SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K/A


(Amendment No. 1)





xAnnual report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 2008 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.
      Employerof
      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 RegisteredNone
                    
                    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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes  ̈No x





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 xNo o


Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 Yes  o   No 
o


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





Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.


Large
Accelerated Filer  ̈Accelerated Filer
 ̈Non-Accelerated
Filer  ̈Smaller Reporting
Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈No x





The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2008 was $26,280,443.





The
number of shares of common stock outstanding as of February 4, 2009 was
2,967,729.





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 2009 Annual
Meeting of Shareholders (to be filed).





The
Registrant hereby amends Item 15(a)(1) of its Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, which was filed with the Commission on
March 17, 2009.  The purpose of the amendment is to add the signature
of the Registrant’s Independent Registered Public Accounting Firm on its Report
included on page F-1 of the Form 10-K.
 
 PART
IV
 
 ITEM
15.  EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
 
 (a)  1. Financial
Statements.
 PageIndependent
      Auditors’ Report
                        F-1Consolidated
      Balance Sheets as of December 31, 2008, 2007 and 2006
                        F-2Consolidated
      Statements of Income for the Years Ended December 31, 2008, 2007 and
      2006
                        F-3Consolidated
      Statements of Comprehensive Income for the Years Ended December 31,
      2008,2007
      and 2006
                        F-4Consolidated
      Statements of Changes in Stockholders’ Equity for the Years
      EndedDecember
      31, 2008, 2007 and 2006
                        F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
      2006
                        F-6Notes
      to Consolidated Financial Statements
                        F-8
 
 (a)  3.
Exhibits required to be filed by Item 601 of Regulation S-K.
 
 Exhibit
No.
 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


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 BANCORPNovember
      12, 2009
              By:
              /s/ Michael G.
LivingstonMichael
      G. LivingstonPresident
      and Chief Executive
Officer





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 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, 2008, 2007, and 2006, and the related
consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for each of the years then
ended.  Glen Burnie Bancorp and subsidiaries’ management is
responsible for these consolidated financial statements.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  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.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, 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, 2008, 2007, and 2006, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
 
 /s/
Trice, Gary & Myers LLC
 Salisbury,
Maryland
 March 9,
2009
  F-1
   Glen Burnie Bancorp and Subsidiaries
 
 Consolidated
Balance Sheets
  
 
 December
      31,
                                                              
                                                              2008
                                                              
                                                              
                                                              2007
                                                              
                                                              
                                                              2006AssetsCash
      and due from banks
                                                              
                                                              $
                                                              6,960,377
                                                              
                                                              
                                                              $
                                                              8,220,582
                                                              
                                                              
                                                              $
                                                              9,005,691Interest-bearing
      deposits in other financial institutions
                                                              
                                                              
                                                              7,883,816
                                                              
                                                              
                                                              
                                                              5,847,562
                                                              
                                                              
                                                              
                                                              342,309Federal
      funds sold
                                                              
                                                              
                                                              6,393,710
                                                              
                                                              
                                                              
                                                              726,916
                                                              
                                                              
                                                              
                                                              3,971,978Cash
      and cash equivalents
                                                              
                                                              
                                                              21,237,903
                                                              
                                                              
                                                              
                                                              14,795,060
                                                              
                                                              
                                                              
                                                              13,319,978Investment
      securities available for sale, at fair value
                                                              
                                                              
                                                              57,948,645
                                                              
                                                              
                                                              
                                                              77,182,181
                                                              
                                                              
                                                              
                                                              95,811,296Investment
      securities held to maturity (fair value 2007 $726,193; 2006
      $729,960)
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              683,832
                                                              
                                                              
                                                              
                                                              683,363Federal
      Home Loan Bank stock, at cost
                                                              
                                                              
                                                              1,767,600
                                                              
                                                              
                                                              
                                                              1,381,900
                                                              
                                                              
                                                              
                                                              928,000Maryland
      Financial Bank stock, at cost
                                                              
                                                              
                                                              100,000
                                                              
                                                              
                                                              
                                                              100,000
                                                              
                                                              
                                                              
                                                              100,000Common
      stock in the Glen Burnie Statutory Trust I
                                                              
                                                              
                                                              155,000
                                                              
                                                              
                                                              
                                                              155,000
                                                              
                                                              
                                                              
                                                              155,000Ground
      rents, at cost
                                                              
                                                              
                                                              184,900
                                                              
                                                              
                                                              
                                                              202,900
                                                              
                                                              
                                                              
                                                              219,100Loans,
      less allowance for credit losses 2008 $2,021,690;2007
      $1,604,491; 2006 $1,839,094
                                                              
                                                              
                                                              235,132,621
                                                              
                                                              
                                                              
                                                              199,753,132
                                                              
                                                              
                                                              
                                                              193,336,604Premises
      and equipment, at cost, less accumulated depreciation
                                                              
                                                              
                                                              3,099,448
                                                              
                                                              
                                                              
                                                              3,087,908
                                                              
                                                              
                                                              
                                                              3,406,014Accrued
      interest receivable on loans and investment securities
                                                              
                                                              
                                                              1,680,392
                                                              
                                                              
                                                              
                                                              1,508,640
                                                              
                                                              
                                                              
                                                              1,627,433Deferred
      income tax benefits
                                                              
                                                              
                                                              2,286,483
                                                              
                                                              
                                                              
                                                              453,512
                                                              
                                                              
                                                              
                                                              292,131Other
      real estate owned
                                                              
                                                              
                                                              550,000
                                                              
                                                              
                                                              
                                                              50,000
                                                              
                                                              
                                                              
                                                              50,000Cash
      value of life insurance
                                                              
                                                              
                                                              7,434,573
                                                              
                                                              
                                                              
                                                              7,161,403
                                                              
                                                              
                                                              
                                                              6,892,455Other
      assets
                                                              
                                                              
                                                              924,650
                                                              
                                                              
                                                              
                                                              758,400
                                                              
                                                              
                                                              
                                                              924,227Total
    assets
                                                              
                                                              $
                                                              332,502,215
                                                              
                                                              
                                                              $
                                                              307,273,868
                                                              
                                                              
                                                              $
                                                              317,745,601Liabilities
      and Stockholders' EquityLiabilities:Deposits:Noninterest-bearing
                                                              
                                                              $
                                                              63,538,759
                                                              
                                                              
                                                              $
                                                              68,760,373
                                                              
                                                              
                                                              $
                                                              74,729,298Interest-bearing
                                                              
                                                              
                                                              206,228,839
                                                              
                                                              
                                                              
                                                              184,156,393
                                                              
                                                              
                                                              
                                                              200,104,159Total
      deposits
                                                              
                                                              
                                                              269,767,598
                                                              
                                                              
                                                              
                                                              252,916,766
                                                              
                                                              
                                                              
                                                              274,833,457Short-term
      borrowings
                                                              
                                                              
                                                              629,855
                                                              
                                                              
                                                              
                                                              502,529
                                                              
                                                              
                                                              
                                                              545,349Long-term
      borrowings
                                                              
                                                              
                                                              27,071,712
                                                              
                                                              
                                                              
                                                              17,107,135
                                                              
                                                              
                                                              
                                                              7,140,170Junior
      subordinated debentures owed to unconsolidated subsidiary
      trust
                                                              
                                                              
                                                              5,155,000
                                                              
                                                              
                                                              
                                                              5,155,000
                                                              
                                                              
                                                              
                                                              5,155,000Dividends
      payable
                                                              
                                                              
                                                              385,794
                                                              
                                                              
                                                              
                                                              385,010
                                                              
                                                              
                                                              
                                                              366,580Accrued
      interest payable on deposits
                                                              
                                                              
                                                              139,579
                                                              
                                                              
                                                              
                                                              134,274
                                                              
                                                              
                                                              
                                                              145,642Accrued
      interest payable on junior subordinated debentures
                                                              
                                                              
                                                              171,518
                                                              
                                                              
                                                              
                                                              171,518
                                                              
                                                              
                                                              
                                                              171,518Other
      liabilities
                                                              
                                                              
                                                              1,272,907
                                                              
                                                              
                                                              
                                                              1,165,482
                                                              
                                                              
                                                              
                                                              1,187,372Total
      liabilities
                                                              
                                                              
                                                              304,593,963
                                                              
                                                              
                                                              
                                                              277,537,714
                                                              
                                                              
                                                              
                                                              289,545,088Commitments
      and contingenciesStockholders'
      equity:Common
      stock, par value $1, authorized 15,000,000 shares; issued and outstanding
      2008 2,967,727
      shares; 2007 2,498,465 shares; 2006 2,484,633 shares;
                                                              
                                                              
                                                              2,967,727
                                                              
                                                              
                                                              
                                                              2,498,465
                                                              
                                                              
                                                              
                                                              2,484,633Surplus
                                                              
                                                              
                                                              11,568,241
                                                              
                                                              
                                                              
                                                              11,921,129
                                                              
                                                              
                                                              
                                                              11,719,907Retained
      earnings
                                                              
                                                              
                                                              14,129,637
                                                              
                                                              
                                                              
                                                              15,750,156
                                                              
                                                              
                                                              
                                                              14,312,496Accumulated
      other comprehensive loss, net of tax
                                                              
                                                              
                                                              (757,353
                                                              )
                                                              
                                                              
                                                              (433,596
                                                              )
                                                              
                                                              
                                                              (316,523
                                                              )Total
      stockholders' equity
                                                              
                                                              
                                                              27,908,252
                                                              
                                                              
                                                              
                                                              29,736,154
                                                              
                                                              
                                                              
                                                              28,200,513Total
      liabilities and stockholders' equity
                                                              
                                                              $
                                                              332,502,215
                                                              
                                                              
                                                              $
                                                              307,273,868
                                                              
                                                              
                                                              $
                                                              317,745,601
 
 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,
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Interest
      income on:Loans,
      including fees
                        
                        $
                        14,456,017
                        
                        
                        $
                        13,326,693
                        
                        
                        $
                        11,830,676U.S.
      Government agency securities
                        
                        
                        1,962,553
                        
                        
                        
                        2,553,527
                        
                        
                        
                        3,347,090State
      and municipal securities
                        
                        
                        1,410,676
                        
                        
                        
                        1,451,540
                        
                        
                        
                        1,653,109Corporate
      trust preferred securities
                        
                        
                        192,749
                        
                        
                        
                        250,526
                        
                        
                        
                        374,588Federal
      funds sold
                        
                        
                        5,034
                        
                        
                        
                        139,075
                        
                        
                        
                        200,418Other
                        
                        
                        149,007
                        
                        
                        
                        115,895
                        
                        
                        
                        249,315Total
      interest income
                        
                        
                        18,176,036
                        
                        
                        
                        17,837,256
                        
                        
                        
                        17,655,196Interest
      expense on:Deposits
                        
                        
                        4,780,185
                        
                        
                        
                        4,824,425
                        
                        
                        
                        4,780,871Short-term
      borrowings
                        
                        
                        50,567
                        
                        
                        
                        119,101
                        
                        
                        
                        80,994Long-term
      borrowings
                        
                        
                        877,101
                        
                        
                        
                        481,092
                        
                        
                        
                        425,470Junior
      subordinated debentures
                        
                        
                        546,180
                        
                        
                        
                        546,430
                        
                        
                        
                        546,430Total
      interest expense
                        
                        
                        6,254,033
                        
                        
                        
                        5,971,048
                        
                        
                        
                        5,833,765Net
      interest income
                        
                        
                        11,922,003
                        
                        
                        
                        11,866,208
                        
                        
                        
                        11,821,431Provision
      for credit losses
                        
                        
                        1,145,649
                        
                        
                        
                        50,000
                        
                        
                        
                        62,000Net
      interest income after provision for credit losses
                        
                        
                        10,776,354
                        
                        
                        
                        11,816,208
                        
                        
                        
                        11,759,431Other
      income:Service
      charges on deposit accounts
                        
                        
                        737,070
                        
                        
                        
                        814,392
                        
                        
                        
                        831,140Other
      fees and commissions
                        
                        
                        849,417
                        
                        
                        
                        953,873
                        
                        
                        
                        1,026,144Gains
      on investment securities, net
                        
                        
                        190,930
                        
                        
                        
                        120,079
                        
                        
                        
                        176,453Income
      on life insurance
                        
                        
                        273,170
                        
                        
                        
                        268,948
                        
                        
                        
                        210,653Total
      other income
                        
                        
                        2,050,587
                        
                        
                        
                        2,157,292
                        
                        
                        
                        2,244,390Other
      expenses:Salaries
      and wages
                        
                        
                        4,694,461
                        
                        
                        
                        4,623,067
                        
                        
                        
                        4,769,495Employee
      benefits
                        
                        
                        1,525,023
                        
                        
                        
                        1,702,535
                        
                        
                        
                        1,748,294Occupancy
                        
                        
                        903,976
                        
                        
                        
                        886,345
                        
                        
                        
                        850,843Furniture
      and equipment
                        
                        
                        754,191
                        
                        
                        
                        844,147
                        
                        
                        
                        864,151Impairment
      loss on investment securities
                        
                        
                        2,816,000
                        
                        
                        
                        -
                        
                        
                        
                        -Other
      expenses
                        
                        
                        2,408,690
                        
                        
                        
                        2,376,925
                        
                        
                        
                        2,363,878Total
      other expenses
                        
                        
                        13,102,341
                        
                        
                        
                        10,433,019
                        
                        
                        
                        10,596,661(Loss)
      income before income taxes (benefits)
                        
                        
                        (275,400
                        )
                        
                        
                        3,540,481
                        
                        
                        
                        3,407,160Federal
      and state income taxes (benefits)
                        
                        
                        (679,362
                        )
                        
                        
                        758,340
                        
                        
                        
                        687,115Net
      income
                        
                        $
                        403,962
                        
                        
                        $
                        2,782,141
                        
                        
                        $
                        2,720,045Basic
      and diluted earnings per share of common stock
                        
                        $
                        0.14
                        
                        
                        $
                        0.93
                        
                        
                        $
                        0.92
 
 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,
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Net
      income
                        
                        $
                        403,962
                        
                        
                        $
                        2,782,141
                        
                        
                        $
                        2,720,045Other
      comprehensive loss, net of taxUnrealized
      holding losses arising during the period (net of deferred tax benefits
      2008 $1,264,081;
      2007 $23,422; 2006 $6,826)
                        
                        
                        (1,913,998
                        )
                        
                        
                        (37,231
                        )
                        
                        
                        (10,849
                        )Reclassification
      adjustment for impairment loss included in net income (net of deferred tax
      benefits2008
      $1,110,771)
                        
                        
                        1,705,229
                        
                        
                        
                        -
                        
                        
                        
                        -Reclassification
      adjustment for gains included in net income (net of deferred taxes 2008 $75,942; 2007
      $50,237; 2006 $47,522)
                        
                        
                        (114,988
                        )
                        
                        
                        (79,842
                        )
                        
                        
                        (75,529
                        )Total
      other comprehensive loss
                        
                        
                        (323,757
                        )
                        
                        
                        (117,073
                        )
                        
                        
                        (86,378
                        )Comprehensive
      income
                        
                        $
                        80,205
                        
                        
                        $
                        2,665,068
                        
                        
                        $
                        2,633,667
 
 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, 2008, 2007, and 2006
 
 AccumulatedOther
                        
                        
                        TotalCommon Stock
                        
                        
                        
                        
                        
                        Retained
                        
                        
                        Comprehensive
                        
                        
                        Stockholders'Shares
                        
                        
                        Par Value
                        
                        
                        Surplus
                        
                        
                        Earnings
                        
                        
                        Loss
                        
                        
                        EquityBalances,
      December 31, 2005
                        
                        
                        2,056,024
                        
                        
                        $
                        2,056,024
                        
                        
                        $
                        11,458,465
                        
                        
                        $
                        13,341,097
                        
                        
                        $
                        (230,145
                        )
                        
                        $
                        26,625,441Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,720,045
                        
                        
                        
                        -
                        
                        
                        
                        2,720,045Cash
      dividends, $.45 per share
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,337,545
                        )
                        
                        
                        -
                        
                        
                        
                        (1,337,545
                        )Dividends
      reinvested under dividend reinvestment plan
                        
                        
                        15,113
                        
                        
                        
                        15,113
                        
                        
                        
                        229,946
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        245,059Shares
      issued under employee stock purchase plan
                        
                        
                        2,395
                        
                        
                        
                        2,395
                        
                        
                        
                        31,496
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        33,891Stock
      split effected in form of 20% stock dividend
                        
                        
                        411,101
                        
                        
                        
                        411,101
                        
                        
                        
                        
                        
                        
                        
                        (411,101
                        )
                        
                        
                        
                        
                        
                        
                        -Other
      comprehensive loss, net of tax
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (86,378
                        )
                        
                        
                        (86,378
                        )Balances,
      December 31, 2006
                        
                        
                        2,484,633
                        
                        
                        
                        2,484,633
                        
                        
                        
                        11,719,907
                        
                        
                        
                        14,312,496
                        
                        
                        
                        (316,523
                        )
                        
                        
                        28,200,513Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,782,141
                        
                        
                        
                        -
                        
                        
                        
                        2,782,141Cash
      dividends, $.45 per share
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,344,481
                        )
                        
                        
                        -
                        
                        
                        
                        (1,344,481
                        )Dividends
      reinvested under dividend reinvestment plan
                        
                        
                        12,791
                        
                        
                        
                        12,791
                        
                        
                        
                        187,668
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        200,459Shares
      issued under employee stock purchase plan
                        
                        
                        1,041
                        
                        
                        
                        1,041
                        
                        
                        
                        13,554
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        14,595Other
      comprehensive loss, net of tax
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (117,073
                        )
                        
                        
                        (117,073
                        )Balances,
      December 31, 2007
                        
                        
                        2,498,465
                        
                        
                        
                        2,498,465
                        
                        
                        
                        11,921,129
                        
                        
                        
                        15,750,156
                        
                        
                        
                        (433,596
                        )
                        
                        
                        29,736,154Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        403,962
                        
                        
                        
                        -
                        
                        
                        
                        403,962Cummulative
      effect of adoption of EITF 06-04
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (179,794
                        )
                        
                        
                        -
                        
                        
                        
                        (179,794
                        )Shares
      repurchased and retired
                        
                        
                        (50,300
                        )
                        
                        
                        (50,300
                        )
                        
                        
                        (526,939
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (577,239
                        )Cash
      dividends, $.45 per share
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,345,128
                        )
                        
                        
                        -
                        
                        
                        
                        (1,345,128
                        )Dividends
      reinvested under dividend reinvestment plan
                        
                        
                        20,003
                        
                        
                        
                        20,003
                        
                        
                        
                        174,051
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        194,054Stock
      split effected in form of 20% stock dividend
                        
                        
                        499,559
                        
                        
                        
                        499,559
                        
                        
                        
                        -
                        
                        
                        
                        (499,559
                        )
                        
                        
                        -
                        
                        
                        
                        -Other
      comprehensive loss, net of tax
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (323,757
                        )
                        
                        
                        (323,757
                        )Balances,
      December 31, 2008
                        
                        
                        2,967,727
                        
                        
                        $
                        2,967,727
                        
                        
                        $
                        11,568,241
                        
                        
                        $
                        14,129,637
                        
                        
                        $
                        (757,353
                        )
                        
                        $
                        27,908,252
  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,
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Cash
      flows from operating activities:Net
      income
                                    
                                    $
                                    403,962
                                    
                                    
                                    $
                                    2,782,141
                                    
                                    
                                    $
                                    2,720,045Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation,
      amortization, and accretion
                                    
                                    
                                    421,229
                                    
                                    
                                    
                                    496,172
                                    
                                    
                                    
                                    571,741Provision
      for credit losses
                                    
                                    
                                    1,145,649
                                    
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    62,000Deferred
      income (benefits) taxes, net
                                    
                                    
                                    (1,605,603
                                    )
                                    
                                    
                                    (87,720
                                    )
                                    
                                    
                                    26,357Gains
      on disposals of assets, net
                                    
                                    
                                    (173,393
                                    )
                                    
                                    
                                    (119,652
                                    )
                                    
                                    
                                    (175,634
                                    )Impairment
      losses on investment securities
                                    
                                    
                                    2,816,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Income
      on investment in life insurance
                                    
                                    
                                    (273,170
                                    )
                                    
                                    
                                    (268,948
                                    )
                                    
                                    
                                    (210,653
                                    )Changes
      in assets and liabilities:(Increase)
      decrease in accrued interest receivable
                                    
                                    
                                    (171,752
                                    )
                                    
                                    
                                    118,793
                                    
                                    
                                    
                                    (175,627
                                    )(Increase)
      decrease in other assets
                                    
                                    
                                    (118,962
                                    )
                                    
                                    
                                    106,163
                                    
                                    
                                    
                                    38,161Increase
      (decrease) in accrued interest payable
                                    
                                    
                                    5,305
                                    
                                    
                                    
                                    (11,368
                                    )
                                    
                                    
                                    62,531(Decrease)
      increase in other liabilities
                                    
                                    
                                    (72,369
                                    )
                                    
                                    
                                    (21,890
                                    )
                                    
                                    
                                    41,751Net
      cash provided by operating activities
                                    
                                    
                                    2,376,896
                                    
                                    
                                    
                                    3,043,691
                                    
                                    
                                    
                                    2,960,672Cash
      flows from investing activities:Maturities
      of held to maturity mortgage-backed securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    468,199Maturities
      of available for sale mortgage-backed securities
                                    
                                    
                                    4,402,208
                                    
                                    
                                    
                                    7,301,634
                                    
                                    
                                    
                                    9,331,430Maturities
      of other available for sale investment securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    300,000
                                    
                                    
                                    
                                    4,330,544Sales
      of held to maturity debt securities
                                    
                                    
                                    684,100
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Sales
      of available for sale debt securities
                                    
                                    
                                    25,977,280
                                    
                                    
                                    
                                    17,889,342
                                    
                                    
                                    
                                    22,431,078Purchases
      of available for sale mortgage-backed securities
                                    
                                    
                                    (981,811
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (25,365,231
                                    )Purchases
      of other available for sale investment securities
                                    
                                    
                                    (13,318,481
                                    )
                                    
                                    
                                    (6,907,162
                                    )
                                    
                                    
                                    (20,398,575
                                    )Purchase
      of FHLB stock
                                    
                                    
                                    (385,700
                                    )
                                    
                                    
                                    (453,900
                                    )
                                    
                                    
                                    (9,100
                                    )Purchase
      of life insurance contracts
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,000,000
                                    )Increase
      in loans, net
                                    
                                    
                                    (36,525,138
                                    )
                                    
                                    
                                    (6,466,528
                                    )
                                    
                                    
                                    (3,193,606
                                    )Purchases
      of premises and equipment
                                    
                                    
                                    (501,717
                                    )
                                    
                                    
                                    (128,452
                                    )
                                    
                                    
                                    (131,821
                                    )Net
      cash (used) provided by investing activities
                                    
                                    
                                    (20,649,259
                                    )
                                    
                                    
                                    11,534,934
                                    
                                    
                                    
                                    (13,537,082
                                    )Cash
      flows from financing activities:Decrease
      in noninterest-bearing deposits, NOW accounts, money market accounts, and
      savings accounts, net
                                    
                                    
                                    (5,221,614
                                    )
                                    
                                    
                                    (5,968,925
                                    )
                                    
                                    
                                    (4,584,623
                                    )Increase
      (decrease) in time deposits, net
                                    
                                    
                                    22,072,446
                                    
                                    
                                    
                                    (15,947,766
                                    )
                                    
                                    
                                    14,169,812Increase
      (decrease) in short-term borrowings
                                    
                                    
                                    127,326
                                    
                                    
                                    
                                    (42,820
                                    )
                                    
                                    
                                    (76,701
                                    )Proceeds
      from long-term borrowings
                                    
                                    
                                    10,000,000
                                    
                                    
                                    
                                    10,000,000
                                    
                                    
                                    
                                    -Repayments
      of long-term borrowings
                                    
                                    
                                    (35,423
                                    )
                                    
                                    
                                    (33,035
                                    )
                                    
                                    
                                    (30,807
                                    )Cash
      dividends paid
                                    
                                    
                                    (1,344,344
                                    )
                                    
                                    
                                    (1,326,051
                                    )
                                    
                                    
                                    (1,309,970
                                    )Common
      stock dividends reinvested
                                    
                                    
                                    194,054
                                    
                                    
                                    
                                    200,459
                                    
                                    
                                    
                                    245,059Repurchase
      and retirement of common stock
                                    
                                    
                                    (577,239
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Issuance
      of common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    14,595
                                    
                                    
                                    
                                    33,891Net
      cash provided (used) by financing activities
                                    
                                    
                                    25,215,206
                                    
                                    
                                    
                                    (13,103,543
                                    )
                                    
                                    
                                    8,446,661Increase
      (decrease) in cash and cash equivalents
                                    
                                    
                                    6,942,843
                                    
                                    
                                    
                                    1,475,082
                                    
                                    
                                    
                                    (2,129,749
                                    )Cash
      and cash equivalents, beginning of year
                                    
                                    
                                    14,795,060
                                    
                                    
                                    
                                    13,319,978
                                    
                                    
                                    
                                    15,449,727Cash
      and cash equivalents, end of year
                                    
                                    $
                                    21,737,903
                                    
                                    
                                    $
                                    14,795,060
                                    
                                    
                                    $
                                    13,319,978
 
 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,
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Supplementary Cash Flow
      Information:Interest
      paid
                  
                  $
                  6,248,728
                  
                  
                  $
                  5,982,416
                  
                  
                  $
                  5,771,234Income
      taxes paid
                  
                  
                  600,000
                  
                  
                  
                  886,156
                  
                  
                  
                  626,374Total
      increase in unrealized depreciation on available for sale
      securities
                  
                  
                  (551,125
                  )
                  
                  
                  (190,732
                  )
                  
                  
                  (140,725
                  )
  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 and
financial reporting policies of the Bank conform, in all material respects, to
accounting principles generally accepted in the United States 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
(“Bancorp” or 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 21) of the
Company account for the subsidiaries using the equity method of
accounting.
 
 The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity under accounting principles generally accepted in the United
States.  Voting interest entities are entities, in which the total
equity investment at risk is sufficient to enable the entity to finance itself
independently and provides the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make decisions
about the entity’s activities.  The Company consolidates voting
interest entities in which it has all, or at least a majority of, the voting
interest.  As defined in applicable accounting standards, variable
interest entities (VIE’s) are entities that lack one or more of the
characteristics of a voting interest entity.  A controlling financial
interest in an entity is present when an enterprise has a variable interest, or
a combination of variable interest, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s expected residual returns,
or both.  The enterprise with a controlling financial interest, known
as the primary beneficiary, consolidates the VIE.  The Company’s
wholly owned subsidiary, Glen Burnie Statutory Trust I, is a VIE for which the
Company is not the primary beneficiary.  Accordingly, the accounts of
this entity are not included in the Company’s consolidated financial
statements.
 
 Use of Estimates:
 
 The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted within the United States of America
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.
  F-8
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1.  Summary of
Significant Accounting Policies(continued)
 
 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, net of
tax.  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.
  Other
Securities:
 
 Federal
Home Loan Bank (“FHLB”) and Maryland Financial Bank (“MFB”) stocks are equity
interests that do not necessarily have readily determinable fair values for
purposes of Statement of Financial Accounting Standards (“SFAS”) No 115, Accounting for Certain Investments
in Debt and Equity Securities, because their ownership is restricted and
they lack 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 ninety 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 loan losses is maintained at a level believed adequate by
management to absorb probable losses inherent in the loan portfolio and is based
on the size and current risk characteristics of the loan portfolio, an
assessment of individual problem loans and actual loss experience, current
economic events in specific industries and geographical areas, including
unemployment levels, and other pertinent factors, including regulatory guidance
and general economic conditions.  Determination of the allowance is
inherently subjective as it requires significant estimates, including the
amounts and timing of expected future cash flows on impaired loans, estimated
losses on pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends, all of which may be susceptible to
significant change.  Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to
the allowance.  A provision for loan losses is charged to operations
based on management’s periodic evaluation of the factors previously mentioned,
as well as other pertinent factors.  Evaluations are conducted at
least quarterly and more often if deemed necessary.
 
 The
allowance for loan losses typically consists of an allocated component and an
unallocated component.  The components of the allowance for loan
losses represent an estimation done pursuant to either SFAS No 5, Accounting for
Contingencies, or SFAS No 114, Accounting by Creditors for Impairment of a
Loan.  The allocated component of the allowance for loan losses
reflects expected
  F-9
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1.  Summary of
Significant Accounting Policies(continued)
 
 Any
unallocated portion of the allowance reflects management’s estimate of probable
inherent but undetected losses within the portfolio due to uncertainties in
economic conditions, delays in obtaining information, including unfavorable
information about a borrower’s financial condition, the difficulty in
identifying triggering events that correlate perfectly to subsequent loss rates,
and risk factors that have not yet manifested themselves in loss allocation
factors.  In addition, the unallocated allowance includes a component
that explicitly accounts for the inherent imprecision in loan loss migration
models.  The historical losses used in the migration analysis may not
be representative of actual unrealized losses inherent in the
portfolio.  At December 31, 2008, there was approximately a $33,000 unallocated component
of the allowance reflected in the allowance for credit losses.
 
 Reserve for Unfunded
Commitments:
 
 The
reserve for unfunded commitments is established through a provision for unfunded
commitments charged to other expenses.  The reserve is calculated by
utilizing the same methodology and factors as  the allowance for
credit losses.  The reserve, based on evaluations of the
collectibiltiy of loans and prior loan loss experience, is an amount that
management believes will be adequate to absorb possible losses on unfunded
commitments (off-balance sheet financial instruments) that may become
uncollectible in the future.
 
 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 $550,000 for the
year ended December 31, 2008.  No loans were converted to OREO in 2007
or 2006.  The Bank financed no sales of OREO for 2008, 2007, or
2006.
 
 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 that 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.
  F-10
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1.  Summary of
Significant Accounting Policies(continued)
 
 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. 144, Accounting for the Impairment or
Disposal of Long-Lived Asset.  As of December 31, 2008, 2007,
and 2006, certain loans existed which management considered impaired (See Note
4).  During the year ended December 31, 2008, management deemed
certain investment securities were impaired and recorded an impairment loss on
these securities (See Note 3).
 
 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 benefits relate principally to
accrued deferred compensation, accumulated impairment losses on investment
securities, allowance for credit losses, unused alternative minimum tax credits,
net unrealized depreciation on investment securities available for sale, and
reserve for unfunded commitments.
 
 Temporary
differences which give rise to deferred tax liabilities relate principally to
accumulated depreciation, and accumulated securities discount
accretion.
 
 Credit Risk:
 
 The Bank
has unsecured deposits and Federal funds sold with several other financial
institutions in excess of amounts insured by the Federal Deposit Insurance
Corporation (“FDIC”).
 
 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.
 
 Accounting for Stock
Options:
 
 The
Company follows SFAS No. 123R, Share-Based Payments, for
accounting and reporting for stock-based compensation plans.  SFAS No.
123R defines a fair value at grant date based method of accounting for measuring
compensation expense for stock-based plans to be recognized in the statement of
income.
 
 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 are 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.
  F-11
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1.  Summary of
Significant Accounting Policies(continued)
 
 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 $4,781,000,$5,368,000, and
$5,530,000 during the years ended December 31, 2008, 2007, and 2006,
respectively.
 
 Note
3.  Investment Securities
 
 Investment
securities are summarized as follows:
 
 Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairDecember 31, 2008
                      
                      Cost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueAvailable for
      sale:U.S.
      Government agencies
                      
                      $
                      8,686,877
                      
                      
                      $
                      191,455
                      
                      
                      $
                      140,280
                      
                      
                      $
                      8,738,052State
      and municipal
                      
                      
                      31,466,012
                      
                      
                      
                      235,128
                      
                      
                      
                      979,935
                      
                      
                      
                      30,721,205Corporate
      trust preferred
                      
                      
                      2,168,928
                      
                      
                      
                      -
                      
                      
                      
                      971,426
                      
                      
                      
                      1,197,502Mortgage-backed
                      
                      
                      16,884,368
                      
                      
                      
                      413,682
                      
                      
                      
                      6,164
                      
                      
                      
                      17,291,886$
                      59,206,185
                      
                      
                      $
                      840,265
                      
                      
                      $
                      2,097,805
                      
                      
                      $
                      57,948,645
  Gross
                        
                        
                        GrossAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairDecember 31, 2007
                        
                        Cost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueAvailable
      for sale:U.S.
      Government agencies
                        
                        $
                        8,489,126
                        
                        
                        $
                        44,593
                        
                        
                        $
                        761,906
                        
                        
                        $
                        7,771,813State
      and municipal
                        
                        
                        31,627,159
                        
                        
                        
                        272,449
                        
                        
                        
                        164,764
                        
                        
                        
                        31,734,844Corporate
      trust preferred
                        
                        
                        2,167,271
                        
                        
                        
                        253,283
                        
                        
                        
                        -
                        
                        
                        
                        2,420,554Mortgage-backed
                        
                        
                        35,605,038
                        
                        
                        
                        110,145
                        
                        
                        
                        460,213
                        
                        
                        
                        35,254,970$
                        77,888,594
                        
                        
                        $
                        680,470
                        
                        
                        $
                        1,386,883
                        
                        
                        $
                        77,182,181Held
      to maturity:State
      and municipal
                        
                        $
                        683,832
                        
                        
                        $
                        42,361
                        
                        
                        $
                        -
                        
                        
                        $
                        726,193$
                        683,832
                        
                        
                        $
                        42,361
                        
                        
                        $
                        -
                        
                        
                        $
                        726,193
  F-12
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 3.  Investment
Securities(continued)
 
 December 31, 2006
                                
                                Amortized
                                  Cost
                                
                                
                                Gross
                                  Unrealized
                                  Gains
                                
                                
                                Gross
                                  Unrealized
                                  Losses
                                
                                
                                Fair ValueAvailable for
      sale:U.S.
      Government agencies
                                
                                $
                                11,484,102
                                
                                
                                $
                                6,250
                                
                                
                                $
                                299,634
                                
                                
                                $
                                11,190,718State
      and municipal
                                
                                
                                36,127,782
                                
                                
                                
                                429,062
                                
                                
                                
                                179,207
                                
                                
                                
                                36,377,637Corporate
      trust preferred
                                
                                
                                3,079,958
                                
                                
                                
                                372,316
                                
                                
                                
                                -
                                
                                
                                
                                3,452,274Mortgage-backed
                                
                                
                                45,635,133
                                
                                
                                
                                39,152
                                
                                
                                
                                883,618
                                
                                
                                
                                44,790,667$
                                96,326,975
                                
                                
                                $
                                846,780
                                
                                
                                $
                                1,362,459
                                
                                
                                $
                                95,811,296Held
      to maturity:State
      and municipal
                                
                                $
                                683,363
                                
                                
                                $
                                46,597
                                
                                
                                $
                                -
                                
                                
                                $
                                729,960$
                                683,363
                                
                                
                                $
                                46,597
                                
                                
                                $
                                -
                                
                                
                                $
                                729,960
 
 The gross
unrealized losses and fair value, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2008 are as follows:
 
 Securities available for sale:
 
 Less than 12 months
                  
                  
                  12 months or more
                  
                  
                  TotalFair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  Fair
                  
                  
                  UnrealizedValue
                  
                  
                  Loss
                  
                  
                  Value
                  
                  
                  Loss
                  
                  
                  Value
                  
                  
                  LossObligations
      of U.S.Government
      agencies
                  
                  $
                  1,026,580
                  
                  
                  $
                  45,420
                  
                  
                  $
                  13,500
                  
                  
                  $
                  94,860
                  
                  
                  $
                  1,040,080
                  
                  
                  $
                  140,280State
      and Municipal
                  
                  
                  14,504,594
                  
                  
                  
                  670,225
                  
                  
                  
                  3,436,150
                  
                  
                  
                  309,710
                  
                  
                  
                  17,940,744
                  
                  
                  
                  979,935Corporate
      trust preferred
                  
                  
                  1,197,502
                  
                  
                  
                  971,426
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,197,502
                  
                  
                  
                  971,426Mortgaged-backed
                  
                  
                  1,001,761
                  
                  
                  
                  6,164
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,001,761
                  
                  
                  
                  6,164$
                  17,730,437
                  
                  
                  $
                  1,693,235
                  
                  
                  $
                  3,449,650
                  
                  
                  $
                  404,570
                  
                  
                  $
                  21,180,087
                  
                  
                  $
                  2,097,805
 
 In
September 2008, Freddie Mac and Fannie Mae government sponsored entities entered
into conservatorship agreements with the U.S. Treasury
Department.  This conservatorship precludes these entities from paying
preferred stock dividends.  As a result, the market values declined
significantly and the Company recorded an impairment loss of $2,816,000 during
the year ended December 31, 2008.  The write down represented 94% of
the initial investment in these securities.
 
 Declines
in the fair value of held to maturity and available for sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses.  In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
 
 As of
December 31, 2008, management had the ability and intent to hold the securities
classified as available for sale for a period of time sufficient for a recovery
of cost.  On December 31, 2008, the Bank held 14 investment securities
having continuous unrealized loss positions for more than 12
  F-13
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 3.  Investment
Securities(continued)
 
 months.  Management
has determined that all unrealized losses are either due to increases in market
interest rates over the yields available at the time the underlying securities
were purchased, current call features that are nearing, and the effect the
sub-prime market has had on all mortgaged-backed securities.  The Bank
has no mortgaged-backed securities collateralized by sub-prime
mortgages.  The fair value is expected to recover as the bonds
approach their maturity date or repricing date or if market yields for such
investments decline.  Management does not believe any of the
securities are impaired due to reasons of credit
quality.  Accordingly, as of December 31, 2008, management believes
the impairments detailed in the table above are temporary and no impairment loss
has been realized in the Company’s consolidated income statement.
 
 Contractual
maturities of investment securities at December 31, 2008, 2007, and 2006 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.
 Available
      for Sale
                                  
                                  
                                  Held
      to MaturityAmortized
                                  
                                  
                                  Fair
                                  
                                  
                                  Amortized
                                  
                                  
                                  FairDecember 31, 2008
                                  
                                  Cost
                                  
                                  
                                  Value
                                  
                                  
                                  Cost
                                  
                                  
                                  ValueDue
      within one year
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Due
      over one to five years
                                  
                                  
                                  4,577,077
                                  
                                  
                                  
                                  4,560,487Due
      over five to ten years
                                  
                                  
                                  5,563,224
                                  
                                  
                                  
                                  5,685,637Due
      over ten years
                                  
                                  
                                  32,181,516
                                  
                                  
                                  
                                  30,410,635Mortgage-backed,
      due in monthly installments
                                  
                                  
                                  16,884,368
                                  
                                  
                                  
                                  17,291,886$
                                  59,206,185
                                  
                                  
                                  $
                                  57,948,645December 31, 2007Due
      within one year
                                  
                                  $
                                  1,000,000
                                  
                                  
                                  $
                                  996,094
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Due
      over one to five years
                                  
                                  
                                  9,638,992
                                  
                                  
                                  
                                  9,635,177
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Due
      over five to ten years
                                  
                                  
                                  4,089,402
                                  
                                  
                                  
                                  4,068,131
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Due
      over ten years
                                  
                                  
                                  27,555,162
                                  
                                  
                                  
                                  27,227,809
                                  
                                  
                                  
                                  683,832
                                  
                                  
                                  
                                  726,193Mortgage-backed,
      due in monthly installments
                                  
                                  
                                  35,605,038
                                  
                                  
                                  
                                  35,254,970
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -$
                                  77,888,594
                                  
                                  
                                  $
                                  77,182,181
                                  
                                  
                                  $
                                  683,832
                                  
                                  
                                  $
                                  726,193December 31, 2006Due
      within one year
                                  
                                  $
                                  300,989
                                  
                                  
                                  $
                                  298,897
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Due
      over one to five years
                                  
                                  
                                  10,355,087
                                  
                                  
                                  
                                  10,221,909
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Due
      over five to ten years
                                  
                                  
                                  9,938,119
                                  
                                  
                                  
                                  9,826,970
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Due
      over ten years
                                  
                                  
                                  30,097,647
                                  
                                  
                                  
                                  30,672,853
                                  
                                  
                                  
                                  683,363
                                  
                                  
                                  
                                  729,960Mortgage-backed,
      due in monthly installments
                                  
                                  
                                  45,635,133
                                  
                                  
                                  
                                  44,790,667
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -$
                                  96,326,975
                                  
                                  
                                  $
                                  95,811,296
                                  
                                  
                                  $
                                  683,363
                                  
                                  
                                  $
                                  729,960
  F-14
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 3.  Investment
Securities(continued)
 
 Proceeds
from sales of available for sale securities prior to maturity totaled$25,977,280,$17,889,342, and
$22,431,078 for the years ended December 31, 2008, 2007, and 2006,
respectively.  The Bank realized gains of $195,780and losses of $4,850on those sales for
2008.  The Bank realized gains of $230,038 and losses of $109,959 on
those sales for 2007.  The Bank realized gains of $225,438 and losses
of $48,985 on those sales for 2006.  Realized gains and losses were
calculated based on the amortized cost of the securities at the date of
trade.  Income tax expense relating to net gains on sales of
investment securities totaled $75,942, $47,761, and $68,146
for the years ended December 31, 2008, 2007, and 2006,
respectively.
 
 In July
2008, the Company sold its remaining two positions in securities classified as
held to maturity.  Inasmuch as these positions were liquidated prior
to maturity in a manner which did not meet the prescribed requirements of SFAS
115, the Company may be precluded for a period of time from classifying any
securities positions as held to maturity.
 
 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.
 
 Note
4.  Loans
 
 Major categories of loans are as
follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Mortgage:Residential
                    
                    $
                    87,707,878
                    
                    
                    $
                    76,780,857
                    
                    
                    $
                    68,340,050Commercial
                    
                    
                    76,152,837
                    
                    
                    
                    47,842,942
                    
                    
                    
                    53,164,479Construction
      and land development
                    
                    
                    6,589,673
                    
                    
                    
                    5,876,285
                    
                    
                    
                    1,609,132Demand
      and time
                    
                    
                    6,974,607
                    
                    
                    
                    5,184,349
                    
                    
                    
                    5,077,680Installment
                    
                    
                    60,593,752
                    
                    
                    
                    66,490,020
                    
                    
                    
                    67,726,942238,018,747
                    
                    
                    
                    202,174,453
                    
                    
                    
                    195,918,283Unearned
      income on loans
                    
                    
                    (864,436
                    )
                    
                    
                    (816,830
                    )
                    
                    
                    (742,585
                    )237,154,311
                    
                    
                    
                    201,357,623
                    
                    
                    
                    195,175,698Allowance
      for credit losses
                    
                    
                    (2,021,690
                    )
                    
                    
                    (1,604,491
                    )
                    
                    
                    (1,839,094
                    )$
                    235,132,621
                    
                    
                    $
                    199,753,132
                    
                    
                    $
                    193,336,604
 
 The Bank
has 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 $43,970,000,$49,260,000, and
$52,539,000 of such loans at December 31, 2008, 2007, and 2006,
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,
2008, 2007, and 2006, the amounts of such loans outstanding totaled $4,344,974, $4,009,224, and
$3,293,148, respectively.  During 2008, loan additions and repayments
totaled $653,500 and
$317,750,
respectively.
  F-15
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 4.  Loans(continued)
 
 The
allowance for credit losses is as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Balance,
      beginning of year
                    
                    $
                    1,604,491
                    
                    
                    $
                    1,839,094
                    
                    
                    $
                    2,201,350Provision
      for credit losses
                    
                    
                    1,145,649
                    
                    
                    
                    50,000
                    
                    
                    
                    62,000Recoveries
                    
                    
                    352,933
                    
                    
                    
                    305,841
                    
                    
                    
                    357,803Loans
      charged off
                    
                    
                    (1,081,383
                    )
                    
                    
                    (590,444
                    )
                    
                    
                    (782,059
                    )Balance,
      end of year
                    
                    $
                    2,021,690
                    
                    
                    $
                    1,604,491
                    
                    
                    $
                    1,839,094
 
 Loans on
which the accrual of interest has been discontinued totaled $866,912, $212,416, and
$57,429 at December 31, 2008, 2007, and 2006, respectively.  Interest
that would have been accrued under the terms of these loans totaled $29,807, $20,037, and $10,658
for the years ended December 31, 2008, 2007, and 2006,
respectively.  Loans past due 90 days or more and still accruing
interest totaled $22,551, $639,982 and $1,751
at December 31, 2008, 2007 and 2006, respectively.
 
 Information
regarding loans classified by the Bank as impaired is summarized as
follows:
 
 2008
                            
                            
                            2007
                            
                            
                            2006Loans
      classified as impaired with avaluation
    allowance
                            
                            $
                            1,387,043
                            
                            
                            $
                            212,416
                            
                            
                            $
                            57,429Allowance
      for credit losses onimpaired loans
                            
                            
                            629,036
                            
                            
                            
                            159,312
                            
                            
                            
                            35,423Average
      balance of impaired loans
                            
                            
                            1,458,245
                            
                            
                            
                            95,605
                            
                            
                            
                            6,846
  Following
is a summary of cash receipts on impaired loans and how they were
applied:
  Cash
      receipts applied to reduce principal balance
                    
                    $
                    131,730
                    
                    
                    $
                    -
                    
                    
                    $
                    9,723Cash
      receipts recognized as interest income
                    
                    
                    41,062
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      cash receipts
                    
                    $
                    172,792
                    
                    
                    $
                    -
                    
                    
                    $
                    9,723
 
 No
troubled debt restructurings transpired in 2008.  All prior
investments in troubled debt were performing under the terms of the modified
agreement.
 
 At
December 31, 2007, the recorded investment in new troubled debt restructurings
totaled $578,345.  The allowance for credit losses relating to
troubled debt restructurings totaled $0 at December 31, 2007.  The
average recorded investment in troubled debt restructurings totaled $611,379 for
the year ended December 31, 2007.  The Bank recognized $51,742 in
interest income on troubled debt restructurings for cash payments received in
2007.  All prior investments in troubled debt were performing under
the terms of the modified agreement.
 
 No
troubled debt restructurings transpired in 2006.  All prior
investments in troubled debt were performing under the terms of the modified
agreement.
 
 The Bank
has no commitments to loan additional funds to the borrowers of restructured,
impaired, or non-accrual loans.
  F-16
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
5.  Premises and Equipment
 
 A summary of premises and equipment is
as follows:
 
 Usefullives
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Land
                      
                      
                      $
                      684,977
                      
                      
                      $
                      684,977
                      
                      
                      $
                      684,977Buildings
                      5-50
      years
                      
                      
                      4,796,309
                      
                      
                      
                      4,738,733
                      
                      
                      
                      4,710,503Equipment
      and fixtures
                      5-30
      years
                      
                      
                      5,056,015
                      
                      
                      
                      5,450,210
                      
                      
                      
                      5,456,049Construction
      in progress
                      
                      
                      
                      121,973
                      
                      
                      
                      60,226
                      
                      
                      
                      26,08810,659,274
                      
                      
                      
                      10,934,146
                      
                      
                      
                      10,877,617Accumulated
      depreciation
                      
                      
                      
                      (7,559,826
                      )
                      
                      
                      (7,846,238
                      )
                      
                      
                      (7,471,603
                      )$
                      3,099,448
                      
                      
                      $
                      3,087,908
                      
                      
                      $
                      3,406,014
 
 Construction
in progress at December 31, 2008 relates primarily to a future branch
site.
 
 Depreciation
expense totaled $347,040, $412,198, and
$450,278 for the years ended December 31, 2008, 2007, and 2006,
respectively.  Amortization of software and intangible assets totaled
$96,312,$109,797, and $97,954
for the years ended December 31, 2008, 2007, and 2006,
respectively.
 
 The Bank
leases its South Crain Highway, Severna Park, and Linthicum
branches.  Minimum lease obligations under the South Crain Highway
branch are $115,400 per year through September 2009, adjusted annually by the
CPI.  Minimum lease obligations under the Severna Park branch were
$30,000 per year through September 2012.  Minimum lease obligations
under the Linthicum branch are $92,700 per year through December 2014, adjusted
annually on a pre-determined basis, with one ten year extension
option.  The Bank is also required to pay all maintenance costs under
all these leasing arrangements.  Rent expense totaled $257,467, $252,087, and
$236,166 for the years ended December 31, 2008, 2007, and 2006,
respectively.
 
 Note
6.  Short-term borrowings
 
 Short-term
borrowings are as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Notes
      payable - U.S. Treasury
                    
                    $
                    629,855
                    
                    
                    $
                    502,529
                    
                    
                    $
                    545,349
 
 Notes
payable to the U.S. Treasury represents 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.  This arrangement is secured by
investment securities with an amortized cost of approximately $1,000,000, $500,000 and
$1,000,000 at December 31, 2008, 2007, and 2006, respectively.
 
 The Bank
owned 17,676 shares of common stock of the FHLB at December 31,
2008.  The Bank is required to maintain an investment of .2% of total
assets, adjusted annually, plus 4.5% of total advances, adjusted for advances
and repayments.  The credit available under this facility is
determined at 20% of the Bank’s total assets, or approximately $66,010,000 at
December 31, 2008.  Long-term advances totaled $27,000,000 under this
credit arrangement at December 31, 2008 (see Note 7).  This credit
facility is secured by a floating lien on the Bank’s residential mortgage loan
portfolio.  Average short-term borrowings under this facility
approximated $1,924,000,$1,616,000and$1,047,000for 2008, 2007, and
2006, respectively.
  F-17
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 6.  Short-term
borrowings(continued)
 
 The Bank
also has available $9,000,000 in a short-term credit facility, an unsecured line
of credit, from another bank for short-term liquidity needs, if
necessary.  No outstanding borrowings existed under this credit
arrangement at December 31, 2008, 2007, and 2006.
 
 Note
7.  Long-term Borrowings
 
 Long-term borrowings are as
follows:
 
 2008
                      
                      
                      2007
                      
                      
                      2006Federal
      Home Loan Bank of Atlanta, convertible advances
                      
                      $
                      27,000,000
                      
                      
                      $
                      17,000,000
                      
                      
                      $
                      7,000,000Mortgage
      payable-individual, interest at 7%,  payments of $3,483,
      including principal and interest, due monthly through  October
      2010, secured by real estate
                      
                      
                      71,712
                      
                      
                      
                      107,135
                      
                      
                      
                      140,170$
                      27,071,712
                      
                      
                      $
                      17,107,135
                      
                      
                      $
                      7,140,170
 
 The
Federal Home Loan Bank of Atlanta, convertible advances total includes the
following:
 
 A
$7,000,000 convertible advance issued in 2000, which matures in September 2010,
with interest at 5.84%, payable quarterly.  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.
 
 A
$10,000,000 convertible advance issued in 2007, which has a final maturity of
November, 1, 2017, but is callable monthly.  This advance has a 3.28%
interest rate, with interest payable monthly.  The proceeds of the
convertible advance were used to fund loans and purchase investment
securities.
 
 A
$5,000,000 convertible advance issued in 2008, which has a final maturity of
July 23, 2018, but is callable quarterly starting July 23, 2009.  This
advance has a 2.73% interest rate, with interest payable
quarterly.  The proceeds of the convertible advance were used to fund
loans.
 
 A
$5,000,000 convertible advance issued in 2008, which has a final maturity of
August 22, 2018, but is callable quarterly starting August 22,
2011.  This advance has a 3.34% interest rate, with interest payable
quarterly.  The proceeds of the convertible advance were used to fund
loans.
 
 At December 31, 2008, the scheduled
maturities of long-term borrowings are approximately as follows:
 
 20082009
                    
                    $
                    38,0002010
                    
                    
                    7,034,0002014
      and thereafter
                    
                    
                    20,000,000$
                    27,072,000
  F-18
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
8.  Junior Subordinated Debentures owed to Unconsolidated Subsidiary
Trust
 
 The
Bancorp sponsored a trust, Glen Burnie Statutory Trust I, of which 100% of the
common equity is owned by the Company.  The trust was formed for the
purpose of issuing Company-obligated mandatorily redeemable capital securities
(the capital securities) to third-party investors and investing the proceeds
from the sale of such capital securities solely in junior subordinated debt
securities of the Company (the debentures).  The debentures held by
the trust are the sole assets of that trust.  Distributions on the
capital securities issued by the trust are payable semi-annually at a 10.6% rate
per annum equal to the interest rate being earned by the trust on the debentures
held by that trust.  The capital securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures.  The Company has entered into agreements which, taken
collectively, fully and unconditionally guarantee the capital securities subject
to the terms of each of the guarantees.  The debentures held by the
trust carry non-call provisions over the first 10 year period, and a declining
10 year premium call thereafter.  Both the capital securities of the
statutory trust and the junior subordinated debentures are scheduled to mature
on September 7, 2030, unless called by the Bancorp not earlier than September 7,
2010.
 
 Despite
the fact that Trust I is not included in the Company’s consolidated financial
statements, the $5.0 million in trust preferred securities issued by the trust
are included in the Tier 1 capital of the Bank for regulatory capital purposes
as allowed by the Federal Reserve Board (the “Board”).   In April
2005, the Board amended its risk-based capital standards for bank holding
companies to allow the continued inclusion of outstanding and prospective
issuances of trust preferred securities in the Tier 1 capital of bank holding
companies, subject to stricter quantitative limits and qualitative
standards.  The Board also revised the quantitative limits applied to
the aggregate amount of cumulative perpetual preferred stock, trust preferred
securities, and minority interest in the equity accounts of most consolidated
subsidiaries (collectively, restricted core capital elements) included in the
Tier 1 capital of bank holding companies.  The new quantitative limits
become effective after a five-year transition period, ending March 31,
2009.  In addition, the Board also revised the qualitative standards
for capital instruments included in regulatory capital consistent with
longstanding Board policies.  The Board has adopted this final rule to
address supervisory concerns, competitive equity considerations and changes in
generally accepted accounting principles and to strengthen the definition of
regulatory capital for bank holding companies.  The Company does not
expect that the quantitative limits will preclude it from including the $5.0
million in trust preferred securities in Tier 1 capital in the
future.
 
 Note
9.  Deposits
 
 Major
classifications of interest-bearing deposits are as follows:
 
 2008
                      
                      
                      2007
                      
                      
                      2006NOW
      and SuperNOW
                      
                      $
                      21,079,314
                      
                      
                      $
                      23,154,540
                      
                      
                      $
                      22,274,015Money
      Market
                      
                      
                      12,764,167
                      
                      
                      
                      12,948,342
                      
                      
                      
                      15,341,221Savings
                      
                      
                      45,801,719
                      
                      
                      
                      47,381,613
                      
                      
                      
                      50,234,238Certificates
      of Deposit, $100,000 or more
                      
                      
                      27,882,777
                      
                      
                      
                      20,654,230
                      
                      
                      
                      22,380,391Other
      time deposits
                      
                      
                      98,700,862
                      
                      
                      
                      80,017,668
                      
                      
                      
                      89,874,294$
                      206,228,839
                      
                      
                      $
                      184,156,393
                      
                      
                      $
                      200,104,159
  F-19
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 9.  Deposits(continued)
 
 Interest expense on deposits is as
follows:
 
 2008
                      
                      
                      2007
                      
                      
                      2006NOW
      and SuperNOW
                      
                      $
                      30,618
                      
                      
                      $
                      47,885
                      
                      
                      $
                      52,047Money
      Market
                      
                      
                      62,475
                      
                      
                      
                      103,472
                      
                      
                      
                      106,264Savings
                      
                      
                      153,301
                      
                      
                      
                      214,998
                      
                      
                      
                      222,018Certificates
      of Deposit, $100,000 or more
                      
                      
                      976,446
                      
                      
                      
                      915,889
                      
                      
                      
                      859,707Other
      time deposits
                      
                      
                      3,557,345
                      
                      
                      
                      3,542,181
                      
                      
                      
                      3,540,835$
                      4,780,185
                      
                      
                      $
                      4,824,425
                      
                      
                      $
                      4,780,871
 
 At
December 31, 2008, the scheduled maturities of time deposits are approximately
as follows:
 
 20082009
                    
                    $
                    68,385,0002010
                    
                    
                    34,732,0002011
                    
                    
                    5,444,0002012
                    
                    
                    3,146,0002013
                    
                    
                    13,626,0002014
      and thereafter
                    
                    
                    1,251,000$
                    126,584,000
 
 Deposit
balances of executive officers and directors and their affiliated interests
totaled approximately $2,611,000,$2,213,000, and
$2,308,000 at December 31, 2008, 2007, and 2006, respectively.
 
 The Bank
had no brokered deposits at December 31, 2008, 2007, and 2006.
  Note
10.  Income Taxes
  The
components of income tax expense for the years ended December 31, 2008, 2007,
and 2006 are    as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Current:Federal
                    
                    $
                    655,129
                    
                    
                    $
                    646,449
                    
                    
                    $
                    493,052State
                    
                    
                    271,112
                    
                    
                    
                    199,611
                    
                    
                    
                    167,706Total
      current
                    
                    
                    926,241
                    
                    
                    
                    846,060
                    
                    
                    
                    660,758Deferred
      income taxes (benefits):Federal
                    
                    
                    (1,275,873
                    )
                    
                    
                    (80,277
                    )
                    
                    
                    25,655State
                    
                    
                    (329,730
                    )
                    
                    
                    (7,443
                    )
                    
                    
                    702Total
      deferred
                    
                    
                    (1,605,603
                    )
                    
                    
                    (87,720
                    )
                    
                    
                    26,357Income
      tax (benefit) expense
                    
                    $
                    (679,362
                    )
                    
                    $
                    758,340
                    
                    
                    $
                    687,115
 
 F-20
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 10. Income Taxes(continued)
 
 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, 2008, 2007, and
2006 is as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006(Loss)
      income before income taxes (benefit)
                    
                    $
                    (275,400
                    )
                    
                    $
                    3,540,481
                    
                    
                    $
                    3,407,160Taxes
      computed at Federal income tax rate
                    
                    $
                    (93,636
                    )
                    
                    $
                    1,203,764
                    
                    
                    $
                    1,158,434Increase
      (decrease) resulting from:Tax-exempt
      income
                    
                    
                    (547,038
                    )
                    
                    
                    (581,208
                    )
                    
                    
                    (610,541
                    )State
      income taxes, net of Federal income tax benefit
                    
                    
                    (38,688
                    )
                    
                    
                    126,832
                    
                    
                    
                    110,686Other
                    
                    
                    -
                    
                    
                    
                    8,952
                    
                    
                    
                    28,536Income
      tax (benefit) expense
                    
                    $
                    (679,362
                    )
                    
                    $
                    758,340
                    
                    
                    $
                    687,115
 
 The
relationship between pre-tax loss and income tax benefits for 2008 is affected
by increased deferred tax benefits attributable to tax methodologies utilized
for loan loss provisions.
 
 The
components of the net deferred income tax benefits as of December 31, 2008,
2007, and 2006 are as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Deferred
      income tax benefits:Accrued
      deferred compensation
                    
                    $
                    82,049
                    
                    
                    $
                    -
                    
                    
                    $
                    -Impairment
      loss on investment securities
                    
                    
                    1,110,771
                    
                    
                    
                    -
                    
                    
                    
                    -Allowance
      for credit losses
                    
                    
                    563,737
                    
                    
                    
                    80,300
                    
                    
                    
                    90,186Alternative
      minimum tax credits
                    
                    
                    66,371
                    
                    
                    
                    94,642
                    
                    
                    
                    37,678Net
      unrealized depreciation on investment securities available for
      sale
                    
                    
                    500,186
                    
                    
                    
                    272,816
                    
                    
                    
                    199,155Reserve
      for unfunded commitments
                    
                    
                    78,890
                    
                    
                    
                    78,890
                    
                    
                    
                    77,240Total
      deferred income tax benefits
                    
                    
                    2,402,004
                    
                    
                    
                    526,648
                    
                    
                    
                    404,259Deferred
      income tax liabilities:Accumulated
      depreciation
                    
                    
                    41,113
                    
                    
                    
                    15,769
                    
                    
                    
                    42,991Accumulated
      securities discount accretion
                    
                    
                    74,408
                    
                    
                    
                    57,367
                    
                    
                    
                    69,137Total
      deferred income tax liabilities
                    
                    
                    115,521
                    
                    
                    
                    73,136
                    
                    
                    
                    112,128Net
      deferred income tax benefits
                    
                    $
                    2,286,483
                    
                    
                    $
                    453,512
                    
                    
                    $
                    292,131
 
 Note 11.  Pension and
Profit Sharing Plans
 
 The Bank
has a money purchase pension plan, which provides for annual employer
contributions based on employee compensation, and covers substantially all
employees.  Annual contributions, included in employee benefit
expense, totaled $220,000, $201,321 and
$200,005 for the years ended December 31, 2008, 2007 and 2006,
respectively.  The Bank is also making additional contributions under
this plan for the benefit of certain employees, whose retirement funds were
negatively affected by the termination of a prior defined benefit pension
plan.  These additional contributions, also included in employee
benefit expense, totaled $33,452,$37,105, and$47,495for the years ended
December 31, 2008, 2007, and 2006, respectively.
  F-21
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
11.  Pension and Profit Sharing Plans (continued)
 
 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.
 
 The plan
provides for discretionary employer matching contributions to be 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, totaled $116,027,$340,254, and $335,724
for the years ended December 31, 2008, 2007, and 2006,
respectively.
 
 Note
12.  Post-Retirement Health Care Benefits
 
 The Bank
has previously provided health care benefits to employees who retire at age 65
with five years of full time service immediately prior to retirement and two
years of participation in the medical benefits plan.  In 2001, the
Bank amended the plan to include the current Board of Directors and their
spouses and the spouses of current retirees.  In the first quarter of
2002, the Bank again amended the plan so that all post-retirement healthcare
benefits currently provided by the Bank to the above qualified participants
terminated on December 31, 2006.  The plan was funded only to the
extent of the Bank’s monthly payments of insurance premiums, which totaled
$50,483 for the year ended December 31,2006.
 
 The
following table sets forth the financial status of the plan at December 31,
2006:
 
 Net
post-retirement benefit income for the year ended December 31, 2006 includes the
following:
 
 2006Interest
      cost
                    
                    $
                    3,081Amortization
      of net gain
                    
                    
                    (37,723
                    )Net
      post-retirement benefit income
                    
                    $
                    (34,642
                    )
 
 Assumptions
used in the accounting for net post-retirement benefit expense were as
follows:
 
 2006Health
      care cost trend rate
                    
                    
                    5.0
                    %Discount
      rate
                    
                    
                    6.5
                    %
 
 If the
assumed health cost trend rate were increased to 6% for 2006, the total of the
service and interest cost components of net periodic post-retirement health care
income cost would increase by $0 to ($34,642) as of for the year ended December
31, 2006.
 
 Note
13.  Other Benefit Plans
 
 The Bank
has life insurance contracts on several officers and is the sole owner and
beneficiary of the policies.  Cash value totaled $7,434,573, $7,161,403, and
$6,892,455 at December 31, 2008, 2007, and 2006, respectively.  Income
on their insurance investment totaled $273,170, $268,948, and
$210,653 for 2008, 2007, and 2006, respectively.
 
 The Bank
has an unfunded grantor trust, 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.
  F-22
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
14.  Other Operating Expenses
 
 Other operating expenses include the
following:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Professional
      services
                    
                    $
                    485,685
                    
                    
                    $
                    479,877
                    
                    
                    $
                    434,465Stationery,
      printing and supplies
                    
                    
                    214,815
                    
                    
                    
                    225,709
                    
                    
                    
                    209,385Postage
      and delivery
                    
                    
                    187,017
                    
                    
                    
                    222,642
                    
                    
                    
                    224,856FDIC
      assessment
                    
                    
                    35,544
                    
                    
                    
                    31,605
                    
                    
                    
                    33,847Directors
      fees and expenses
                    
                    
                    198,939
                    
                    
                    
                    210,097
                    
                    
                    
                    207,796Marketing
                    
                    
                    255,921
                    
                    
                    
                    236,917
                    
                    
                    
                    232,258Data
      processing
                    
                    
                    100,562
                    
                    
                    
                    109,797
                    
                    
                    
                    104,976Correspondent
      bank services
                    
                    
                    60,706
                    
                    
                    
                    95,407
                    
                    
                    
                    89,924Telephone
                    
                    
                    160,242
                    
                    
                    
                    157,811
                    
                    
                    
                    165,529Liability
      insurance
                    
                    
                    71,497
                    
                    
                    
                    67,959
                    
                    
                    
                    81,508Losses
      and expenses on real estate owned (OREO)
                    
                    
                    8,343
                    
                    
                    
                    2,905
                    
                    
                    
                    922Other
      ATM expense
                    
                    
                    232,670
                    
                    
                    
                    242,429
                    
                    
                    
                    235,116Other
                    
                    
                    396,749
                    
                    
                    
                    293,770
                    
                    
                    
                    343,296$
                    2,408,690
                    
                    
                    $
                    2,376,925
                    
                    
                    $
                    2,363,878
 
 Note
15.  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:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Loan
      commitments:Construction
      and land development
                    
                    $
                    400,000
                    
                    
                    $
                    -
                    
                    
                    $
                    482,000Other
      mortgage loans
                    
                    
                    2,590,000
                    
                    
                    
                    685,000
                    
                    
                    
                    528,000$
                    2,990,000
                    
                    
                    $
                    685,000
                    
                    
                    $
                    1,010,000Unused
      lines of credit:Home-equity
      lines
                    
                    $
                    6,395,182
                    
                    
                    $
                    7,507,778
                    
                    
                    $
                    6,410,947Commercial
      lines
                    
                    
                    13,380,292
                    
                    
                    
                    18,335,771
                    
                    
                    
                    10,805,449Unsecured
      consumer lines
                    
                    
                    785,487
                    
                    
                    
                    815,960
                    
                    
                    
                    809,802$
                    20,560,961
                    
                    
                    $
                    26,659,509
                    
                    
                    $
                    18,026,198Letters
      of credit:
                    
                    $
                    196,530
                    
                    
                    $
                    197,000
                    
                    
                    $
                    296,136
 
 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
  F-23
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 15.  Commitments and
Contingencies(continued)
 
 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, 2008, the Bank has accrued
$200,000 as a reserve
for losses on unfunded commitments related to these financial instruments with
off balance sheet risk, which is included in other liabilities.
 
 Note
16.  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 that 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 totaled approximately $12,430,000,$11,363,000, and
$9,367,000 at December 31, 2008, 2007, and 2006, respectively, based on the
earnings restrictions and minimum capital ratio requirements noted
below.
 
 Stock
repurchase program:
 
 In
February 2008, the Company instituted a Stock Repurchase
Program.  Under the program, the Company may spend up to $1,000,000 to
repurchase its outstanding stock.  The repurchases may be made from
time to time at a price not to exceed $12.50 per share.  During 2008,
the Company repurchased 50,300 shares at an average price of
$11.48.  In December 2008, the Company extended the program until
December 31, 2009 and replenished the repurchase funds to
$1,000,000.
 
 Employee
stock purchase benefit plans:
 
 The
Company has a stock-based compensation plan, which is described
below.  As determined under SFAS No. 123R utilizing the Black-Scholes
option pricing model, management of the Company has not recorded any
compensation expense for options issued during the years ended December 31, 2007
and 2006, as there would be no material impact in the reported net
income.  There were no options issued during the year ended December
31, 2008.
 
 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 85% of the fair market value of the stock on the date of
grant.  Options are vested when granted and will expire no later than
27 months from the grant date or upon termination of
employment.  Activity under this plan is as follows:
  F-24
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 16.  Stockholders’
Equity(continued)
 
 GrantShares
                    
                    
                    PriceOutstanding
      December 31, 2005
                    
                    
                    -Granted
      on June 8, 2006, expiring December 11, 2006
                    
                    
                    4,755
                    
                    
                    $
                    14.15Exercised
                    
                    
                    (2,395
                    )Expired
                    
                    
                    (2,360
                    )
                    
                    $
                    14.15Outstanding
      December 31, 2006
                    
                    
                    -Granted
      on August 9, 2007, expiring December 10, 2007
                    
                    
                    3,126
                    
                    
                    $
                    14.02Exercised
                    
                    
                    (1,041
                    )Expired
                    
                    
                    (2,085
                    )
                    
                    $
                    14.02Outstanding
      December 31, 2007
                    
                    
                    -
 
 At
December 31, 2008, shares of common stock reserved for issuance under the plan
totaled 48,011.
 
 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
2008, 2007, and 2006, shares of common stock purchased under the plantotaled 20,003, 12,791, and 15,113,
respectively.  At December 31, 2008, shares of common stock reserved
for issuance under the plan totaled 145,844.
 
 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 Board of
Directors shall determine the number of shares that may be purchased pursuant to
options.  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.
 
 There was no activity under this plan
for the years ended December 31, 2008, 2007, and 2006.
 
 At
December 31, 2008, shares of common stock reserved for issuance under the plan
totaled 313,919.
  F-25
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 16.  Stockholders’
Equity(continued)
 
 The Board
of Directors may suspend or discontinue the plan at its discretion.
 
 Under all
three plans, options granted, exercised, and expired, shares issued and
reserved, and grant prices have been restated for the effects of any stock
dividends or stock splits.
 
 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 their respective 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,
2008, 2007, and 2006, that both the Company and Bank meet all capital adequacy
requirements to which they are subject.
 
 The Bank
has been notified by its regulator that, as of its most recent regulatory
examination, it is regarded 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 have been no conditions or events since that notification
that management believes have changed the Bank’s category.
 
 As
discussed in Note 8, the capital securities held by the Glen Burnie Statutory
Trust I qualifies as Tier I capital for the Company under Federal Reserve Board
guidelines.
  F-26




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 16.  Stockholders’
Equity(continued)
 
 A
comparison of capital as of December 31, 2008, 2007, and 2006 with minimum
requirements is approximately as follows:
  To Be Well CapitalizedFor Capital
                                                                      
                                                                      
                                                                      Under Prompt CorrectiveActual
                                                                      
                                                                      
                                                                      Adequacy Purposes
                                                                      
                                                                      
                                                                      Action ProvisionsAmount
                                                                      
                                                                      
                                                                      Ratio
                                                                      
                                                                      
                                                                      Amount
                                                                      
                                                                      
                                                                      Ratio
                                                                      
                                                                      
                                                                      Amount
                                                                      
                                                                      
                                                                      RatioAs
      of December 31, 2008Total
      Capital(to
      Risk Weighted Assets)Company
                                                                      
                                                                      $
                                                                      35,687,000
                                                                      
                                                                      
                                                                      
                                                                      14.9
                                                                      %
                                                                      
                                                                      $
                                                                      19,122,000
                                                                      
                                                                      
                                                                      
                                                                      8.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      35,707,000
                                                                      
                                                                      
                                                                      
                                                                      15.0
                                                                      %
                                                                      
                                                                      
                                                                      19,107,000
                                                                      
                                                                      
                                                                      
                                                                      8.0
                                                                      %
                                                                      
                                                                      $
                                                                      23,884,000
                                                                      
                                                                      
                                                                      
                                                                      10.0
                                                                      %Tier
      I Capital(to
      Risk Weighted Assets)Company
                                                                      
                                                                      
                                                                      33,665,000
                                                                      
                                                                      
                                                                      
                                                                      14.1
                                                                      %
                                                                      
                                                                      
                                                                      9,564,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      33,485,000
                                                                      
                                                                      
                                                                      
                                                                      14.0
                                                                      %
                                                                      
                                                                      
                                                                      9,553,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      14,330,000
                                                                      
                                                                      
                                                                      
                                                                      6.0
                                                                      %Tier
      I Capital(to
      Average Assets)Company
                                                                      
                                                                      
                                                                      33,665,000
                                                                      
                                                                      
                                                                      
                                                                      10.5
                                                                      %
                                                                      
                                                                      
                                                                      12,825,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      33,485,000
                                                                      
                                                                      
                                                                      
                                                                      10.2
                                                                      %
                                                                      
                                                                      
                                                                      13,196,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      16,495,000
                                                                      
                                                                      
                                                                      
                                                                      5.0
                                                                      %As
      of December 31, 2007Total
      Capital(to
      Risk Weighted Assets)Company
                                                                      
                                                                      $
                                                                      36,774,000
                                                                      
                                                                      
                                                                      
                                                                      17.6
                                                                      %
                                                                      
                                                                      $
                                                                      16,744,000
                                                                      
                                                                      
                                                                      
                                                                      8.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      36,592,000
                                                                      
                                                                      
                                                                      
                                                                      17.5
                                                                      %
                                                                      
                                                                      
                                                                      16,728,000
                                                                      
                                                                      
                                                                      
                                                                      8.0
                                                                      %
                                                                      
                                                                      $
                                                                      20,910,000
                                                                      
                                                                      
                                                                      
                                                                      10.0
                                                                      %Tier
      I Capital(to
      Risk Weighted Assets)Company
                                                                      
                                                                      
                                                                      35,170,000
                                                                      
                                                                      
                                                                      
                                                                      16.8
                                                                      %
                                                                      
                                                                      
                                                                      8,374,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      34,788,000
                                                                      
                                                                      
                                                                      
                                                                      16.6
                                                                      %
                                                                      
                                                                      
                                                                      8,363,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      12,544,000
                                                                      
                                                                      
                                                                      
                                                                      6.0
                                                                      %Tier
      I Capital(to
      Average Assets)Company
                                                                      
                                                                      
                                                                      35,170,000
                                                                      
                                                                      
                                                                      
                                                                      11.3
                                                                      %
                                                                      
                                                                      
                                                                      12,494,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      N/ABank
                                                                      
                                                                      
                                                                      34,788,000
                                                                      
                                                                      
                                                                      
                                                                      11.3
                                                                      %
                                                                      
                                                                      
                                                                      12,271,000
                                                                      
                                                                      
                                                                      
                                                                      4.0
                                                                      %
                                                                      
                                                                      
                                                                      15,339,000
                                                                      
                                                                      
                                                                      
                                                                      5.0
                                                                      %
  F-27
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 16.  Stockholders’
Equity(continued)
 
 To Be Well CapitalizedFor Capital
                                
                                
                                Under Prompt CorrectiveActual
                                
                                
                                Adequacy Purposes
                                
                                
                                Action ProvisionsAmount
                                
                                
                                Ratio
                                
                                
                                Amount
                                
                                
                                Ratio
                                
                                
                                Amount
                                
                                
                                RatioAs
      of December 31, 2006Total
      Capital(to
      Risk Weighted Assets)Company
                                
                                $
                                35,357,000
                                
                                
                                
                                17.1
                                %
                                
                                $
                                16,570,000
                                
                                
                                
                                8.0
                                %
                                
                                N/ABank
                                
                                
                                35,240,000
                                
                                
                                
                                17.0
                                %
                                
                                
                                16,564,000
                                
                                
                                
                                8.0
                                %
                                
                                $
                                20,705,000
                                
                                
                                
                                10.0
                                %Tier
      I Capital(to
      Risk Weighted Assets)Company
                                
                                
                                33,518,000
                                
                                
                                
                                16.2
                                %
                                
                                
                                8,281,000
                                
                                
                                
                                4.0
                                %
                                
                                
                                N/ABank
                                
                                
                                33,201,000
                                
                                
                                
                                16.0
                                %
                                
                                
                                8,285,000
                                
                                
                                
                                4.0
                                %
                                
                                
                                12,427,000
                                
                                
                                
                                6.0
                                %Tier
      I Capital(to
      Average Assets)Company
                                
                                
                                33,518,000
                                
                                
                                
                                10.3
                                %
                                
                                
                                13,017,000
                                
                                
                                
                                4.0
                                %
                                
                                
                                N/ABank
                                
                                
                                33,201,000
                                
                                
                                
                                10.2
                                %
                                
                                
                                13,046,000
                                
                                
                                
                                4.0
                                %
                                
                                
                                16,307,000
                                
                                
                                
                                5.0
                                %
 
 Note
17.  Earnings Per Common Share
 
 Earnings
per common share are calculated as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Basic:Net
      income
                    
                    $
                    403,962
                    
                    
                    $
                    2,782,141
                    
                    
                    $
                    2,720,045Weighted
      average common shares outstanding
                    
                    
                    2,981,124
                    
                    
                    
                    2,988,796
                    
                    
                    
                    2,972,362Basic
      net income per share
                    
                    $
                    0.14
                    
                    
                    $
                    0.93
                    
                    
                    $
                    0.92
 
 Diluted
earnings per share calculations were not required for 2008, 2007, and 2006 as
there were no options outstanding at December 31, 2008, 2007, and
2006.
 
 In
January 2008, the Company declared a six for five stock split effected in the
form of a 20% stock dividend.
  F-28
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
18.  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:
 
 2008
                      
                      
                      2007
                      
                      
                      2006Carrying
                      
                      
                      Fair
                      
                      
                      Carrying
                      
                      
                      Fair
                      
                      
                      Carrying
                      
                      
                      FairAmount
                      
                      
                      Value
                      
                      
                      Amount
                      
                      
                      Value
                      
                      
                      Amount
                      
                      
                      ValueFinancial
      assets:Cash
      and due from banks
                      
                      $
                      6,960,377
                      
                      
                      $
                      6,960,377
                      
                      
                      $
                      8,220,582
                      
                      
                      $
                      8,220,582
                      
                      
                      $
                      9,005,691
                      
                      
                      $
                      9,005,691Interest-bearing
      deposits in other financial institutions
                      
                      
                      7,883,816
                      
                      
                      
                      7,883,816
                      
                      
                      
                      5,847,562
                      
                      
                      
                      5,847,562
                      
                      
                      
                      342,309
                      
                      
                      
                      342,309Federal
      funds sold
                      
                      
                      6,393,710
                      
                      
                      
                      6,393,710
                      
                      
                      
                      726,916
                      
                      
                      
                      726,916
                      
                      
                      
                      3,971,978
                      
                      
                      
                      3,971,978Investment
      securities available for sale
                      
                      
                      57,948,645
                      
                      
                      
                      57,948,645
                      
                      
                      
                      77,182,181
                      
                      
                      
                      77,182,181
                      
                      
                      
                      95,811,296
                      
                      
                      
                      95,811,296Investment
      securities held to maturity
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      683,832
                      
                      
                      
                      726,193
                      
                      
                      
                      683,363
                      
                      
                      
                      729,960Federal
      Home Loan Bank Stock
                      
                      
                      1,767,600
                      
                      
                      
                      1,767,600
                      
                      
                      
                      1,381,900
                      
                      
                      
                      1,381,900
                      
                      
                      
                      928,000
                      
                      
                      
                      928,000Maryland
      Financial Bank Stock
                      
                      
                      100,000
                      
                      
                      
                      100,000
                      
                      
                      
                      100,000
                      
                      
                      
                      100,000
                      
                      
                      
                      100,000
                      
                      
                      
                      100,000Common
      stock-Statutory Trust I
                      
                      
                      155,000
                      
                      
                      
                      155,000
                      
                      
                      
                      155,000
                      
                      
                      
                      155,000
                      
                      
                      
                      155,000
                      
                      
                      
                      155,000Ground
      rents
                      
                      
                      184,900
                      
                      
                      
                      184,900
                      
                      
                      
                      202,900
                      
                      
                      
                      202,900
                      
                      
                      
                      219,100
                      
                      
                      
                      219,100Loans,
      less allowance forcredit
      losses
                      
                      
                      235,132,621
                      
                      
                      
                      239,446,000
                      
                      
                      
                      199,753,132
                      
                      
                      
                      203,326,000
                      
                      
                      
                      193,336,604
                      
                      
                      
                      192,492,000Accrued
      interest receivable
                      
                      
                      1,680,392
                      
                      
                      
                      1,680,392
                      
                      
                      
                      1,508,640
                      
                      
                      
                      1,508,640
                      
                      
                      
                      1,627,433
                      
                      
                      
                      1,627,433Financial
      liabilities:Deposits
                      
                      
                      269,767,598
                      
                      
                      
                      272,091,000
                      
                      
                      
                      252,916,766
                      
                      
                      
                      251,088,000
                      
                      
                      
                      274,833,457
                      
                      
                      
                      273,033,000Short-term
      borrowings
                      
                      
                      629,855
                      
                      
                      
                      629,855
                      
                      
                      
                      502,529
                      
                      
                      
                      502,529
                      
                      
                      
                      545,349
                      
                      
                      
                      545,349Long-term
      borrowings
                      
                      
                      27,071,712
                      
                      
                      
                      27,162,000
                      
                      
                      
                      17,107,135
                      
                      
                      
                      16,982,135
                      
                      
                      
                      7,140,170
                      
                      
                      
                      7,151,651Dividends
      payable
                      
                      
                      385,794
                      
                      
                      
                      385,794
                      
                      
                      
                      385,010
                      
                      
                      
                      385,010
                      
                      
                      
                      366,580
                      
                      
                      
                      366,580Accrued
      interest payable
                      
                      
                      139,579
                      
                      
                      
                      139,579
                      
                      
                      
                      134,274
                      
                      
                      
                      134,274
                      
                      
                      
                      145,642
                      
                      
                      
                      145,642Accrued
      interest payable on junior subordinated debentures
                      
                      
                      171,518
                      
                      
                      
                      171,518
                      
                      
                      
                      171,518
                      
                      
                      
                      171,518
                      
                      
                      
                      171,518
                      
                      
                      
                      171,518Junior
      subordinated debentures owed to unconsolidated subsidiary
      trust
                      
                      
                      5,155,000
                      
                      
                      
                      5,281,827
                      
                      
                      
                      5,155,000
                      
                      
                      
                      6,031,097
                      
                      
                      
                      5,155,000
                      
                      
                      
                      5,155,000Unrecognized
      financial instruments:Commitments
      to extend credit
                      
                      
                      23,550,961
                      
                      
                      
                      23,550,961
                      
                      
                      
                      27,344,509
                      
                      
                      
                      27,344,509
                      
                      
                      
                      19,036,198
                      
                      
                      
                      19,036,198Standby
      letters of credit
                      
                      
                      196,530
                      
                      
                      
                      196,530
                      
                      
                      
                      197,000
                      
                      
                      
                      197,000
                      
                      
                      
                      296,136
                      
                      
                      
                      296,136
 
 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.
  F-29
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 18.  Fair Values of
Financial Instruments(continued)
 
 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.  In addition, 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
19.  Fair Value Measurements
 
 Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements which
provides a framework for measuring and disclosing fair value under generally
accepted accounting principles.  SFAS No. 157 requires disclosures
about the fair value of assets and liabilities recognized in the balance sheet
in periods subsequent to initial recognition, whether the measurements are made
on a recurring basis or on a nonrecurring basis.
 
 SFAS No.
157 defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  SFAS No. 157 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value.  The standard describes three levels of inputs that may be
used to measure fair value.
 
 Fair
Value Hierarchy
 Level 1 –
Quoted prices in active markets for identical assets or liabilities
 Level 2 –
Other significant observable inputs (including quoted prices in active markets
for similar assets or liabilities)
 Level 3 –
Significant unobservable inputs (including the Bank’s own assumptions in
determining the fair value of assets or liabilities)
 
 In
determining the appropriate levels, the Company performs a detailed analysis of
assets and liabilities that are subject to SFAS No. 157.
 
 Fair
value measurements on a recurring basis at December 31, 2008 are as
follows:
 
 FairLevel 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      ValueSecurities
      available for sale
                      
                      $
                      -
                      
                      
                      $
                      57,948,645
                      
                      
                      $
                      -
                      
                      
                      $
                      57,948,645
  F-30
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 19.  Fair Value
Measurements(continued)
 
 Securities
available-for-sale are based on quoted market prices, where
available.  If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
 
 The Bank
may also be required, from time to time, to measure certain other financial
assets and liabilities at fair value on a non-recurring basis in accordance with
GAAP.  Fair value measurements on a non-recurring basis at December
31, 2008 are as follows:
 
 FairLevel 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    ValueImpaired
      loans
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    758,007
                    
                    
                    $
                    758,007OREO
                    
                    
                    -
                    
                    
                    
                    550,000
                    
                    
                    
                    -
                    
                    
                    
                    550,000$
                    -
                    
                    
                    $
                    550,000
                    
                    
                    $
                    758,007
                    
                    
                    $
                    1,308,007
 
 The Bank
is predominantly a cash flow lender with real estate serving as collateral on a
majority of loans.  Loans which are deemed to be impaired and
foreclosed real estate assets are primarily valued on a nonrecurring basis at
the fair values of the underlying real estate collateral.  The Bank
determines such fair values from independent appraisals.  If the
independent appraisals are current (within approximately six months), management
deems them level 2 inputs.  Non-current appraisals from which
management derives fair values are considered level 3 inputs.
 
 Note
20.  Recently Issued Accounting Pronouncements
 
 In
December 2007, the FASB issued Statement No. 141 Revised 2007 (SFAS 141R), Business
Combinations.  SFAS 141R’s objective is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination and its effects.  SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after December 31,
2008.  On January 1, 2008, the Company adopted SFAS
No. 141R.  The Company has determined that the adoption of this
pronouncement did not have a significant impact on the financial
statements.
 
 In
February 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value Option for Financial
Assets and Financial Liabilities-including an amendment of FASB Statement No.
115which is effective as of the beginning of the first fiscal year that
begins after November 15, 2007.  Management has not elected to adopt
this SFAS but will continue to evaluate the impact of adopting this Statement on
the Company’s financial statements for future periods.
 
 In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements.  SFAS 160’s objective is to
improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160 shall be effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15,
2008.  The Company does not expect the implementation of SFAS 160 to
have a material impact on its consolidated financial statements.
  F-31
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 20.  Recently Issued
Accounting Pronouncements(continued)
 
 In
September 2006, the FASB ratified the consensus reached by the Emerging Issued
Task Force (EITF) on Issue No. 06-04, Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The scope of this
Issue is limited to the recognition of a liability and related compensation
costs for endorsement split-dollar life insurance arrangements that provide a
benefit to an employee that extends to postretirement periods. Therefore, this
Issue would not apply to a split-dollar life insurance arrangement that provides
a specified benefit to an employee that is limited to the employee's active
service period with an employer.
 
 The
consensus in this Issue is effective for fiscal years beginning after December
15, 2007, with earlier application permitted. Entities should recognize the
effects of applying the consensus in this Issue through either (a) a change in
accounting principle through a cumulative-effect adjustment to retained earnings
or to other components of equity or net assets in the statement of financial
position as of the beginning of the year of adoption or (b) a change in
accounting principle through retrospective application to all prior
periods.  On January 1, 2008, the Company adopted EITF No. 06-04
and under option (a) recorded a cumulative accrued expense and reduction in
stockholder’s equity totaling $179,794 statements.
 
 On
January 12, 2009, the FASB issued FASB Staff Position EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20(FSP).  FASB FSP 99-20-1
amends the impairment guidance in FASB EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests that
Continue to be held by a Transferor in Securitized Financial
Assets.  The intent of the FSP is to reduce complexity and
achieve more consistent determinations as to whether other-than-temporary
impairments of available for sale or held to maturity debt securities have
occurred.  The FSP is effective for interim and annual reporting
periods ending after December 15, 2008.  The adoption of this FSP did
not have an impact on the Company’s consolidated financial
statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement No.
133.”  This Statement amends and expands the disclosure
requirements of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.”  The Statement requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements.  This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.  The Company does not expect the implementation of
SFAS 161 to have a material impact on its consolidated financial
statements.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Principles.”  This statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States.  The Statement is directed to entities rather
than auditors because entities are responsible for the selection of accounting
principles for financial statements that are presented in conformity with
GAAP.  This Statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles.”  The Company does not expect the implementation of
SFAS 162 to have a material impact on its consolidated financial
statements.
  F-32
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
21.  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
      SheetsDecember 31,
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006AssetsCash
                    
                    $
                    338,902
                    
                    
                    $
                    532,222
                    
                    
                    $
                    441,919Investment
      in The Bank of Glen Burnie
                    
                    
                    32,727,244
                    
                    
                    
                    34,354,422
                    
                    
                    
                    32,884,293Investment
      in GBB Properties, Inc.
                    
                    
                    261,999
                    
                    
                    
                    263,787
                    
                    
                    
                    265,579Investment
      in the Glen Burnie Statutory Trust I
                    
                    
                    155,000
                    
                    
                    
                    155,000
                    
                    
                    
                    155,000Due
      from subsidiaries
                    
                    
                    22,878
                    
                    
                    
                    22,709
                    
                    
                    
                    26,820Other
      assets
                    
                    
                    114,541
                    
                    
                    
                    119,542
                    
                    
                    
                    120,000Total
      assets
                    
                    $
                    33,620,564
                    
                    
                    $
                    35,447,682
                    
                    
                    $
                    33,893,611Liabilities
      and Stockholders’ EquityDividends
      payable
                    
                    $
                    385,794
                    
                    
                    $
                    385,010
                    
                    
                    $
                    366,580Accrued
      interest payable on borrowed funds
                    
                    
                    171,518
                    
                    
                    
                    171,518
                    
                    
                    
                    171,518Other
      liabilities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Borrowed
      funds from subsidiary
                    
                    
                    5,155,000
                    
                    
                    
                    5,155,000
                    
                    
                    
                    5,155,000Total
      liabilities
                    
                    
                    5,712,312
                    
                    
                    
                    5,711,528
                    
                    
                    
                    5,693,098Stockholders’
      equity:Common
      stock
                    
                    
                    2,967,727
                    
                    
                    
                    2,498,465
                    
                    
                    
                    2,484,633Surplus
                    
                    
                    11,568,241
                    
                    
                    
                    11,921,129
                    
                    
                    
                    11,719,907Retained
      earnings
                    
                    
                    14,129,637
                    
                    
                    
                    15,750,156
                    
                    
                    
                    14,312,496Accumulated
      other comprehensive loss, net of benefits
                    
                    
                    (757,353
                    )
                    
                    
                    (433,596
                    )
                    
                    
                    (316,523
                    )Total
      stockholders’ equity
                    
                    
                    27,908,252
                    
                    
                    
                    29,736,154
                    
                    
                    
                    28,200,513Total
      liabilities and stockholders’ equity
                    
                    $
                    33,620,564
                    
                    
                    $
                    35,447,682
                    
                    
                    $
                    33,893,611
  The
borrowed funds from subsidiary balance represents the junior subordinated debt
securities payable to the wholly-owned subsidiary trust that was deconsolidated
as a result of applying the provisions of FIN 46.  The Company
continues to guarantee the capital securities issued by the trust, which totaled
$5,000,000 at December
31, 2008 (See Note 8).
  F-33
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 21.  Parent Company
Financial Information (continued)
 
 Statements of IncomeYears Ended December 31,
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Dividends
      and distributions from subsidiaries
                      
                      $
                      1,902,239
                      
                      
                      $
                      1,565,000
                      
                      
                      $
                      1,350,000Other
      income
                      
                      
                      16,430
                      
                      
                      
                      16,430
                      
                      
                      
                      16,430Interest
      expense on junior subordinated debentures
                      
                      
                      (546,180
                      )
                      
                      
                      (546,430
                      )
                      
                      
                      (546,430
                      )Other
      expenses
                      
                      
                      (69,468
                      )
                      
                      
                      (62,271
                      )
                      
                      
                      (59,453
                      )Income
      before income tax benefit and equity inundistributed
      net income of subsidiaries
                      
                      
                      1,303,021
                      
                      
                      
                      972,729
                      
                      
                      
                      760,547Income
      tax benefit
                      
                      
                      226,356
                      
                      
                      
                      224,002
                      
                      
                      
                      227,647Change
      in undistributed equity of subsidiaries
                      
                      
                      (1,125,415
                      )
                      
                      
                      1,585,410
                      
                      
                      
                      1,731,851Net
      income
                      
                      $
                      403,962
                      
                      
                      $
                      2,782,141
                      
                      
                      $
                      2,720,045
 
 Statements of Cash FlowsYears Ended December 31,
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Cash
      flows from operating activities:Net
      income
                        
                        $
                        403,962
                        
                        
                        $
                        2,782,141
                        
                        
                        $
                        2,720,045Adjustments
      to reconcile net income to net cash provided by operating
      activities:Decrease
      in other assets
                        
                        
                        5,001
                        
                        
                        
                        458
                        
                        
                        
                        7,250(Increase)
      decrease in due from subsidiaries
                        
                        
                        (169
                        )
                        
                        
                        4,111
                        
                        
                        
                        (3,932
                        )Decrease
      in other liabilities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,032
                        )Change
      in undistributed equity of Subsidiaries
                        
                        
                        1,125,415
                        
                        
                        
                        (1,585,410
                        )
                        
                        
                        (1,731,851
                        )Net
      cash provided by operating activities
                        
                        
                        1,534,209
                        
                        
                        
                        1,201,300
                        
                        
                        
                        989,480Cash
      flows from financing activities:Proceeds
      from dividend reinvestment plan
                        
                        
                        194,054
                        
                        
                        
                        200,459
                        
                        
                        
                        245,059Proceeds
      from issuance of common stock
                        
                        
                        -
                        
                        
                        
                        14,595
                        
                        
                        
                        33,891Repurchase
      and retirement of common stock
                        
                        
                        (577,239
                        )
                        
                        
                        -
                        
                        
                        
                        -Dividends
      paid
                        
                        
                        (1,344,344
                        )
                        
                        
                        (1,326,051
                        )
                        
                        
                        (1,309,970
                        )Net
      cash used in financing activities
                        
                        
                        (1,727,529
                        )
                        
                        
                        (1,110,997
                        )
                        
                        
                        (1,031,020
                        )(Decrease)
      increase in cash
                        
                        
                        (193,320
                        )
                        
                        
                        90,303
                        
                        
                        
                        (41,540
                        )Cash,
      beginning of year
                        
                        
                        532,222
                        
                        
                        
                        441,919
                        
                        
                        
                        483,459Cash,
      end of year
                        
                        $
                        338,902
                        
                        
                        $
                        532,222
                        
                        
                        $
                        441,919
  F-34
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
22.  Quarterly Results of Operations (Unaudited)
 
 The
following is a summary of consolidated unaudited quarterly results of
operations:
 
 2008(Dollars
      in thousands,
                            
                            Three
      months ended,except per share
    amounts)
                            
                            December 31
                            
                            
                            September 30
                            
                            
                            June 30
                            
                            
                            March 31Interest
      income
                            
                            $
                            4,604
                            
                            
                            $
                            4,667
                            
                            
                            $
                            4,492
                            
                            
                            $
                            4,413Interest
      expense
                            
                            
                            1,661
                            
                            
                            
                            1,546
                            
                            
                            
                            1,499
                            
                            
                            
                            1,548Net
      interest income
                            
                            
                            2,943
                            
                            
                            
                            3,121
                            
                            
                            
                            2,993
                            
                            
                            
                            2,865Provision
      for credit losses
                            
                            
                            700
                            
                            
                            
                            239
                            
                            
                            
                            152
                            
                            
                            
                            55Net
      securities gains
                            
                            
                            50
                            
                            
                            
                            86
                            
                            
                            
                            48
                            
                            
                            
                            7Income
      before income taxes
                            
                            
                            272
                            
                            
                            
                            (1,915
                            )
                            
                            
                            743
                            
                            
                            
                            625Net
      income
                            
                            
                            1,382
                            
                            
                            
                            (2,118
                            )
                            
                            
                            604
                            
                            
                            
                            536Net
      income per share (basic and diluted)
                            
                            $
                            0.47
                            
                            
                            $
                            (0.71
                            )
                            
                            $
                            0.20
                            
                            
                            $
                            0.182007(Dollars
      in thousands,
                            
                            Three
      months ended,except per share
    amounts)
                            
                            December 31
                            
                            
                            September 30
                            
                            
                            June 30
                            
                            
                            March 31Interest
      income
                            
                            $
                            4,487
                            
                            
                            $
                            4,476
                            
                            
                            $
                            4,465
                            
                            
                            $
                            4,409Interest
      expense
                            
                            
                            1,506
                            
                            
                            
                            1,441
                            
                            
                            
                            1,507
                            
                            
                            
                            1,517Net
      interest income
                            
                            
                            2,981
                            
                            
                            
                            3,035
                            
                            
                            
                            2,958
                            
                            
                            
                            2,892Provision
      for credit losses
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            20
                            
                            
                            
                            30Net
      securities gains
                            
                            
                            -
                            
                            
                            
                            115
                            
                            
                            
                            4
                            
                            
                            
                            1Income
      before income taxes
                            
                            
                            903
                            
                            
                            
                            1,049
                            
                            
                            
                            873
                            
                            
                            
                            715Net
      income
                            
                            
                            700
                            
                            
                            
                            785
                            
                            
                            
                            691
                            
                            
                            
                            606Net
      income per share (basic and diluted)
                            
                            $
                            0.23
                            
                            
                            $
                            0.27
                            
                            
                            $
                            0.23
                            
                            
                            $
                            0.202006(Dollars
      in thousands,
                            
                            Three
      months ended,except per share amounts)
                            
                            December 31
                            
                            
                            September 30
                            
                            
                            June 30
                            
                            
                            March 31Interest
      income
                            
                            $
                            4,542
                            
                            
                            $
                            4,492
                            
                            
                            $
                            4,447
                            
                            
                            $
                            4,174Interest
      expense
                            
                            
                            1,609
                            
                            
                            
                            1,538
                            
                            
                            
                            1,480
                            
                            
                            
                            1,206Net
      interest income
                            
                            
                            2,933
                            
                            
                            
                            2,954
                            
                            
                            
                            2,967
                            
                            
                            
                            2,968Provision
      for credit losses
                            
                            
                            62
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      securities gains
                            
                            
                            106
                            
                            
                            
                            70
                            
                            
                            
                            -
                            
                            
                            
                            -Income
      before income taxes
                            
                            
                            903
                            
                            
                            
                            912
                            
                            
                            
                            844
                            
                            
                            
                            748Net
      income
                            
                            
                            609
                            
                            
                            
                            772
                            
                            
                            
                            713
                            
                            
                            
                            626Net
      income per share (basic and diluted)
                            
                            $
                            0.21
                            
                            
                            $
                            0.26
                            
                            
                            $
                            0.24
                            
                            
                            $
                            0.21
  F-35