Glen Burnie Bancorp (GLBZ) 10-Q 2006 Q1 Quarterly report

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 March 31, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-24047

GLEN BURNIE BANCORP

(Exact name of registrant as specified in its charter)

Maryland	52-1782444
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
101 Crain Highway, S.E.
Glen Burnie, Maryland	21061
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (410) 766-3300

Inapplicable

(Former name, former address and former fiscal year if changed from last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes oNo x

At April 25, 2006, the number of shares outstanding of the registrant’s common stock was 2,470,666.

TABLE OF CONTENTS

Part I - Financial Information			Page
	Item 1.	Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets, March 31, 2006 (unaudited) and December 31, 2005 (audited)	3
		Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005 (unaudited)	4
		Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2006 and 2005 (unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 (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	14
	Item 4.	Controls and Procedures	14
Part II - Other Information
	Item 6.	Exhibits	15
		Signatures	16

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PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	March 31,			December 31,
	2006			2005
ASSETS	(unaudited)			(audited)
Cash and due from banks	$	9,603		$	9,405
Interest-bearing deposits in other financial institutions		12,989			3,712
Federal funds sold		5,319			2,333
Cash and cash equivalents		27,911			15,450
Investment securities available for sale, at fair value		105,181			86,129
Investment securities held to maturity, at cost
(fair value March 31: $1,141; December 31: $1,239)		1,069			1,151
Federal Home Loan Bank stock, at cost		928			919
Maryland Financial Bank stock, at cost		100			100
Common Stock in the Glen Burnie Statutory Trust I		155			155
Loans, less allowance for credit losses
(March 31: $2,163; December 31: $2,201)		184,643			190,205
Premises and equipment, at cost, less accumulated depreciation		3,754			3,863
Other real estate owned		50			50
Cash value of life insurance		5,727			5,682
Other assets		3,199			2,857
Total assets	$	332,717		$	306,561
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	292,824		$	265,248
Short-term borrowings		179			622
Long-term borrowings		7,163			7,171
Junior subordinated debentures owed to unconsolidated subsidiary trust		5,155			5,155
Other liabilities		1,059			1,740
Total liabilities		306,380			279,936
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding: March 31: 2,470,666 shares;
December 31: 2,056,024 shares		2,471			2,056
Surplus		11,512			11,458
Retained earnings		13,258			13,341
Accumulated other comprehensive loss, net of tax benefits		(904	)		(230	)
Total stockholders’ equity		26,337			26,625
Total liabilities and stockholders’ equity	$	332,717		$	306,561

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2006		2005
Interest income on:
Loans, including fees	$	2,936	$	2,809
U.S. Treasury and U.S. Government agency securities		662		570
State and municipal securities		342		397
Other		234		144
Total interest income		4,174		3,920
Interest expense on:
Deposits		962		674
Short-term borrowings		2		13
Long-term borrowings		105		106
Junior subordinated debentures		137		137
Total interest expense		1,206		930
Net interest income		2,968		2,990
Provision for credit losses		—		—
Net interest income after provision for credit losses		2,968		2,990
Other income:
Service charges on deposit accounts		197		205
Other fees and commissions		231		214
Other non-interest income		5		19
Income on life insurance		45		51
Gains on investment securities		—		3
Total other income		478		492
Other expenses:
Salaries and employee benefits		1,645		1,562
Occupancy		207		179
Other expenses		846		899
Total other expenses		2,698		2,640
Income before income taxes		748		842
Income tax expense		122		154
Net income	$	626	$	688
Basic and diluted earnings per share of common stock	$	0.25	$	0.28
Weighted average shares of common stock outstanding		2,467,436		2,452,162
Dividends declared per share of common stock	$	0.12	$	0.10

See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2006			2005
Net income	$	626		$	688
Other comprehensive (loss) income , net of tax
Unrealized gains (losses) securities:
Unrealized holding losses arising
during the period		(674	)		(666	)
Reclassification adjustment for gains
included in net income		—			(2	)
Comprehensive (loss) income	$	(48	)	$	20
See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	626		$	688
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion		263			145
Gains on disposals of assets, net		—			(3	)
Income on investment in life insurance		(45	)		(50	)
Changes in assets and liabilities:
Decrease in other assets		100			582
Decrease in other liabilities		(581	)		(861	)
Net cash provided by operating activities		363			501
Cash flows from investing activities:
Maturities of available for sale mortgage-backed securities		2,181			1,540
Proceeds from maturities and sales of other investment securities		1,000			4,514
Purchases of investment securities		(23,383	)		(9,197	)
Purchases of Federal Home Loan Bank stock		(9	)		(49	)
Decrease (increase) in loans, net		5,562			(2,104	)
Purchases of premises and equipment		(38	)		(251	)
Net cash used by investing activities		(14,687	)		(5,547	)
Cash flows from financing activities:
Increase in deposits, net		27,576			8,847
Decrease in short-term borrowings		(443	)		(52	)
Repayment of long-term borrowings		(8	)		(7	)
Dividends paid		(397	)		(340	)
Common stock dividends reinvested		57			52
Net cash provided by financing activities		26,785			8,500
Increase in cash and cash equivalents		12,461			3,454
Cash and cash equivalents, beginning of year		15,450			11,374
Cash and cash equivalents, end of period	$	27,911		$	14,828
See accompanying notes to condensed consolidated financial statements.

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GLEN BURNIE BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying 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 months ended March 31, 2006 and 2005.

Operating results for the three month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE 2 - EARNINGS PER SHARE

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

Information for net income, dividends declared per share, basic and diluted earnings per share, and weighted average shares of common stock outstanding for prior periods have been restated to reflect 411,101 shares of common stock issued in a 20% stock dividend paid in January 2006.

	Three Months Ended
	March 31,
	2006		2005
Basic and diluted:
Net income	$	626,000	$	688,000
Weighted average common shares outstanding		2,467,436		2,452,162
Basic and dilutive net income per share	$	0.25	$	0.28

Diluted earnings per share calculations were not required for the three months ended March 31, 2006 and 2005, since there were no options outstanding.

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

OVERVIEW

During the first quarter of 2006, net interest income before provision for credit losses decreased from $2,990,000 in 2005 to $2,968,000 in 2006, a 0.74% decrease. Interest income for the quarter grew from $3,920,000 in 2005 to $4,174,000 in 2006, a 6.48% increase. Total interest expense increased from $930,000 in 2005 to $1,206,000 in 2006, a 29.68% increase. The Company realized net income of $626,000 for the first quarter of 2006 compared to $688,000 for the first quarter of 2005, a 9.01% decrease. The decrease was primarily due to a decrease in net interest income, and was also due to increases in salaries and employee benefits and occupancy expenses, partially offset by a decline in other expenses.

FORWARD-LOOKING STATEMENTS

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

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

RESULTS OF OPERATIONS

General. Glen Burnie Bancorp, a Maryland corporation (the “Company”), and its subsidiaries, The Bank of Glen Burnie (the “Bank”) and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $626,000 ($0.25 basic and diluted earnings per share) for the first quarter of 2006, compared to first quarter 2005 consolidated net income of $688,000 ($0.28 basic and diluted earnings per share). The decrease in consolidated net income for the three month period was due to an increase in interest expense on deposits and a decrease in state and municipal security income, partially offset by increases in loan income, U.S. Government security income and interest income from federal funds sold and interest-bearing deposits.

Net Interest Income. The Company’s consolidated net interest income prior to provision for credit losses for the three months ended March 31, 2006 was $2,968,000, compared to $2,990,000 for the same period in 2005, a decrease of $22,000 (0.74%) for the three month period. While interest income for the period increased, increases in interest expense outpaced the gains on interest income. Management intends to increase the Bank’s portfolio of higher interest loans and reduce the Bank’s portfolio of lower interest loans, which management expects will result in a higher average return on the loan portfolio.

Interest income increased $254,000 (6.48%) for the three months ended March 31, 2006, compared to the same period in 2005, primarily due to increases in income on loans, U.S. Government securities and federal funds sold and interest-bearing deposits, offset by a decrease in state and municipal securities income.

Interest expense increased $276,000 (29.68%) for the three months ended March 31, 2006, compared to the same 2005 period. Interest expense increased for the three month period ended March 31, 2006, primarily attributable to increases in interest rates on certificates of deposit and individual retirement accounts combined with increasing balances of interest bearing deposits.

Net interest margins for the three months ended March 31, 2006 was 4.57%, compared to tax equivalent net interest margins of 4.60% for the three months ended March 31, 2005.

.

Provision for Credit Losses. The Company made no provision for credit losses during the three month periods ended March 31, 2006 and March 31, 2005. As of March 31, 2006, the allowance for credit losses equaled 2,963.01% of non-accrual and past due loans compared to 1,164.55% at December 31, 2005 and 647.41% at March 31, 2005. During the three month period ended March 31, 2006, the Company recorded a net charge-off of $39,000, compared to a net charge-off of $36,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2006 period represent 0.08% of the average loan portfolio.

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Other Income. Other income decreased from $492,000 for the three month period ended March 31, 2005, to $478,000 for the corresponding 2006 period, a $14,000 (2.85%) decrease. The decrease for the three month period was primarily due to a decrease in service charges and other non-interest income partially offset by an increase in other fees and commissions.

Other Expenses. Other expenses increased from $2,640,000 for the three month period ended March 31, 2005, to $2,698,000 for the corresponding 2006 period, a $58,000 (2.20%) increase. The increase for the three month period was primarily due to increases in salaries and employee benefits and occupancy costs, partially offset by a decline in other expenses.

Income Taxes. During the three months ended March 31, 2006, the Company recorded income tax expense of $122,000, compared to income tax expense of $154,000, for the corresponding period of the prior year. The Company’s effective tax rate for the three month period in 2006 was 16.31%, compared to 18.29% for the prior year period.

Other Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company’s net income, adjusted for unrealized gains and losses on the Bank’s investment portfolio of investment securities. For the first quarter of 2006, comprehensive income (loss), net of tax, totaled ($48,000), compared to the March 31, 2005 total of $20,000. The decline for the first quarter from the prior year is due primarily to the decrease in net income.

FINANCIAL CONDITION

General. The Company’s assets increased to $332,717,000 at March 31, 2006 from $306,561,000 at December 31, 2005, primarily due to increases in federal funds sold, interest-bearing deposits and on investment securities, partially offset by a decrease in loans. The Bank’s net loans totaled $184,643,000 at March 31, 2006, compared to $190,205,000 at December 31, 2005, a decrease of $5,562,000 (2.92%),primarily attributable to a decrease in indirect loans and mortgage loan participations purchased.

In January of 2006, management initiated a plan to increase net interest income by reducing its portfolio of lower yielding loans, acquiring additional deposits, expanding its customer base and increasing the Bank’s higher yielding commercial loan portfolio. As part of this plan, the Bank has reduced its portfolio of lower yielding indirect loans and has attracted additional deposits by introducing a new fifteen month personal certificate of deposit product at an interest rate which at that time was above market. This new product has resulted in a $20,171,000 increase in other time deposits and certificates of deposit over $100,000 as of March 31, 2006. In anticipation of utilizing these funds to increase the Bank’s commercial loan portfolio, the proceeds are currently being invested in marketable securities and overnight deposits making them readily available to fund loans. In addition, the Bank has hired a new commercial loan officer to increase its ability to reach this market segment.

The Company’s total investment securities portfolio (including both investment securities available for sale and investment securities held to maturity) totaled $106,250,000 at March 31, 2006, an $18,970,000 (21.74%) increase from $87,280,000 at December 31, 2005. The Bank’s cash and cash equivalents (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of March 31, 2006, totaled $27,911,000, an increase of $12,461,000 (80.65%) from the December 31, 2005 total of $15,450,000. The aggregate market value of investment securities held by the Bank as of March 31, 2006 was $106,322,000 compared to $87,368,000 as of December 31, 2005, an $18,954,000 (21.70%) increase.

Deposits as of March 31, 2006 totaled $292,824,000, which is an increase of $27,576,000 (10.40%) from $265,248,000 at December 31, 2005. Demand deposits as of March 31, 2006 totaled $84,835,000, which is an increase of $5,521,000 (6.96%) from $79,314,000 at December 31, 2005. NOW accounts as of March 31, 2006 totaled $27,386,000, which is an increase of $1,995,000 (7.86%) from $25,391,000 at December 31, 2005. Money market accounts as of March 31, 2006 totaled $17,470,000, which is an increase of $723,000 (4.32%), from $16,747,000 at December 31, 2005. Savings deposits as of March 31, 2006 totaled $54,384,000, which is a decrease of $836,000 (1.51%) from $55,220,000 at December 31, 2005. Certificates of deposit over $100,000 totaled $21,325,000 on March 31, 2006, which is an increase of $4,566,000 (27.25%) from $16,759,000 at December 31, 2005. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $87,422,000 on March 31, 2006, which is a $15,605,000 (21.73%) increase from the $71,817,000 total at December 31, 2005.

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

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	At March 31,			At December 31,
	2006			2005
	(Dollars in Thousands)
Restructured loans	$	—		$	—
Non-accrual loans:
Real-estate - mortgage:
Residential	$	9		$	14
Commercial		—			—
Real-estate - construction		—			—
Installment		47			159
Credit card and related		—			—
Commercial		13			12
Total non-accrual loans		69			185
Accruing loans past due 90 days or more:
Real-estate - mortgage:
Residential		1			1
Commercial		—			—
Real-estate - construction		3			3
Installment		—			—
Credit card and related		—			—
Commercial		—			—
Other		—			—
Total accruing loans past due 90 days or more		4			4
Total non-accrual loans and past due loans	$	73		$	189
Non-accrual and past due loans to gross loans		0.04	%		0.10	%
Allowance for credit losses to non-accrual and past due loans		2,963.01	%		1,164.55	%

 

At March 31, 2006, there were no loans outstanding, other than those reflected in the above table, as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. Reflected in the above table are $11,458 of prior period troubled debt restructurings that are now not performing under the terms of their modified agreements.

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

Transactions in the allowance for credit losses for the three months ended March 31, 2006 and 2005 were as follows:

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	Three Months Ended March 31,
	2006			2005
	(Dollars in Thousands)
Beginning balance	$	2,201		$	2,412
Charge-offs		(144	)		(124	)
Recoveries		106			88
Net charge-offs		(38	)		(36	)
Provisions charged to operations		—			—
Ending balance	$	2,163		$	2,376
Average loans	$	187,658		$	183,436
Net charge-offs to average loans (annualized)		0.08	%		0.08	%

Reserve for Unfunded Commitments. As of March 31, 2006, the Bank had outstanding commitments totaling $16,914,000. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank’s reserve for unfunded commitments arising from these transactions:

	Three Months Ended March 31,
	2006		2005
	(Dollars in Thousands)
Beginning balance	$	200	$	150
Provisions charged to operations		—		—
Ending balance	$	200	$	150

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the first quarter of 2006.

MARKET RISK AND INTEREST RATE SENSITIVITY

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates or equity pricing. The Company’s principal market risk is interest rate risk that arises from its lending, investing and deposit taking activities. The Company’s profitability is dependent on the Bank’s net interest income. Interest rate risk can significantly affect net interest income to the degree that interest bearing liabilities mature or reprice at different intervals than interest earning assets. The Bank’s Asset/Liability and Risk Management Committee oversees the management of interest rate risk. The primary purpose of the committee is to manage the exposure of net interest margins to unexpected changes due to interest rate fluctuations. The Company does not utilize derivative financial or commodity instruments or hedging strategies in its management of interest rate risk. The primary tool used by the committee to monitor interest rate risk is a “gap” report which measures the dollar difference between the amount of interest bearing assets and interest bearing liabilities subject to repricing within a given time period. These efforts affect the loan pricing and deposit rate policies of the Company as well as the asset mix, volume guidelines, and liquidity and capital planning.

The following table sets forth the Company’s interest-rate sensitivity at March 31, 2006.

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							Over 1
				Over 3 to			Through			Over
	0-3 Months			12 Months			5 Years			5 Years			Total
	(Dollars in Thousands)
Assets:
Cash and due from banks	$	—		$	—		$	—		$	—		$	22,592
Federal funds and overnight deposits		5,319			—			—			—			5,319
Securities		—			496			11,544			94,210			106,250
Loans		9,493			6,375			82,526			86,249			184,643
Fixed assets		—			—			—			—			3,754
Other assets		—			—			—			—			10,159
Total assets	$	14,812		$	6,871		$	94,070		$	180,459		$	332,717
Liabilities:
Demand deposit accounts	$	—		$	—		$	—		$	—		$	84,835
NOW accounts		27,386			—			—			—			27,386
Money market deposit accounts		17,470			—			—			—			17,470
Savings accounts		54,384			—			—			—			54,384
IRA accounts		1,943			8,534			17,500			935			28,912
Certificates of deposit		11,850			26,247			41,151			589			79,837
Short-term borrowings		179			—			—			—			179
Long-term borrowings		8			23			7,132			—			7,163
Other liabilities		—			—			—			—			1,059
Junior subordinated debenture		—			—			5,155			—			5,155
Stockholders’ equity:		—			—			—			—			26,337
Total liabilities and
stockholders' equity	$	113,220		$	34,804		$	70,938		$	1,524		$	332,717
GAP	$	(98,408	)	$	(27,933	)	$	23,132		$	178,935
Cumulative GAP	$	(98,408	)	$	(126,341	)	$	(103,209	)	$	75,726
Cumulative GAP as a % of total assets		-29.58	%		-37.97	%		-31.02	%		22.76	%

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

In addition to GAP analysis, the Bank utilizes a simulation model to quantify the effect a hypothetical immediate plus or minus 200 basis point change in rates would have on net interest income and the economic value of equity. The model takes into consideration the effect of call features of investments as well as prepayments of loans in periods of declining rates. When actual changes in interest rates occur, the changes in interest earning assets and interest bearing liabilities may differ from the assumptions used in the model. As of December 31, 2005, the model produced the following sensitivity profile for net interest income and the economic value of equity.

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	Immediate Change in Rates
	-200			-100			+100			+200
	Basis Points			Basis Points			Basis Points			Basis Points
% Change in Net Interest Income		-6.7	%		-1.7	%		0.2	%		-0.6	%
% Change in Economic Value of Equity		-12.0	%		-2.7	%		-2.7	%		-6.8	%

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 March 31, 2006, totaled $27,911,000, an increase of $12,461,000 (80.65%) from the December 31, 2005 total of $15,450,000.

As of March 31, 2006, the Bank was permitted to draw on a $39,800,000 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 March 31, 2006, a $7.0 million long-term convertible advance was outstanding. In addition the Bank has an unsecured line of credit in the amount of $5.0 million from another commercial bank on which it has not drawn. Furthermore, as of March 31, 2006, the Company had outstanding $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest Debentures issued to Glen Burnie Statutory Trust I, a Connecticut statutory trust subsidiary of the Company.

The Company’s stockholders’ equity decreased $288,000 (1.08%) during the three months ended March 31, 2006, due mainly to a decrease in retained earnings and in accumulated other comprehensive loss, net of tax benefits. The Company’s accumulated other comprehensive loss, net of tax benefits decreased by $674,000 (293.04%) from ($230,000) at December 31, 2005 to ($904,000) at March 31, 2006, as a result of a decrease in the market value of securities classified as available for sale. Retained earnings decreased by $83,000 (0.62%) as the result of the Company’s earnings for the three months, offset by dividends and the stock dividend being paid in January. In addition, $57,201 was transferred within stockholders’ equity in consideration for shares to be issued under the Company’s dividend reinvestment plan in lieu of cash dividends.

The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets. At March 31, 2006, the Bank was in full compliance with these guidelines with a Tier 1 leverage ratio of 10.09%, a Tier 1 risk-based capital ratio of 15.64% and a total risk-based capital ratio of 16.81%.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s accounting policies are more fully described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. As discussed there, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Management has used the best information available to make the estimations necessary to value the related assets and liabilities based on historical experience and on various assumptions which are believed to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to the financial statements. The Company reevaluates these variables as facts and circumstances change. Historically, actual results have not differed significantly from the Company’s estimates. The following is a summary of the more judgmental accounting estimates and principles involved in the preparation of the Company’s financial statements, including the identification of the variables most important in the estimation process:

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

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

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For information regarding the market risk of the Company’s financial instruments, see “Market Risk and Interest Rate Sensitivity” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 4.CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and believe that the system is effective. There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 6.EXHIBITS

Exhibit No.

3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
3.2	Articles of Amendment, dated October 8, 2003 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
3.3	Articles Supplementary, dated November 16, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December 8, 1999, File No. 0-24047)
3.4	By-Laws (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003, File No. 0-24047)
4.1	Rights Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and restated as of December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No. 0-24047)
10.1	Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No.33-62280)
10.2	The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8, File No. 333-46943)
10.3	Amended and Restated Change-in-Control Severance Plan (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001, File No. 0-24047)
10.4	The Bank of Glen Burnie Executive and Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No. 0-24047)
31.1	Rule 15d-14(a) Certification of Chief Executive Officer
31.2	Rule 15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certifications
99.1	Press Release dated April 27, 2006

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SIGNATURES

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

	GLEN BURNIE BANCORP (Registrant)
Date: April 27, 2006	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

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