mortgage loans. As of June 30, 2003, a $7.0 million long-term convertible advance was outstanding under this line, and a short-term borrowing of $1,000,000 outstanding under this line. In addition, the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn. Furthermore, as of June 30, 2003, the Company had outstanding $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures issued to Glen Burnie Statutory Trust I, a Connecticut statutory trust subsidiary of the Company. The Company's stockholders' equity increased by $1,727,000 or 7.93%, during the six months ended June 30, 2003, due to earnings, partially offset by decreases in equity accounts from dividend distributions. The Company's accumulated other comprehensive income net of tax increased by $637,000 from $1,528,000 income at December 31, 2002 to $2,165,000 income at June 30, 2003, as a result of unrealized holding gains relating to securities held for investment arising during the period. Retained earnings increased by $986,000 during the six month period as the result of earnings during the period, partially offset by dividends declared. In addition, $86,000 was transferred to stockholders' equity in consideration for shares to be issued under the Company's dividend reinvestment plan in lieu of cash dividends. The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to "risk-weighted" assets. At June 30, 2003, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 8.93%, a Tier 1 risk-based capital ratio of 14.05% and a total risk-based capital ratio of 15.3%. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company's estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company's financial statements, including the identification of the variables most important in the estimation process: Allowance for Credit Losses. The allowance for credit losses is management's best estimate of the probable incurred credit losses in the lending portfolio. The Company performs periodic and systematic detailed reviews of its loan portfolio to identify and estimate the inherent risks and assess overall collectibility. These reviews include loss forecast modeling based on historical experiences and current events and conditions as well as individual loan valuations. In each analysis, numerous portfolio and economic assumptions are made. Accrued Taxes. Management estimates income tax expense based on the amount it expects to owe various tax authorities. Accrued taxes represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of the Company's tax position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 12 ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is accumulated and communicated to management in a timely manner. The Company's Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and believe that the system is operating effectively to ensure appropriate disclosure. There have been no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 13 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 8, 2003, the Company held its Annual Meeting of Stockholders. The matters submitted to the stockholders for a vote were: (i) the election of four directors; (ii) the authorization of the Board of Directors to select an outside auditing firm for the Company's fiscal year ending December 31, 2003; and (iii) the approval of amendments to the Company's Bylaws to reduce the stockholder vote required to amend the Bylaws from 80% to 66 2/3% of all votes entitled to be cast. The nominees submitted for election as directors were Charles L. Hein, Alan E. Hahn, Shirley E. Boyer, and John I. Young. At the Meeting, at least 1,434,505 shares were voted in favor of each nominee, no more than 5,472 shares were voted to withhold approval of any director. As a result, all of the nominees were elected to serve as directors until the next annual meeting of shareholders of the Company and until their successors are duly elected and qualified. Directors not up for re-election and continuing in office after the Meeting are: John E. Demyan, Theodore L. Bertier, Jr., F. W. Kuethe, III, Mary Lou Wilcox, F. William Kuethe, Jr., William N. Scherer, Sr., Thomas Clocker, and Karen Thorwarth. At the Meeting, the Board of Directors was authorized to select an outside auditing firm, with 1,439,620 shares voting in favor of the measure, 367 shares voting to withhold authorization, and 4,153 shares abstaining. The stockholders did not approve the amendments to the Company's Bylaws, with 1,237,983 shares voting in favor of the amendments, 9,357 shares voting to withhold approval, and 21,407 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit No. ----------- 3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant's Form 8-A filed December 27, 1999, File No. 0-24047) 3.2 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 10.2 to the Registrant's Quarterly Report on Form 10-Q for the Period Ended March 31, 2002, File No. 0-24047) 10.3 Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047) 10.4 The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047) 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer* 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer* 32.1 Section 1350 Certifications (b) Reports on Form 8-K: None. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLEN BURNIE BANCORP (Registrant) Date: August 14, 2003 By: /s/ F. William Kuethe, Jr. ----------------------------------- F. William Kuethe, Jr. President, Chief Executive Officer By: /s/ John E. Porter ----------------------------------- John E. Porter Chief Financial Officer 15 Exhibit 31.1 ------------ CERTIFICATION I, F. William Kuethe, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Glen Burnie Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 14, 2003 /s/ F. William Kuethe, Jr. ------------------------------------ F. William Kuethe, Jr. Chief Executive Officer Exhibit 31.2 ------------ CERTIFICATION I, John E. Porter, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Glen Burnie Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 14, 2003 /s/ John E. Porter ------------------------------------ John E. Porter Chief Financial Officer Exhibit 32.1 ------------ SECTION 1350 CERTIFICATIONS In connection with the Quarterly Report of Glen Burnie Bancorp (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission and to which this Certification is an exhibit (the "Report"), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods reflected therein. Date: August 14, 2003 /s/ F. William Kuethe, Jr. ------------------------------------ F. William Kuethe, Jr. President, Chief Executive Officer /s/ John E. Porter ------------------------------------ John E. Porter Chief Financial Officer