===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
                                       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 No. 0-24047

                               GLEN BURNIE BANCORP
              -----------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Maryland                                            52-1782444
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


101 Crain Highway, S.E., Glen Burnie, Maryland                         21061
----------------------------------------------                       ----------
(Address of principal executive offices)                             (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, par value $10.00
                         ------------------------------
                                (Title of Class)

                          Common Stock Purchase Rights
                          ----------------------------
                                (Title of Class)


Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes X  No
                 ---    ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 23, 1999, the aggregate market value of the registrant's voting
stock held by non-affiliates was approximately $13.1 million based on the most
recent sales price of $23.00 per share of the registrant's Common Stock as of
such date as reported on the OTC Bulletin Board(R). For purposes of this
calculation only, it is assumed that directors, executive officers and
beneficial owners of more than 5% of the registrant's outstanding voting stock
are affiliates.

Number of shares of Common Stock outstanding as of March 23, 1999:  898,290

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Portions of Proxy Statement for 1999 Annual Meeting of Stockholders.
      (Part III)


================================================================================



<PAGE>



                                     PART I

Item 1.  Business

         Glen Burnie Bancorp (the "Company") is a bank holding company organized
in 1990 under the laws of the State of Maryland. It presently owns all the
outstanding shares of capital stock of The Bank of Glen Burnie (the "Bank"), a
commercial bank organized in 1949 under the laws of the State of Maryland,
serving Anne Arundel County and surrounding areas from its main office in Glen
Burnie, Maryland and branch offices in Odenton, Riviera Beach, Crownsville,
Severn and Ferndale, Maryland. The Bank is engaged in the commercial and retail
banking business as authorized by the banking statutes of the State of Maryland,
including the receiving of demand and time deposits, and the making of loans to
individuals, associations, partnerships and corporations. Real estate financing
consists of residential first and second mortgage loans, home equity lines of
credit and commercial mortgage loans. Commercial lending consists of both
secured and unsecured loans. The Bank's deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC").

         The Company's principal executive office is located at 101 Crain
Highway, S.E., Glen Burnie, Maryland 21061. Its telephone number at such office
is (410) 766-3300.

Market Area

         The Bank considers its principal market area for lending and deposit
products to consist of Northern Anne Arundel County, Maryland. Northern Anne
Arundel County is a mature suburb of the City of Baltimore which in recent years
has experienced modest population growth and is characterized by an aging
population. Management believes that the majority of the working population in
its market area either commutes to Baltimore or is employed at the nearby
Baltimore Washington International airport. Anne Arundel County is generally
considered to have more affordable housing than other suburban Baltimore areas
and has begun to attract younger persons and minorities on this basis. This
inflow, however, has not been sufficient to affect current population trends.

Lending Activities

         The Bank offers a full range of consumer and commercial loans. The
Bank's lending activities include residential and commercial real estate loans,
construction loans, land acquisition and development loans, equipment and
automobile lease financing, commercial loans and consumer installment lending
including indirect automobile lending. Substantially all of the Bank's loan
customers are residents of Anne Arundel County and surrounding areas of Central
Maryland. The Bank solicits loan applications for commercial loans from small to
medium sized businesses located in its market area. The Bank believes that this
is a market in which a relatively small community bank, like the Bank, has a
competitive advantage in personal service and flexibility. The Bank's lease
financing portfolio consists of loans purchased from third party originators.

         After several years of portfolio run-off, the Company's loan portfolio
increased by $14.0 million, or 12.5%, as the result of the introduction of an
indirect automobile lending program in 1998. The Bank's loan portfolio had
decreased in size in prior years primarily due to declines in the size of
construction loan portfolio and in its installment and commercial loan
portfolios. The declines in the construction portfolio reflected the significant
increase in such lending in fiscal year 1994 which was not sustained in
subsequent years. The run-off in the commercial portfolio reflected the Bank's
decision to decrease its equipment and automobile lease-based lending because of
the difficulties encountered in monitoring the financial condition of borrowers
on purchased leases. The declines in the installment and commercial loan
portfolios also reflected in part the substantial charge-offs which the Bank
took during fiscal years 1996 and 1995.

                                        2

<PAGE>



         The following table provides information on the composition of the loan
portfolio at the indicated dates.



<TABLE>
<CAPTION>
                                                                   At December 31,
                           --------------------------------------------------------------------------------------------------------
                                  1998                  1997                  1996                 1995               1994
                           ------------------   -------------------    ------------------    ------------------   -----------------
                              $          %           $         %          $          %          $          %          $         %
                           -------    -------    ---------  -------    --------   -------    --------   -------   ---------  ------
<S>                        <C>       <C>        <C>         <C>       <C>          <C>        <C>        <C>       <C>        <C>
                                                                    (Dollars in thousands)
Mortgage:
  Residential............  $ 33,931   26.28%    $ 38,048    32.68%    $ 36,505     27.95%     $ 38,142   24.60%    $ 35,079   22.29%
  Commercial.............    43,915   34.02       43,276    37.17       47,757     36.57        46,888   30.24       39,398   25.04
  Construction and land
      development........     2,383    1.85        4,888     4.20        5,515      4.22        14,265    9.20       21,014   13.35
Installment..............    41,749   32.34       18,862    16.20       22,281     17.06        27,898   17.99       32,352   20.66
Credit Card..............     1,398    1.08        1,397     1.20        1,434      1.10         1,484    0.96        1,233    0.78
Commercial...............     5,714    4.43        9,964     8.56       17,095     13.09        26,366   17.01       28,278   17.97
                           --------  ------     --------   ------      -------    ------       -------  ------      -------  ------
     Gross loans.........   129,090  100.00%     116,435   100.00%     130,587    100.00%      155,043  100.00%     157,354  100.00%
                                     ======                ======                 ======                ======               ======
Unearned income on loans.      (748)                (751)                 (854)                   (873)                (776)
                           --------             --------              --------                --------              -------
     Gross loans net of
        unearned income..   128,342              115,684               129,733                 154,170              156,578
Allowance for credit
   losses................    (2,841)              (4,139)               (5,061)                 (3,698)              (2,764)
                           --------             --------              --------                --------             --------
Loans, net ..............  $125,501             $111,545              $124,672                $150,472             $153,814
                           ========             ========              ========                ========             ========
</TABLE>



         The following table sets forth the maturities for various categories of
the loan portfolio at December 31, 1998. Demand loans and loans which have no
stated maturity are treated as due in one year or less. At December 31, 1998,
the Bank had $3,653,001 in loans due after one year with variable rates and
$109,565,074 in such loans with fixed rates. The Bank's long-term real estate
loans allow the Bank to call the loan after three years in order to adjust the
interest rate if necessary. The Bank has generally not exercised its call option
and the following table assumes no exercise of the Bank's call option.


<TABLE>
<CAPTION>
                                                               Due Over
                                        Due Within            One to Five        Due Over
                                         One Year                Years          Five Years         Total
                                         --------                -----          ----------         -----
<S>                                    <C>                    <C>              <C>                <C>
                                                             (In thousands)
Real estate -- mortgage:
  Residential.........................  $   3,521            $     2,620        $ 27,790        $   33,931
  Commercial..........................      3,283                  6,478          34,154            43,915
Real estate -- construction...........      1,207                    277             899             2,383
Installment...........................      1,958                 36,663           3,128            41,749
Credit Card...........................      1,398                     --              --             1,398
Commercial............................      4,505                    959             250             5,714
                                        ---------            -----------        --------        ----------
                                        $  15,872            $    46,997        $ 66,221        $  129,090
                                        =========            ===========        ========        ==========
</TABLE>

                                        3

<PAGE>



         Real Estate Lending. The Bank offers long-term mortgage financing for
residential and commercial real estate as well as shorter term construction and
land development loans. Residential mortgage and residential construction loans
are originated with fixed rates while commercial mortgages may be originated on
either a fixed or variable rate basis. Commercial construction loans are
generally originated on a variable rate basis. The Bank's long-term, fixed-rate
mortgages include a provision allowing the Bank to call the loan after three
years in order to adjust the interest rate. The Bank, however, has never
exercised this right. Substantially all of the Bank's real estate loans are
secured by properties in Anne Arundel County, Maryland. Under the Bank's loan
policies, the maximum permissible loan-to-value ratio for owner-occupied
residential mortgages is 80% of the lesser of the purchase price or appraised
value. For residential investment properties, the maximum loan-to-value ratio is
75%. The maximum permissible loan-to-value ratio for residential and commercial
construction loans is 80%. The maximum loan-to-value ratio for permanent
commercial mortgages is 75%. The maximum loan-to-value ratio for land
development loans is 70% and for unimproved land is 65%. The Bank also offers
home equity loans secured by the borrower's primary residence provided that the
aggregate indebtedness on the property does not exceed 80% of its value.

         Commercial Lending. The Bank's commercial loan portfolio consists
principally of demand and time loans for commercial purposes and purchased lease
financings. The Bank's business demand and time lending includes various working
capital loans, lines of credit and letters of credit for commercial customers.
Demand loans require the payment of interest until called while time loans
require a single payment of principal and interest at maturity. Such loans may
be made on a secured or an unsecured basis. All such loans are underwritten on
the basis of the borrower's creditworthiness rather than the value of the
collateral. The Bank's lease financing portfolio includes leases on various
types of commercial equipment that have been purchased from various vendors. The
Bank has determined to de-emphasize lease financing because of the difficulties
encountered in monitoring the financial condition of borrowers on purchased
leases.

         Installment Lending. The Bank makes consumer and commercial installment
loans for the purchase of automobiles, boats, other consumer durable goods,
capital goods and equipment. Such loans provide for repayment in regular
installments and are secured by the goods financed. Also included in installment
loans are overdraft loans and other credit repayable in installments. As of
December 31, 1998, approximately 20% of the installment loans in the Bank's
portfolio had been originated for commercial purposes and 80% had been
originated for consumer purposes.

         Included in installment loans are approximately $24.6 million in
automobile loans, net of dealer reserves. These loans were originated through
the Bank's indirect automobile lending program which was introduced in January
1998. The Bank's indirect automobile loans are originated through selected local
automobile dealers who receive a fee for each loan made to their customers. The
dealer typically takes a credit application from their customer which is
transmitted to the Bank for evaluation. If the loan is approved, the Bank will
hold back a portion of the loan proceeds in a dealer reserve account which
serves as a reserve for losses.

         Credit Card and Related Loans. Credit card and related loans consist of
outstanding balances on credit cards and overdraft lines of credit. The Bank
offers no annual fee VISA(R) and MasterCard(R) credit cards to qualified
customers. Credit card billing and payment processing is done for the Bank by an
unaffiliated third party which receives a fee for such services. The Bank's
overdraft protection line of credit is offered as a convenience to qualified
customers.

         Although the risk of non-payment for any reason exists with respect to
all loans, certain other specific risks are associated with each type of loan.
The primary risks associated with commercial loans, including commercial real
estate loans, are the quality of the borrower's management and a number of
economic and other factors which induce business failures and depreciate the
value of business assets pledged to secure the loan, including competition,
insufficient capital, product obsolescence, changes in the cost of production,
environmental hazards, weather, changes in laws and regulations and general
changes in the marketplace. Primary risks associated with residential real
estate loans include fluctuating land and property values and rising interest
rates with respect to fixed-rate, long-term loans. Residential construction
lending exposes the Company to risks related to builder performance. Consumer
loans are affected primarily by domestic instability and a variety of factors
that may lead to the borrower's unemployment, including deteriorating economic
conditions in one or more segments of a local or broader economy.

                                        4

<PAGE>



         The Bank's lending activities are conducted pursuant to written
policies approved by the Board of Directors intended to ensure proper management
of credit risk. Loans are subject to a well defined credit process that includes
credit evaluation of borrowers, establishment of lending limits and application
of lending procedures, including the holding of adequate collateral and the
maintenance of compensating balances, as well as procedures for on-going
identification and management of credit deterioration. Regular portfolio reviews
are performed by the Senior Credit Officer to identify potential underperforming
credits, estimate loss exposure and to ascertain compliance with the Bank's
policies. On a quarterly basis, the internal auditor performs an independent
loan review. For significant problem loans, management review consists of
evaluation of the financial strengths of the borrower and the guarantor, the
related collateral, and the effects of economic conditions.

         The Bank's loan approval policy provides for various levels of
individual lending authority. The maximum lending authority granted by the Bank
to any one individual is $500,000. A combination of approvals from certain
officers may be used to lend up to an aggregate of $1,000,000. The Bank's
Executive Committee is authorized to approve loans up to $1.0 million. Larger
loans must be approved by the full Board of Directors.

         Under Maryland law, the maximum amount which the Bank is permitted to
lend to any one borrower and their related interests may generally not exceed
10% of the Bank's unimpaired capital and surplus which is defined to include the
Bank's capital, surplus, retained earnings and 50% of its reserve for possible
loan losses. Under this authority, the Bank would have been permitted to lend up
to $1.66 million to any one borrower at December 31, 1998. By interpretive
ruling of the Commissioner, Maryland banks have the option of lending up to the
amount that would be permissible for a national bank which is generally 15% of
unimpaired capital and surplus (defined to include a bank's total capital for
regulatory capital purposes plus any loan loss allowances not included in
regulatory capital). Under this formula, the Bank would have been permitted to
lend up to $1.91 million to any one borrower at December 31, 1998. It is
currently the Bank's policy to limit its exposure to any one borrower to no more
than $1.85 million in the aggregate unless the loan is approved by a 75% vote of
the Board of Directors with respect to new borrowings. At December 31, 1998, the
largest amount outstanding to any one borrower and their related interests was
$2,554,450 which was within the Bank's lending limit at the time when made.

Non-Performing Loans

         It is the current policy of the Bank to discontinue the accrual of
interest when a loan becomes 90 days or more delinquent and circumstances
indicate that collection is doubtful. For fiscal years prior to the 1997 fiscal
year, the Bank's policy was to consider real estate loans on a case-by-case
basis subject to collateral. For the year ended December 31, 1998, interest of
approximately $269,112, would have been accrued on non-accrual loans if such
loans had been current in accordance with their original terms. During such
period there was no interest on such loans included in income.


                                        5

<PAGE>



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

<TABLE>
<CAPTION>
                                                                   At December 31,
                                                -------------------------------------------------------------
                                                   1998         1997         1996         1995         1994
                                                   ----         ----         ----         ----         ----
<S>                                             <C>            <C>          <C>          <C>          <C>
                                                                    (Dollars in thousands)

Restructured Loans...........................   $    294     $     344    $      --    $     --    $      --
                                                ========     =========    =========    ========    ==========
Non-accrual Loans:
   Real estate -- mortgage:
     Residential.............................   $    336     $   1,078    $   2,065    $     812   $      347
     Commercial..............................        505           761        1,935          274          209
   Real estate -- construction...............        316           608            0            0            0
   Installment...............................        463           665          168          165           25
   Credit card & related ....................          0             0            0            4            0
   Commercial................................        105           369          378        1,120           74
                                                --------     ---------    ---------    ---------   ----------
       Total Non-accrual Loans...............      1,725         3,481        4,546        2,375          655
                                                --------     ---------    ---------    ---------   ----------
Accruing Loans Past Due 90 Days or More:
   Real estate -- mortgage:
     Residential.............................          0             5           87        1,467        1,153
     Commercial..............................          0             0            0        1,500        1,451
   Real estate -- construction...............          0             0            0            0            0
   Installment...............................          0             0            0          300            0
   Credit card & related ....................         18             0            0           28            5
   Commercial................................          0             0            0          610          310
                                                --------     ---------    ---------    ---------   ----------
       Total accruing loans past due 90 days
         or more.............................         18             5           87        3,905        2,919
                                                --------     ---------    ---------    ---------   ----------
       Total non-accrual and past due loans..   $  1,743     $   3,486    $   4,633    $   6,280   $    3,574
                                                ========     =========    =========    =========   ==========
       Non-accrual and past due loans to
         gross loans.........................       1.35%         2.99%        3.55%        4.05%        2.27%
                                                ========     =========    =========    =========   ==========
       Allowance for credit losses to
         non-accrual and past due loans......     179.58%       118.73%      109.24%       58.89%       77.34%
                                                ========     =========    =========    =========   ==========
</TABLE>


         During the year ended December 31, 1998, the Bank would have recorded
$18,021 in interest on restructured loans if such loans were performing in
accordance with their original terms. During 1998, the Bank recognized $16,765
in interest income on restructured loans.

         Approximately $1,538,163, or 89.18%, of the Bank's non-accrual loans at
December 31, 1998 were attributable to ten borrowers. Charge-offs of $620,894
have previously been taken on these loans. Seven of these borrowers with loans
totaling $1,138,899 were in bankruptcy at that date. Because of the legal
protections afforded to borrowers in bankruptcy, collections on such loans are
difficult and the Bank anticipates that such loans may remain delinquent for an
extended period of time. Each of these loans is secured by collateral with a
value well in excess of the principal amount of the Bank's loan.

         At December 31, 1998, there were no loans outstanding not reflected in
the above table as to which known information about possible credit problems of
borrowers caused management to have serious doubts as to the ability of such
borrowers to comply with present loan repayment terms. Such loans consist of
loans which were not 90 days or more past due but where the borrower is in
bankruptcy or has a history of delinquency or the loan to value ratio is
considered excessive due to deterioration of the collateral or other factors.

         At December 31, 1998, the Company had $1,099,326 in real estate
acquired in partial or total satisfaction of debt compared to $748,231 and
$602,000 in such properties at December 31, 1997 and 1996, respectively. All
such properties are recorded at the lower of cost or fair value at the date
acquired and carried on the balance sheet as other

                                        6

<PAGE>



real estate owned. Losses arising at the date of acquisition are charged against
the allowance for credit losses. Subsequent write-downs that may be required and
expense of operation are included in non-interest expense. Gains and losses
realized from the sale of other real estate owned are included in non-interest
income or expense. For a description of the properties comprising other real
estate owned at December 31, 1998, see "Item 2. -- Properties."

Allowance for Credit Losses

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

         Transactions in the allowance for credit losses during the last five
fiscal years were as follows:


<TABLE>
<CAPTION>
                                                                   At December 31,
                                                -------------------------------------------------------------
                                                   1998         1997         1996         1995         1994
                                                   ----         ----         ----         ----         ----
<S>                                             <C>            <C>          <C>          <C>          <C>
                                                                    (Dollars in thousands)


Beginning balance...........................   $   4,139    $   5,061    $   3,698    $   2,764    $   2,552
                                               ---------    ---------    ---------    ---------    ---------
Loans charged off Real estate -- mortgage:
     Residential............................          51          270          250        1,044          419
     Commercial.............................           0            0          797          497            6
   Real estate -- construction..............         189          435            0            0            0
   Installment..............................         473          171          786          270           29
   Credit card & related ...................           0           45          182          194            1
   Commercial...............................         382          697        3,453        5,056          520
                                               ---------    ---------    ---------    ---------    ---------
          Total.............................       1,095        1,618        5,468        7,061          975
                                               ---------    ---------    ---------    ---------    ---------
Recoveries Real estate -- mortgage:
     Residential............................          51           25           22           23           15
     Commercial.............................          26           17           81           10            3
   Real estate -- construction..............           1            0            0            0            0
   Installment..............................         116           89           57           11           20
   Credit card & related ...................           4            5            2            0            0
   Commercial...............................          99          290           73           26           29
                                               ---------    ---------    ---------    ---------    ---------
         Total..............................         297          426          235           70           67
                                               ---------    ---------    ---------    ---------    ---------
Net charge-offs.............................         798        1,192        5,233        6,991          908
Provisions charged to operations............        (500)         270        6,596        7,925        1,120
                                               -----------  ---------    ---------    ---------    ---------
Ending balance..............................   $   2,841    $   4,139    $   5,061    $   3,698    $   2,764
                                               =========    =========    =========    =========    =========
Average loans...............................   $ 118,372    $ 119,161    $ 146,922    $ 156,219    $ 151,933
Net charge-offs to average loans ...........        0.67%        1.00%        3.56%        4.48%        0.60%
</TABLE>


         The Bank's high level of loan charge-offs during fiscal years 1996 and
1995 was primarily attributable to its lending relationships with Mr. Brian
Davis and various affiliated entities. Such loans primarily consisted of loans
for purchases of trucks and other non-real estate secured loans which are
categorized under commercial loans in the above table. In addition, during
fiscal year 1996, the Bank began charging off all non-real estate secured loans
upon 90 days delinquency which contributed to a continued high level of
charge-offs.


                                        7

<PAGE>



         The following table shows the allowance for credit losses broken down
by loan category as of December 31, 1998, 1997 and 1996. Such information for
earlier periods is not available.

<TABLE>
<CAPTION>
                                                                        At December 31,
                                    --------------------------------------------------------------------------------------------
                                                1998                         1997                          1996
                                            ------------                 ------------                  ------------
                                      Reserve    Percent of Loans   Reserve    Percent of Loans   Reserve   Percent of Loans
                                      for Each   in Each Category   for Each   in Each Category   for Each  in Each Category
Portfolio                             Category    to Total Loans    Category    to Total Loans    Category   to Total Loans
---------                             --------   ---------------    --------    --------------    --------   --------------
<S>                                  <C>         <C>              <C>         <C>                <C>         <C>
                                                                    (Dollars in thousands)
   Real estate -- mortgage:
     Residential.................   $     273          26.28%      $  389       32.68%            $  432       27.85%
     Commercial..................         311          34.02          987       37.17                987       36.57
   Real estate -- construction...         335           1.85          390        4.20                690        4.22
   Installment...................         455          32.34          159       16.20                448       17.06
   Credit Card..................           60           1.08           47        1.20                 49        1.10
   Commercial...................          966           4.43        1,186        8.56              2,455       13.09
   Unallocated...................         441           0.00          981        0.00                  0        0.00
                                    ---------        -------       ------     -------             ------    --------
       Total.....................   $   2,841         100.00%      $4,139      100.00%            $5,061      100.00%
                                    =========         ======       ======      ======             ======      ======
</TABLE>


Investment Securities

         The Bank maintains a substantial portfolio of investment securities to
provide liquidity as well as a source of earnings. The Bank's investment
securities portfolio consists primarily of U.S. Treasury securities as well as
securities issued by U.S. Government agencies including mortgage-backed
securities. The Bank formerly maintained a substantial portfolio in obligations
of certain states and their political subdivisions. This portfolio has been
eliminated because the Company was no longer able to use the full tax advantages
of this portfolio.

         The following table presents at amortized cost the composition of the
investment portfolio by major category at the dates indicated.

<TABLE>
<CAPTION>
                                                                  At December 31,
                                                   ------------------------------------------------
                                                        1998              1997            1996
                                                        ----              ----            ----
<S>                                                <C>                <C>               <C>
                                                                     (In thousands)

U.S. Treasury securities ..........................  $   5,082         $   9,068        $  13,061
U.S. Government agencies and
  mortgage-backed securities.......................     59,008            63,414           56,607
Obligations of states and political
  subdivisions.....................................         --             8,073           25,726
Other securities and stock.........................        936               936              748
                                                     ---------         ---------        ---------
Total investment securities........................  $  65,026         $  81,491        $  96,142
                                                     =========         =========        =========
</TABLE>



                                        8

<PAGE>



         The following table sets forth the scheduled maturities, book values
and weighted average yields for the Company's investment securities portfolio at
December 31, 1998.

<TABLE>
<CAPTION>
                                  One Year or Less     One to Five Years  Five to Ten Years  More than Ten Years       Total
                                  ------------------   -----------------  -----------------  -------------------   -----------------
                                            Weighted            Weighted           Weighted           Weighted             Weighted
                                    Book     Average    Book     Average    Book    Average   Book     Average    Book      Average
                                    Value     Yield     Value    Yield     Value     Yield    Value     Yield     Value      Yield
                                    -----     -----     -----    -----     -----     -----    -----     -----     -----      -----
<S>                               <C>       <C>        <C>       <C>      <C>       <C>       <C>      <C>        <C>        <C>
                                                                     (Dollars in thousands)

U.S. Treasury securities ........   $1,250    6.55%   $  3,338    6.23%   $    494   5.86%    $     0    0.00%      $ 5,082    6.27%
U.S. Government agencies and
  mortgage-backed securities.....    1,500    5.85      11,355    6.51      14,079   6.49      32,074    6.61        59,008    6.54
Other securities and stock.......      936    7.44           0    0.00           0   0.00           0    0.00           936    7.44
                                    ------    ----    --------    ----    --------   ----     -------    ----       -------    ----
     Total investment securities.   $3,686    6.49%   $ 14,693    6.45%   $ 14,573   6.47%    $32,074    6.61%      $65,026    6.53%
                                    ======    ====    ========    ====    ========   ====     =======    ====       =======    ====
</TABLE>



         At December 31, 1998, the Bank had no investments in securities of a
single issuer (other than the U.S. Government securities and securities of
federal agencies and government-sponsored enterprises) which aggregated more
than 10% of stockholders' equity.

Deposits and Sources of Funds

         The funds needed by the Bank to make loans are generated by deposit
accounts solicited from the communities surrounding its main office and six
branches in northern Anne Arundel County. Consolidated total deposits were
$199,611,115 as of December 31, 1998. In addition, the Bank may borrow up to $26
million under a line of credit from the Federal Home Loan Bank of Atlanta.

         The Bank's deposit products include regular savings accounts
(statements), money market deposit accounts, demand deposit accounts, NOW
checking accounts, IRA accounts and certificates of deposit accounts. Variations
in service charges, terms and interest rates are used to target specific
markets. Ancillary products and services for deposit customers include safe
deposit boxes, money orders and travelers checks, night depositories, automated
clearinghouse transactions, wire transfers, automated teller machines, telephone
banking, and a customer call center.

         The Bank obtains deposits principally through its network of seven
offices. The Bank does not solicit brokered deposits. At December 31, 1998, the
Bank had approximately $10.6 million in certificates of deposit and other time
deposits of $100,000 or more including IRA accounts. The following table
provides information as to the maturity of all time deposits of $100,000 or more
at December 31, 1998.

<TABLE>
<CAPTION>
                                                                         Amount
                                                                         ------
<S>                                                                   <C> 
                                                                     (In thousands)

               Three months or less..................................  $    2,946
               Over three through six months.........................       1,404
               Over six through 12 months............................       1,386
               Over 12 months........................................       4,873
                                                                       ----------
                   Total.............................................  $   10,609
                                                                       ==========
</TABLE>

                                        9

<PAGE>



Competition

         The Bank faces competition from other community banks and financial
institutions and larger intra- and interstate banks and financial institutions
which compete vigorously (currently, twelve financial institutions operate
within two miles of the Bank's headquarters). Former directors of the Bank,
including its former Chief Executive Officer, have established a new bank with a
main office in Glen Burnie close to the Bank's headquarters. The Bank
anticipates that this new bank will solicit a significant number of its
customers.

         The Bank's interest rates, loan and deposit terms, and offered products
and services are governed, to a large extent, by such competition. The Bank
attempts to provide superior service within its community and to know and
facilitate services to its customers. It seeks commercial relationships with
small to medium size businesses which, it believes, would welcome personal
service and flexibility. While it believes it is the sixth largest deposit
holder in Anne Arundel County, Maryland, with an estimated 5.74% market share as
of June 1996 (the latest date for which the Bank has relevant data available),
it believes its greatest competition comes from smaller community banks which
offer similar personalized services.

Other Activities

         The Company also owns all outstanding shares of capital stock of GBB
Properties, Inc. ("GBB"), another Maryland corporation which was organized in
1994 and which is engaged in the business of acquiring, holding and disposing of
real property, typically acquired in connection with foreclosure proceedings (or
deeds in lieu of foreclosure) instituted by the Bank or acquired in connection
with branch expansions by the Bank.

Employees

         At December 31, 1998, the Bank had 125 full-time equivalent employees.
Neither the Company nor GBB currently has any employees.


                           SUPERVISION AND REGULATION

Regulation of the Company

         General. The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956 (the "BHCA"). As such, the Company is
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and subject to Federal Reserve Board regulation,
examination, supervision and reporting requirements. As a bank holding company,
the Company is required to furnish to the Federal Reserve Board annual and
quarterly reports of its operations at the end of each period and to furnish
such additional information as the Federal Reserve Board may require pursuant to
the BHCA. The Company is also subject to regular inspection by Federal Reserve
Board examiners.

         Under the BHCA, a bank holding company must obtain the prior approval
of the Federal Reserve Board before: (1) acquiring direct or indirect ownership
or control of any voting shares of any bank or bank holding company if, after
such acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.

         Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency of 1994 (the "Riegle-Neal Act") authorized the Federal
Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not

                                       10

<PAGE>



been in existence for the minimum time period (not exceeding five years)
specified by the statutory law of the host state. The Reigle-Neal Act also
prohibits the Federal Reserve Board from approving such an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Reigle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank or bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit contained in the Reigle-Neal Act. Under Maryland law, a bank holding
company is prohibited from acquiring control of any bank if the bank holding
company would control more than 30% of the total deposits of all depository
institutions in the State of Maryland unless waived by the Commissioner.

         Additionally, beginning on June 1, 1997, the federal banking agencies
are authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opted out of the Reigle-Neal Act by adopting a law
after the date of enactment of the Reigle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. The State of Maryland did not pass
such a law during this period. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions will also be
subject to the nationwide and statewide insured deposit concentration amounts
described above.

         The BHCA also prohibits, with certain exceptions, a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The activities of the Company are
subject to these legal and regulatory limitations under the BHCA and the Federal
Reserve Board's regulations thereunder. Notwithstanding the Federal Reserve
Board's prior approval of specific nonbanking activities, the Federal Reserve
Board has the power to order a holding company or its subsidiaries to terminate
any activity, or to terminate its ownership or control of any subsidiary, when
it has reasonable cause to believe that the continuation of such activity or
such ownership or control constitutes a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that holding company.

         The Maryland Financial Institutions Code prohibits a bank holding
company from acquiring more than 5% of any class of voting stock of a bank or
bank holding company without the approval of the Commissioner except as
otherwise expressly permitted by federal law or in certain other limited
situations. The Maryland Financial Institutions Code additionally prohibits any
person from acquiring voting stock in a bank or bank holding company without 60
days' prior notice to the Commissioner if such acquisition will give the person
control of 25% or more of the voting stock of the bank or bank holding company
or will affect the power to direct or to cause the direction of the policy or
management of the bank or bank holding company. Any doubt whether the stock
acquisition will affect the power to direct or cause the direction of policy or
management shall be resolved in favor of reporting to the Commissioner. The
Commissioner may deny approval of the acquisition if the Commissioner determines
it to be anti-competitive or to threaten the safety or soundness of a banking
institution. Voting stock acquired in violation of this statute may not be voted
for five years.

         Capital Adequacy. The Federal Reserve Board has adopted guidelines
regarding the capital adequacy of bank holding companies, which require bank
holding companies to maintain specified minimum ratios of capital to total
assets and capital to risk-weighted assets. See "Regulation of the Bank --
Capital Adequacy."

         Dividends and Distributions. The Federal Reserve Board has the power to
prohibit dividends by bank holding companies if their actions constitute unsafe
or unsound practices. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the company's net income

                                       11

<PAGE>



for the past year is sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the company's capital needs, asset
quality, and overall financial condition.

         Bank holding companies are required to give the Federal Reserve Board
notice of any purchase or redemption of their outstanding equity securities if
the gross consideration for the purchase or redemption, when combined with the
net consideration paid for all such purchases or redemptions during the
preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve Board order, directive, or any condition imposed by,
or written agreement with, the Federal Reserve Board. Bank holding companies
whose capital ratios exceed the thresholds for "well capitalized" banks on a
consolidated basis are exempt from the foregoing requirement if they were rated
composite 1 or 2 in their most recent inspection and are not the subject of any
unresolved supervisory issues.

Regulation of the Bank

         General. As a state-chartered bank with deposits insured by the FDIC
but which is not a member of the Federal Reserve System (a "state non-member
bank"), the Bank is subject to the supervision of the Commissioner and the FDIC.
The Commissioner and FDIC regularly examine the operations of the Bank,
including but not limited to capital adequacy, reserves, loans, investments and
management practices. These examinations are for the protection of the Bank's
depositors and not its stockholders. In addition, the Bank is required to
furnish quarterly and annual call reports to the Commissioner and FDIC. The
FDIC's enforcement authority includes the power to remove officers and directors
and the authority to issue cease-and-desist orders to prevent a bank from
engaging in unsafe or unsound practices or violating laws or regulations
governing its business.

         The Bank's deposits are insured by the FDIC to the legal maximum of
$100,000 for each insured depositor. Some of the aspects of the lending and
deposit business of the Bank that are subject to regulation by the Federal
Reserve Board and the FDIC include reserve requirements and disclosure
requirements in connection with personal and mortgage loans and savings deposit
accounts. In addition, the Bank is subject to numerous federal and state laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.

         Capital Adequacy. The Federal Reserve Board and the FDIC have
established guidelines with respect to the maintenance of appropriate levels of
capital by bank holding companies and state non-member banks, respectively. The
regulations impose two sets of capital adequacy requirements: minimum leverage
rules, which require bank holding companies and banks to maintain a specified
minimum ratio of capital to total assets, and risk-based capital rules, which
require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.

         The regulations of the Federal Reserve Board and the FDIC require bank
holding companies and state non-member banks, respectively, to maintain a
minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve Board has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization's ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of capital.


                                       12

<PAGE>



         The risk-based capital rules of the Federal Reserve Board and the FDIC
require bank holding companies and state non-member banks, respectively, to
maintain minimum regulatory capital levels based upon a weighting of their
assets and off-balance sheet obligations according to risk. Risk-based capital
is composed of two elements: Tier 1 capital and Tier 2 capital. Tier 1 capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less all
intangible assets, except for certain purchased mortgage servicing rights and
credit card relationships. Tier 2 capital elements include, subject to certain
limitations, the allowance for losses on loans and leases; perpetual preferred
stock that does not qualify as Tier 1 capital and long-term preferred stock with
an original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.

         The risk-based capital regulations assign balance sheet assets and
credit equivalent amounts of off-balance sheet obligations to one of four broad
risk categories based principally on the degree of credit risk associated with
the obligor. The assets and off-balance sheet items in the four risk categories
are weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets. The risk-based capital regulations require all banks and
bank holding companies to maintain a minimum ratio of total capital (Tier 1
capital plus Tier 2 capital) to total risk-weighted assets of 8%, with at least
4% as Tier 1 capital. For the purpose of calculating these ratios: (i) Tier 2
capital is limited to no more than 100% of Tier 1 capital; and (ii) the
aggregate amount of certain types of Tier 2 capital is limited. In addition, the
risk-based capital regulations limit the allowance for loan losses includable as
capital to 1.25% of total risk-weighted assets.

         FDIC regulations and guidelines additionally specify that state
non-member banks with significant exposure to declines in the economic value of
their capital due to changes in interest rates may be required to maintain
higher risk-based capital ratios. The federal banking agencies, including the
FDIC, have proposed a system for measuring and assessing the exposure of a
bank's net economic value to changes in interest rates. The federal banking
agencies, including the FDIC, have stated their intention to propose a rule
establishing an explicit capital charge for interest rate risk based upon the
level of a bank's measured interest rate risk exposure after more experience has
been gained with the proposed measurement process. Federal Reserve Board
regulations do not specifically take into account interest rate risk in
measuring the capital adequacy of bank holding companies.

         The FDIC has issued regulations which classify state non-member banks
by capital levels and which authorize the FDIC to take various prompt corrective
actions to resolve the problems of any bank that fails to satisfy the capital
standards. Under such regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has or exceeds the following capital levels: a total risk-based capital
ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of
5%. An adequately capitalized bank is one that does not qualify as
well-capitalized but meets or exceeds the following capital requirements: a
total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%,
and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest
composite examination rating. A bank not meeting these criteria is treated as
undercapitalized, significantly undercapitalized, or critically undercapitalized
depending on the extent to which the bank's capital levels are below these
standards. A state non-member bank that falls within any of the three
undercapitalized categories established by the prompt corrective action
regulation will be subject to severe regulatory sanctions. As of December 31,
1998, the Bank was well-capitalized as defined by the FDIC's regulations.

         Branching. Maryland law provides that, with the approval of the
Commissioner, Maryland banks may establish branches within the State of Maryland
without geographic restriction and may establish branches in other states by any
means permitted by the laws of such state or by federal law. The Reigle-Neal Act
authorizes the FDIC to approve interstate branching de novo by state banks, only
in states which specifically allow for such branching. The Reigle-Neal Act also
requires the appropriate federal banking agencies to prescribe regulations by
June 1, 1997 which prohibit any out-of-state bank from using the interstate
branching authority primarily for the purpose of deposit production. These
regulations must include guidelines to ensure that interstate branches operated
by an out-of-state bank in a host state are reasonably helping to meet the
credit needs of the communities which they serve.


                                       13

<PAGE>



         Dividend Limitations. Pursuant to the Maryland Financial Institutions
Code, Maryland banks may only pay dividends from undivided profits or, with the
prior approval of the Commissioner, their surplus in excess of 100% of required
capital stock. The Maryland Financial Institutions Code further restricts the
payment of dividends by prohibiting a Maryland bank from declaring a dividend on
its shares of common stock until its surplus fund equals the amount of required
capital stock or, if the surplus fund does not equal the amount of capital
stock, in an amount in excess of 90% of net earnings. In addition, the Bank is
prohibited by federal statute from paying dividends or making any other capital
distribution that would cause the Bank to fail to meet its regulatory capital
requirements. Further, the FDIC also has authority to prohibit the payment of
dividends by a state non-member bank when it determines such payment to be an
unsafe and unsound banking practice.

         Deposit Insurance. The Bank is required to pay semi-annual assessments
based on a percentage of its insured deposits to the FDIC for insurance of its
deposits by the Bank Insurance Fund ("BIF"). Under the Federal Deposit Insurance
Act, the FDIC is required to set semi-annual assessments for BIF-insured
institutions to maintain the designated reserve ratio of the BIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the BIF.

         Under the risk-based deposit insurance assessment system adopted by the
FDIC, the assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to regulators for the date closest to the last day of the
seventh month preceding the semi-annual assessment period, institutions are
assigned to one of three capital groups -- "well capitalized, adequately
capitalized or undercapitalized." Within each capital group, institutions are
assigned to one of three subgroups on the basis of supervisory evaluations by
the institution's primary supervisory authority and such other information as
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance fund. Under the current assessment
schedule, well-capitalized banks with the best supervisory ratings are not
required to pay any premium for deposit insurance. All BIF-insured banks,
however are required to pay an assessment to the FDIC in an amount equal to 1.3
basis points times their assessable deposits to help fund interest payments on
certain bonds issued by the Financing Corporation, an agency established by the
federal government to finance takeovers of insolvent thrifts.

         Transactions with Affiliates. A state non-member bank or its
subsidiaries may not engage in "covered transactions" with any one affiliate in
an amount greater than 10% of such bank's capital stock and surplus, and for all
such transactions with all affiliates a state non-member bank is limited to an
amount equal to 20% of capital stock and surplus. All such transactions must
also be on terms substantially the same, or at least as favorable, to the bank
or subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and similar other types of transactions. An affiliate of a state
non-member bank is any company or entity which controls, is controlled by or is
under common control with the state non-member bank. In a holding company
context, the parent holding company of a state nonmember bank (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the state nonmember bank. The BHCA further prohibits a
depository institution from extending credit to or offering any other services,
or fixing or varying the consideration for such extension of credit or service,
on the condition that the customer obtain some additional service from the
institution or certain of its affiliates or not obtain services of a competitor
of the institution, subject to certain limited exceptions.

         Loans to Directors, Executive Officers and Principal Stockholders.
Loans to directors, executive officers and principal stockholders of a state
non-member bank must be made on substantially the same terms as those prevailing
for comparable transactions with persons who are not executive officers,
directors, principal stockholders or employees of the Bank unless the loan is
made pursuant to a compensation or benefit plan that is widely available to
employees and does not favor insiders. Loans to any executive officer, director
and principal stockholder together with all other outstanding loans to such
person and affiliated interests generally may not exceed 15% of the bank's
unimpaired capital and surplus and all loans to such persons may not exceed the
institution's unimpaired capital and unimpaired surplus. Loans to directors,
executive officers and principal stockholders, and their respective affiliates,
in excess of the greater

                                       14

<PAGE>



of $25,000 or 5% of capital and surplus (up to $500,000) must be approved in
advance by a majority of the board of directors of the bank with any
"interested" director not participating in the voting. State non-member banks
are prohibited from paying the overdrafts of any of their executive officers or
directors. In addition, loans to executive officers may not be made on terms
more favorable than those afforded other borrowers and are restricted as to
type, amount and terms of credit.

Executive Officers of the Registrant

         Set forth below is information about the Company's executive officers.

<TABLE>
<CAPTION>
         Name                               Age                  Positions
         ----                               ---                  ---------
<S>                                          <C>                 <C>
         F. William Kuethe, Jr.              66                  President and Chief Executive Officer
         Michael P. Gavin                    42                  Executive Vice President and Chief Operating Officer
         Michael G. Livingston               44                  Senior Vice President and Chief Lending Officer
         John E. Porter                      44                  Senior Vice President and Chief Financial Officer
         John I. Young                       61                  Senior Vice President
</TABLE>

         F. William Kuethe, Jr. has been President and Chief Executive Officer
of the Company and the Bank since 1995. He also was director of the Bank from
1963 through 1989. He was President of Glen Burnie Mutual Savings Bank from 1960
through 1995. Mr. Kuethe is a former licensed appraiser and real estate broker
with banking experience from 1960 to present, at all levels. He is the father of
Frederick W. Kuethe, III.

         Michael P. Gavin was appointed Executive Vice President and Chief
Operating Officer effective January 12, 1998. He had previously been Senior Vice
President, Director of Operations, Susquehanna Bank, Baltimore, Maryland since
May 1997 and President, Atlantic Federal Savings Bank, Baltimore, Maryland from
December 1991 to May 1997. Mr. Gavin has announced his resignation effective in
June 1999.

         Michael G. Livingston was appointed Senior Vice President in January
1998 and has been Chief Lending Officer of the Bank since 1996. He was Regional
Vice President and commercial loan officer with Citizens Bank from March 1993
until April 1996. He was Comptroller with Land Services Group from April 1992
through January 1993.

         John E. Porter was appointed Senior Vice President in January 1998. He
has been Treasurer and Chief Financial Officer of the Company since 1995 and
Vice President, Treasurer and Chief Financial Officer of the Bank since 1990. He
has been Secretary/Treasurer of GBB since 1995.

         John I. Young was appointed Senior Vice President of the Bank in March
1999. Prior to joining the Bank, he had been president of Young-Harris, Inc., a
financial industry consulting company since 1980. Mr. Young was president of
American Bank Services Corp. from January 1977 to 1980 and was Senior Vice
President of Operations of Equitable Trust Bank from 1958 until December 1976.

Item 2.  Properties

         The Bank owns its Banking Operations Center, its Executive Offices, its
main banking facility in Glen Burnie, and four branch offices in various
communities in Anne Arundel County, Maryland, all of which are unencumbered. The
Bank leases two other branch offices. The Company owns no real estate at
present. At December 31, 1998, GBB owned one parcel of real estate obtained from
a foreclosure by the Bank. The book value of this property was $143,000. The
property consists of office condominiums. GBB intends to sell this property. At
December 31, 1998, the Bank owned four foreclosed real estate properties having
a book value of $956,326, which consisted of residential property, a building
lot and commercial property which the Bank is holding for sale. On March 23,
1999, the Bank completed the sale of the building lot.


                                       15

<PAGE>



Item 3.  Legal Proceedings

         On March 20, 1996, McCafferty's Restaurant ("McCafferty's") commenced
an adversary proceeding (McCafferty's, Inc. v. Bank of Glen Burnie Adversary
Case, Case No. 96-5137-ESD, U.S. Bank. Ct., D. Md.) in McCafferty's pending
Chapter 11 bankruptcy case (In re McCafferty's, Inc., Case No. 96-5-2444-SD,
U.S. Bank. Ct., D. Md.) and the United States District Court for the District of
Maryland assumed jurisdiction (Bank of Glen Burnie v. McCafferty's, Inc., Civil
Action No. MJG-96-3656, D-Md. 1996). McCafferty's alleged that the Bank, acting
in concert with Brian Davis (McCafferty's former treasurer and chief financial
officer who has pled guilty to fraud against the Bank and various other banks),
defrauded McCafferty's through alleged forgery of loan documents, improper
payment of checks, wrongful diversion of loan proceeds, illegal overbilling and
conspiracy to conceal illegal acts. McCafferty's sought $5,000,000 in
compensatory damages, $50,000,000 in punitive damages and declaratory and
injunctive relief under numerous counts, including one count pled under the
Racketeer Influenced and Corrupt Organizations Act ("RICO"). On December 4,
1997, the U.S. District Court dismissed McCafferty's claims under RICO but
denied the Bank's motion to dismiss McCafferty's other claims which have been
reduced to $1,700,000 in total. On November 17, 1998, the Bankruptcy Court
approved a settlement in which all claims were settled for the payment of
$450,000 by the Bank.

         In addition to the foregoing litigation, the Bank was a defendant in
three suits filed in the Circuit Court for Baltimore County by creditors of a
company controlled by Mr. Davis alleging in each case that the Bank improperly
negotiated checks for loan proceeds over forged endorsements. The aggregate
damages sought in First National Bank of Maryland v. The Bank of Glen Burnie
(Case No. 03-C-96-001925 filed February 28, 1996), Elkridge National Bank v. The
Bank of Glen Burnie (Case No.03-C-96-002064 filed March 4, 1996) and Commercial
and Farmers Bank v. The Bank of Glen Burnie (Case No. 03-C-96-002941 filed March
25, 1996) totaled approximately $1,700,000. In Elkridge National Bank, a
judgment in the amount of $284,000 was rendered in favor of plaintiffs and
upheld on appeal. On July 2, 1998, the Company settled Commercial and Farmers
Bank for $575,000. The Bank has filed a counter-claim in the First National Bank
of Maryland suit seeking damages in excess of the amounts sought by the
plaintiff. Accordingly, the Bank does not believe that the outcome of this suit
will have a material adverse effect on the Bank.

         The Bank was also a defendant in Beal GMC v. The Bank of Glen Burnie
(Case No. C96-32383OC filed October 2, 1996 in Anne Arundel County Circuit
Court) in which it was alleged that employees of the Bank falsely represented to
a third party that checks drawn on Mr. Davis's account and payable to plaintiff
had cleared the Bank. Plaintiff sought compensatory damages of $500,000 and
punitive damages of $5.0 million. On September 4, 1998, this suit was dismissed
pursuant to a settlement agreement which did not require any payments by the
Bank.

         A stockholder derivative suit was filed on March 6, 1998 against the
Company, the Bank and each individual director in the Circuit Court for
Baltimore County under the caption Williams v. Glen Burnie Bancorp, Civil Action
No. C-98-2004. The suit alleged various breaches of fiduciary duty and sought
total damages of $2,500,000 from each director plus unspecified punitive
damages, the appointment of a receiver for the Bank and an order declaring the
Company's Stockholders' Rights Plan invalid. On December 8, 1998, this suit was
dismissed with prejudice by stipulation of the parties.

         The Bank is involved in various other legal actions relating to its
business activities. These actions involve claims for money damages which do not
exceed 10% of the Company's consolidated current assets in any one case or in
any group of proceedings presenting in large degree the same legal and factual
issues. The Company does not believe that any ultimate liability or risk of loss
with respect to these actions will materially affect its consolidated financial
position or results of operations.

Item 4.  Submission of Matters to Vote of Security-Holders.

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.


                                       16

<PAGE>



                                     PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder 
         Matters

         The Company's stock is traded in the over-the-counter market and quoted
on the OTC Bulletin Board(R) under the symbol "GLBZ." There is not currently an
active trading market for the Common Stock. As of December 31, 1998, the number
of record holders of the Common Stock was 500. The following table sets forth
the high and low sales prices for the Common Stock for each full quarterly
period during 1998 and 1997, based on trades reported on the OTC Bulletin
Board(R) or by Legg Mason Wood Walker, Inc., the principal market maker for the
Company's stock. Also shown are dividends declared per share for these periods.
Prices have been adjusted to give retroactive effect to a six-for-five stock
split effected through a stock dividend paid on January 10, 1998.

<TABLE>
<CAPTION>
                                             1998                                   1997
                               -------------------------------       ----------------------------------
         Quarter Ended         High       Low        Dividends       High         Low         Dividends
         -------------         ----       ---        ---------       -----        ---         ---------
<S>                          <C>          <C>        <C>             <C>          <C>         <C>

         March 31,            $24.75      $23.50     $ 0.10          $23.333      $17.917     $ 0.133
         June 30,              25.62       25.12       0.10           20.833       18.333       0.050
         September 30,         26.00       25.00       0.10           20.625       19.583       0.050
         December 31,          28.00       20.00       0.20           20.833       20.260       0.075
</TABLE>


         The Company intends to pay dividends equal to forty percent (40%) of
its profits for each quarter. However, dividends remain subject to declaration
by the Board of Directors in its sole discretion and there can be no assurance
that the Company will be legally or financially able to make such payments.
Payment of dividends may be limited by federal and state regulations which
impose general restrictions on a bank's and bank holding company's right to pay
dividends (or to make loans or advances to affiliates which could be used to pay
dividends). Generally, dividend payments are prohibited unless a bank or bank
holding company has sufficient net (or retained) earnings and capital as
determined by its regulators. See "Item 1. Business -- Supervision and
Regulation -- Regulation of the Company -- Dividends and Distributions" and
"Item 1. Business -- Supervision and Regulation -- Regulation of the Bank --
Dividend Limitations." The Company does not believe that those restrictions will
materially limit its ability to pay dividends.


                                       17

<PAGE>



Item 6.  Selected Financial Data

         The following table presents consolidated selected financial data for
the Company and its subsidiaries for each of the periods indicated. Dividends
and earnings per share have been adjusted to give retroactive effect to stock
splits and stock dividends accounted for as stock splits.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                              ----------------------------------------------------------------
                                                  1998          1997         1996        1995          1994  
                                                  ----          ----         ----        ----          ----
<S>                                            <C>           <C>           <C>         <C>           <C>
                                                        (Dollars in thousands except per share data)
Operations Data:
Net Interest Income.........................   $   9,794    $   10,567   $   10,884   $   11,339   $   11,868
Provision for Credit Losses.................        (500)          270        6,596        7,925        1,120
Other Income................................       3,122         1,728        2,230        1,904        1,515
Other Expense...............................      11,776        11,593        9,019        8,740        7,139
Net Income (Loss)...........................         833           747       (1,020)      (1,727)       3,517

Share Data:
Basic Net Income (Loss) Per Share...........   $    0.78    $     0.68   $    (0.94)  $    (1.62)  $     3.52
Diluted Net Income (Loss) Per Share.........        0.78          0.68        (0.94)       (1.62)        3.52
Cash Dividends Declared
  Per  Common Share.........................        0.50          0.30         0.77         0.78         0.65
Weighted Average Common
  Shares Outstanding:
        Basic...............................   1,071,026     1,092,768    1,089,495    1,064,650    1,010,625
        Diluted.............................   1,071,388     1,092,768    1,089,495    1,064,650    1,010,625

Financial Condition Data:
Total Assets................................   $ 217,571    $  231,900   $  254,325   $  246,165   $  232,935
Loans Receivable, net.......................     125,501       111,545      124,672      150,472      153,814
Total Deposits..............................     199,611       207,110      232,746      221,121      208,566
Total Stockholders' Equity..................      14,169        18,965       18,586       20,537       21,677

Performance Ratios:
Return on Average Assets....................        0.38%         0.32%       (0.41)%      (0.73)%       1.53%
Return on Average Equity....................        4.54          3.95        (5.29)       (7.42)       17.24
Net Interest Margin(1).....................         4.94          5.09         5.04         5.42         5.88
Dividend Payout Ratio.......................       64.10         44.12          *           *           19.06

Capital Ratios:
Average Equity to Average
  Assets....................................        8.40%         8.01%        7.82%        9.89%        8.86%
Leverage Ratio..............................        5.96          7.60         7.20         8.20         9.40
Total Risk-Based Capital
   Ratio....................................       10.92         16.00        14.00        13.70        15.30

Asset Quality Ratios:
Allowance for Credit Losses to
  Gross Loans...............................        2.21%         3.55%        3.88%        2.39%        1.76%
Non-accrual and Past Due Loans to
  Gross Loans...............................        1.36          2.99         3.55         4.05         2.27
Allowance for Credit Losses to
  Non-accrual and Past Due Loans............      179.58        118.73       109.24        58.89        77.34
Net Loan Charge-offs to
  Average Loans.............................        0.67          1.00         3.56         4.48         0.60
</TABLE>
---------------
*        Not meaningful
(1)      Presented on a tax-equivalent basis.


                                       18

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations
-------------------------------------------------------------------------------

Overview

         The year 1998 saw the continuation of a favorable trend as asset
quality continued to improve. Nonperforming loans declined to 1.36% of the loan
portfolio at December 31, 1998 from 2.99% at December 31, 1997 and 3.55% at
December 31, 1996. Net charge-offs declined to 0.67% of average loans for the
year compared to 1.00% for 1997 and 3.56% for 1996. The improvements in asset
quality were achieved primarily through the resolution of nonperforming loans
and improved underwriting on new loans. The Bank's asset quality ratios were
also helped by the reversal of what had been an unfavorable trend over the past
several years, i.e., a shrinking loan portfolio. 1998 saw the first year over
year increase in the size of the loan portfolio in the past three years. The
Bank's loan growth came principally from the Bank's indirect automobile lending
program which was introduced in January 1998 and had grown to a portfolio of
$24.6 million by years' end.

         As a result of its improved asset quality, the Company was able to
recapture into income $500,000 of allowances for credit losses. Improving asset
quality also led to the termination of the Memorandum of Understanding into
which the Board of Directors had previously entered with federal and state
banking regulators to address asset quality concerns, among other things.
Although the Memorandum of Understanding did not materially restrict day-to-day
operations, the mere existence of the Memorandum of Understanding meant that the
Bank was not able to obtain the regulatory approvals required to expand its
business. Since the Memorandum of Understanding was lifted, the Bank has been
able to open an additional branch.

         Despite these favorable developments, net income was only up slightly
from 1997. The Company's earnings performance continues to be undermined by a
high level of non-interest expense. As in prior years, a significant portion of
the Company's non-interest expense was attributable to longstanding litigation
related to the activities of Mr. Brian Davis, a former Bank customer who is now
in prison for defrauding the Bank and other financial institutions. The Company
also incurred a significant amount of legal and professional expense in
connection with the attempted takeover of the Company by First Mariner Bancorp
("First Mariner"). By years' end, however, the Bank had resolved virtually all
of the Brian Davis related litigation and the Company had entered into an
agreement pursuant to which with First Mariner will cease its attempts to
acquire control of the Company.

Forward-Looking Statements

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

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

Comparison of Results of Operations For the Years Ended December 31, 1998, 1997 
and 1996

         General. For the year ended December 31, 1998, the Company reported
consolidated net income of $833,192 ($0.78 basic and diluted earnings per share)
compared to a consolidated net profit of $747,247 ($0.68 basic and diluted
earnings per share) for the year ended December 31, 1997 and a consolidated net
loss of $1,020,177 ($0.94 basic and diluted loss per share) for the year ended
December 31, 1996. The increase in net income during the 1998 period was

                                       19

<PAGE>



principally attributable to the receipt of $1,126,077 in proceeds from insurance
settlements during the year and the recapture into income of $500,000 in
allowances for credit losses. These increases in income offset a decrease in net
interest income and an increase in non-interest expense which included amounts
paid in settlement of various litigation. Earnings per share for 1998 were
favorably affected by a reduction in the number of shares outstanding after the
Company repurchased 213,168 shares from First Mariner in November 1998. Weighted
average shares outstanding for 1998 were 1,071,026 compared to 1,092,768 for
1997. The increase in net income during the 1997 period over the 1996 period was
principally attributable to a reduction in the provision for credit losses to
$270,000 from $6,596,000 in 1996.

         Net Interest Income. The primary component of the Company's net income
is its net interest income which is the difference between income earned on
assets and interest paid on the deposits and borrowings used to fund them. Net
interest income is determined by the spread between the yields earned on the
Company's interest-earning assets and the rates paid on interest-bearing
liabilities as well as the relative amounts of such assets and liabilities. Net
interest income, divided by average interest-earning assets, represents the
Company's net interest margin.

         Consolidated net interest income for the year ended December 31, 1998
was $9,793,550 compared to $10,567,211 for the year ended December 31, 1997 and
$10,884,253 for the year ended December 31, 1996. The decrease in net interest
income for the most recent year was primarily attributable to a significant
decline in interest income which fell $1,587,696 (9.1%) for the year ended
December 31, 1998. The decline in interest income was attributable primarily to
a reduced average volume of earning assets and secondarily to a declining yield
on assets. The most significant reductions in earning assets involved the
investment securities portfolio. The Company has used the proceeds from maturing
and called investment securities to cover deposit outflows. The Company also
experienced a 66 basis point decline in the yield on the investment securities
portfolio as the Company has shifted its investment securities portfolio into
repricable GNMA securities from state, county and municipals. Interest expense
declined $814,035, or 11.8%, for the year ended December 31, 1998. For the past
several years, the Company's earnings performance has been impacted by a decline
in earning assets and declining net interest margin. Net interest margin for the
year ended December 31, 1998 was 4.94% compared to 5.09% for the year ended
December 31, 1997. The Company expects additional pressure on its net interest
margin as the result of its repurchase of 213,168 shares of its common stock in
late 1998. Due to the repurchase, the Company will be required to fund a greater
portion of its interest-earning assets with interest-bearing liabilities rather
than equity.

         Consolidated net interest income decreased by $317,032 (2.91%) to
$10,567,211 in 1997 from $10,884,243 in 1996. The decrease in net interest
income in 1997 was primarily due to lower interest income attributable to
continued run-off of the loan portfolio. Interest expense declined $852,315, or
10.98%, for the year ended December 31, 1997. The decrease in interest expense
was attributable to deposit outflows in 1997. Net interest margin for the year
ended December 31, 1997 was 5.09% compared to 5.04% for the year ended December
31, 1996. The increase in the net interest margin for fiscal 1997 was primarily
due to the loss of accrued interest on loans charged off during fiscal 1996.


                                       20

<PAGE>



         The following table allocates changes in income and expense
attributable to the Bank's interest-earning assets and interest-bearing
liabilities for the periods indicated between changes due to changes in rate and
changes in volume. Changes due to rate/volume are allocated to changes due to 
volume.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                            -------------------------------------------------------------------------------
                                                  1998    vs.     1997                       1997    vs.    1996
                                            ------------------------------------   ----------------------------------------
                                                              Change Due to:                         Change Due to:
                                            Increase/      --------------------     Increase/     --------------------
                                            Decrease       Rate          Volume     Decrease      Rate          Volume
                                            --------       ----          ------     --------      ----          ------
                                                                          (In thousands)
<S>                                        <C>            <C>          <C>           <C>          <C>          <C>
Assets
Interest-earning assets:
   Federal funds sold.....................  $     (40)    $     30     $   (70)       $     41    $     12     $      29
                                            ----------    --------     --------       --------    --------     ---------
   Interest-bearing deposits..............        204           (7)        211              19          13             6
                                            ---------     ---------    -------        --------    --------     ---------
   Investment securities:
     U.S. Treasury securities and 
       obligations of U.S. government
       agencies...........................       (911)        (361)       (550)          1,545         (74)        1,619
     Obligations of states and
        political subdivisions(1)........      (1,177)          31      (1,208)           (804)          4          (808)
     All other investment securities......        191          (20)        211               9          (1)           10
                                            ---------     ---------    -------        --------    --------     ---------
        Total investment securities.......     (1,897)        (350)     (1,547)            750         (71)          821
                                            ----------    --------     -------        --------    --------     ---------
   Loans, net of unearned income:
     Demand, time and lease ..............       (509)          11        (520)           (684)         89          (773)
     Mortgage and construction............       (360)        (122)       (238)         (1,181)         86        (1,267)
     Installment and credit card..........        609          (32)        641            (370)         47          (417)
                                            ---------     ---------    -------        --------    --------     ---------
        Total gross loans(2)..............       (260)        (143)       (117)         (2,235)        222        (2,457)
                                            ---------     ---------    --------       --------    --------     ---------
     Allowance for credit losses..........         --           --          --              --          --            --
                                            ---------     --------     -------        --------    --------     ---------
        Total net loans...................       (260)        (260)         --          (2,235)        222        (2,457)
                                            ----------    ---------    -------        --------    --------     ---------
Total interest-earning assets.............  $  (1,993)    $   (470)    $(1,523)       $ (1,110)   $     23     $  (1,133)
                                            ==========    =========    ========       ========    ========     =========

Liabilities
Interest-bearing deposits:
   Savings and NOW........................  $    (248)    $    (86)    $  (162)       $   (379)   $   (286)    $     (93)
   Money market...........................        (76)          (5)        (71)           (196)        (50)         (146)
   Other time deposits....................       (468)         (12)       (456)           (296)       (153)         (143)
                                            ----------    ---------    --------       --------    --------     ---------
        Total interest-bearing deposits...       (792)        (103)       (689)           (871)       (490)         (381)
Non-interest-bearing deposits.............         --           --          --              --          --            --
Borrowed funds............................        (21)           3         (24)             18           7            11
                                            ---------     --------     --------       --------    --------     ---------
Total interest-bearing liabilities........  $    (813)    $   (100)    $  (713)       $   (853)   $   (483)    $    (370)
                                            ==========    =========    ========       ========    ========     =========
</TABLE>

---------------
(1) Tax equivalent basis.
(2) Non-accrual loans included in average balances.

                                       21

<PAGE>

         The following table provides information for the designated periods
with respect to the average balances, income and expense and annualized yields
and costs associated with various categories of interest-earning assets and
interest-bearing liabilities.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                      ---------------------------------------------------------------------------------------------
                                                  1998                            1997                               1996
                                      -----------------------------     --------------------------      ---------------------------
                                                             Average                        Average                         Average
                                      Average                 Yield/    Average              Yield/     Average              Yield/
                                      Balance      Interest    Cost     Balance    Interest   Cost      Balance   Interest    Cost
                                      -------      --------    ----     -------    --------   ----      -------   --------    ----
                                                                         (Dollars in thousands)
<S>                                  <C>           <C>         <C>     <C>        <C>        <C>        <C>       <C>         <C>
Assets:
Interest-earning assets:
   Federal funds sold................  $   4,414  $     262    5.94%    $   5,755  $     302   5.25%     $   5,185   $  261    5.03%
   Interest-bearing deposits.........      5,433        277    5.10         1,397         73   5.23          1,267       54    4.26
                                       ---------  ---------  ------     ---------  ---------   ----      ---------   ------    ----
   Investment securities:
      U.S. Treasury securities and
        obligations of U.S. government
        agencies.....................     68,921      4,303    6.24        77,045      5,214   6.77         53,454    3,669    6.86
      Obligations of States and
        political subdivisions(1)...       3,550        326    9.18        18,114      1,503   8.30         27,875    2,307    8.28
      All other investment securities      3,789        254    6.70           871         63   7.23            737       54    7.33
                                       ---------  ---------  ------     ---------  ---------   ----      ---------    -----    ----
         Total investment securities.     76,260      4,883    6.40        96,030      6,780   7.06         82,066    6,030    7.35
                                       ---------  ---------  ------     ---------  ---------   ----      ----------   -----    ----
   Loans, net of unearned income
   Demand, time and lease............      7,909        751    9.50        13,459      1,260   9.36         22,343    1,944    8.70
   Mortgage and construction.........     81,212      7,325    9.02        83,805      7,685   9.17         97,777    8,886    9.07
   Installment and credit card.......     29,251      2,517    8.60        21,897      1,908   8.71         26,802    2,278    8.50
                                       ---------  ---------   -----     ---------  ---------   ----      ---------    -----    ----
         Total gross loans(2)........    118,372     10,593    8.95       119,161     10,853   9.11        146,922   13,088    8.91
         Allowance for credit 
           losses....................      3,668                            4,460                            3,835
                                       ---------                        ---------                        ---------
         Total net loans.............    114,704     10,593    9.24       114,701     10,853   9.46        143,087   13,088    9.15
                                       ---------  ---------  ------     ---------  ---------   ----      ---------   ------    ----
         Total interest-earning 
           assets....................    200,811     16,015    7.98       217,883     18,008   8.26        231,605   19,433    8.39
                                                  ---------  ------                ---------   ----                  ------    ----
Cash and due from banks..............      3,540                            7,125                            7,936
Other assets.........................     14,073                           11,170                            7,318
                                       ---------                        ---------                        ---------
         Total assets................  $ 218,424                        $ 236,178                        $ 246,859
                                       =========                        =========                        =========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
  Savings and NOW....................  $  61,752  $   1,448    2.34%    $  68,269  $   1,696   2.48%     $  71,455   $ 2,075   2.90%
  Money market.......................     19,575        546    2.79        22,116        622   2.81         26,911       818   3.04
  Other time deposits................     72,834      4,055    5.57        81,006      4,523   5.58         83,486     4,819   5.77
                                       ---------  ---------  ------     ---------  ---------   ----      ---------   -------   ----
         Total interest-bearing
           deposits..................    154,161      6,049    3.92       171,391      6,841   3.99        181,852     7,712   4.24
Borrowed funds.......................        811         47    5.80         1,261         68   5.39          1,029        50   4.86
                                       ---------  ---------   -----     ---------  ---------   ----      ---------   -------   ----
         Total interest-bearing
           liabilities...............    154,972      6,096    3.93       172,652      6,909   4.00        182,881     7,762   4.24
                                       ---------  ---------                        ---------                         -------
Non-interest-bearing deposits........     42,095                           43,543                           44,570
Other liabilities....................      3,014                            1,056                              110
Stockholders' equity.................     18,343                           18,927                           19,298
                                       ---------                        ---------                        ---------
Total liabilities and equity.........  $ 218,424                        $ 236,178                        $ 246,859
                                       =========                        =========                        =========
Net interest income..................             $   9,919                        $  11,099                         $  11,671
                                                  =========                        =========                         =========
Net interest spread..................                          4.04%                           4.26%                           4.15%
                                                            =======                            ====                            ====
Net interest margin..................                          4.94%                           5.09%                           5.04%
                                                            =======                            ====                            ====
</TABLE>
(1)      Tax equivalent basis.  The incremental tax rate applied was 38.62% 
         for 1998, 37.42% for 1997 and 37.04% for 1996.
(2)      Non-accrual loans included in average balance.

         Provision for Credit Losses. During the year ended December 31, 1998,
the Company had a provision for credit losses of $(500,000) due to the recapture
of loss allowances during the third quarter compared to $270,000 and $6,596,000
in provisions during the years ended December 31, 1997 and 1996, respectively.
The recapture of loss reserves reflects improved asset quality and lower
charge-off activity during 1998. At December 31, 1998, the allowance for loan
losses equaled 179.5% of non-accrual and past due loans compared to 118.7% and
109.2% at
                                       22
<PAGE>



December 31, 1997 and 1996, respectively. During the year ended December 31,
1998, the Company recorded net charge-offs of $798,336 compared to $1,191,196
and $5,233,679 in net charge-offs during the years ended December 31, 1997 and
1996. The higher provisions during fiscal years 1997 and 1996 reflect the amount
determined by the Company to be necessary to maintain the allowance for credit
losses to an adequate level after significant increases in loan charge-offs
during these years.

         Other Income. Other income increased $1,394,555 (81%) during the year
ended December 31, 1998 compared to the prior year period. The bulk of the
increase in other income was attributable to $1,126,077 in proceeds from
insurance settlements received during the year. Included in this figure was
$1,125,000 received from the Bank's fidelity bond company in settlement of
claims related to the activities of a former employee. The Company does not
anticipate similar income during 1999. Other income during 1998 also benefitted
from a $256,000, or 95%, increase in gains on sales and calls of investment
securities. Other income for 1997 was lower than that recorded in 1996 because
of $560,000 in insurance settlements received in 1996. The absence of such
income during 1997 resulted in lower other income for the year notwithstanding
improved income from other fees and commissions and higher gains on the sale of
investment securities during 1997. In order to improve its interest rate
sensitivity for fiscal 1998, the Bank sold $16.0 million in long-term,
fixed-rate state, county and municipal securities which had been classified as
available-for-sale and invested the proceeds in adjustable-rate, mortgage-backed
securities issued by the Government National Mortgage Association ("GNMA").

         Other Expenses. Other expenses increased by $183,418 or 1.6% for the
year ended December 31, 1998. Included in other expenses for 1998 were
$1,225,003 in litigation charges, a $228,842, or 23%, increase over 1997. These
charges related to the settlement of claims against the Bank in connection with
payment of checks over fraudulent endorsements. Also included in other expenses
are $2,163,448 in professional service fees relating primarily to the litigation
in which the Company was involved during the year. With the settlement of most
of the major litigation, the Company hopes to reduce these expenses in 1999. For
the year ended December 1997, other expense increased by $2,573,983, or 28.5%,
primarily due to $996,161 in litigation and restructuring charges including a
$284,000 accrual for a judgment rendered against the Bank in the third quarter
of 1997 and a $700,000 expense incurred in connection with the settlement of
certain litigation during the second quarter. In addition, the Company
experienced increases in other expenses due to professional fees incurred in
connection with other litigation in which the Company was involved.

         Income Taxes. During the year ended December 31, 1998, the Company
recorded an income tax expense of $806,247 compared to tax benefits of $315,284
and $1,480,192 during the years ended December 31, 1997 and 1996. Due primarily
to its holdings of tax-exempt state, county and municipal securities, the
Company recorded tax losses during the 1997 and 1996 years. These net operating
losses were applied to prior years' earnings resulting in tax benefits in each
of the periods. During 1998, however, the Company reduced its holdings of
tax-exempt state, county and municipal securities and reinvested the proceeds in
U.S. Government agency securities the income on which is not exempt from federal
taxation. Accordingly, the Company had taxable income during 1998 and was
required to provide for federal income taxes. The Company's income tax expense
for 1998 also included $351,738 in disallowed claims for refunds of prior years'
state taxes. The Company does not anticipate similar tax expense during 1999 and
accordingly expects a reduction in its effective tax rate.

Comparison of Financial Condition at December 31, 1998, 1997 and 1996

         The Company's total assets declined to $217,571,063 at December 31,
1998 after declining to $231,899,594 at December 31, 1997 from $254,324,701 at
December 31, 1996. The reduction in assets during the year ended December 31,
1998 reflects a decline in the investment securities portfolio as the Company
used the proceeds from maturing and called securities to fund deposit
withdrawals. The reduction in assets during the year ended December 31, 1997
reflects a decline in the loan portfolio to $111,545,262 at December 31, 1997,
net of allowances and unearned income, from $124,672,414 at December 31, 1996.

         During 1998, the Company's loan portfolio grew to $125,501,252 at
December 31, 1998 compared to $111,545,262 at December 31, 1997 and $124,672,414
at December 31, 1996. The growth in the loan portfolio was

                                       23

<PAGE>



attributable almost entirely to the Bank's indirect automobile lending program
which was introduced in January 1998 and grew to $24,630,402, net of dealer
reserves at December 31, 1998. The Bank's other loan portfolios held steady or
declined during the year. The decline in the loan portfolio during 1997 was
largely due to a decrease in commercial and industrial loans during the period.
Commercial mortgage loans increased during the period while residential
mortgages decreased slightly and lease financing and installment loans also
decreased.

         The Company's total investment securities portfolio (including both
investment securities available for sale and investment securities held to
maturity) totaled $65,485,827 at December 31, 1998, a $16,371,844 or 20.0%,
decrease from $81,857,671 at December 31, 1997. The Company used the proceeds
from maturing and called securities to fund deposit outflows during the period.
During fiscal year 1997, the total investment securities portfolio declined by
$14,716,000, or 15.2%, from $96,574,000 at December 31, 1996.

         Deposits as of December 31, 1998 totaled $199,611,115, a decrease of
$7,499,157 (3.6%) for the year. Demand deposits as of December 31, 1998 totaled
$45,360,776, a $2,290,599 (4.8%) decrease from $47,651,375 at December 31, 1997.
NOW accounts as of December 31, 1998 remained basically the same at $20,600,751.
Money market accounts increased by $172,752 (0.9%) for the year to total
$20,049,677 on December 31, 1998. Savings deposits decreased by $2,287,000, or
5.3%. Meanwhile, time deposits over $100,000 totaled $8,104,000 on December 31,
1998, an increase of $640,000 (8.6%) from December 31, 1997. Other time deposits
(made up of certificates of deposit less than $100,000 and individual retirement
accounts) totaled $64,413,000 on December 31, 1998, a $4,061,000 (5.9%) decrease
from December 31, 1997.

         The Company experienced a $4,795,917, or 25.3% decrease in total
stockholders' equity for the year ended December 31, 1998. The decrease in
stockholders' equity was attributable to the repurchase of 213,168 shares of
common stock from First Mariner Bancorp for an aggregate purchase price of
$5,580,764 in November 1998. The Company experienced a $378,220, or 2%, increase
in total stockholders' equity during the year ended December 31, 1997 as net
income during the period offset a decline in net unrealized appreciation on
securities available for sale resulting from the disposition of certain
available-for-sale securities. Surplus steadily increased, rising $382,153
(6.2%) during 1997 to $6,575,053. The increase in the surplus account was
primarily a result of the reinvestment of dividends pursuant to the Dividend
Reinvestment Plan and the payment of three one-percent stock dividends in lieu
of cash dividends during the year ended December 31, 1997.

Asset/Liability Management

         Net interest income, the primary component of the Company's net income,
arises from the difference between the yield on interest-earning assets and the
cost of interest-bearing liabilities and the relative amounts of such assets and
liabilities. The Company manages its assets and liabilities by coordinating the
levels of and gap between interest-rate sensitive assets and liabilities to
minimize changes in net interest income and in the economic value of its equity
despite changes in market interest rates. The Bank's Asset/Liability and Risk
Management Committee meets on a monthly basis to monitor compliance with the
Board's objectives. Among other tools used by the Asset/Liability and Risk
Management Committee to monitor interest rate risk is a "gap" report which
measures the dollar difference between the amount of interest-earning assets and
interest-bearing liabilities subject to repricing within a given time period.
Generally, during a period of rising interest rates, a negative gap position
would adversely affect net interest income, while a positive gap would result in
an increase in net interest income, while, conversely, during a period of
falling interest rates, a negative gap would result in an increase in net
interest income and a positive gap would adversely affect net interest income.

         During recent periods, the Company has maintained a negative gap
position that has benefitted earnings as interest rates have fallen. In order to
reduce its negative gap position, the Company has recently begun investing in
mortgage-backed and other government securities which have rates that adjust to
market rates. The Company also maintains a significant portfolio of
available-for-sale securities that can be quickly converted to more liquid
assets if needed.


                                       24

<PAGE>



         The following table sets forth the Bank's interest-rate sensitivity at
December 31, 1998.


<TABLE>
<CAPTION>
                                                                             Over 1
                                                          Over 3 to          through          Over
                                       0-3 Months         12 Months          5 Years         5 Years            Total
                                       ----------         ---------          -------         -------            -----
<S>                                  <C>                <C>                 <C>             <C>                 <C>

Assets:
   Cash and due from banks..........  $          --    $           --    $         --     $          --   $  8,197,344
   Federal funds and overnight
      deposits......................      7,821,972                --              --                --      7,821,972
   Securities.......................      7,157,580        21,774,571      17,596,334        18,957,342     65,485,827
   Loans............................     14,492,818        11,394,170      50,909,847        51,545,477    128,342,312
   Fixed assets.....................             --                --              --                --      4,420,382
   Other assets.....................             --                --              --                --      3,303,226
                                      -------------    --------------    ------------     -------------   ------------
      Total assets..................  $  29,472,370    $   33,168,741    $ 68,506,181     $  70,502,819   $217,571,063
                                      =============    ==============    ============     =============   ============

Liabilities:
   Demand deposit accounts..........  $          --    $           --    $         --     $          --   $ 45,360,776
   NOW accounts.....................     20,600,751                --              --                --     20,600,751
   Money market deposit accounts....     20,049,677                --              --                --     20,049,677
   Savings accounts.................     40,965,942                --              --                --     40,965,942
   IRA accounts.....................      4,467,347         4,883,920      11,605,455                 -     20,956,722
   Certificates of deposit..........     11,642,778        21,812,481      16,818,071         1,403,917     51,677,247
   Other liabilities................             --                --              --                --      3,791,275
      Stockholders' equity..........             --                --              --                --     14,168,673
                                      -------------    --------------    ------------     -------------   ------------
      Total liabilities and 
        stockholders' equity........  $  97,726,495    $   26,696,401    $ 28,423,526     $   1,403,917   $217,571,063
                                      =============    ==============    ============     =============   ============

GAP.................................  $ (68,254,125)   $    6,472,340    $ 40,082,655     $  69,098,902
Cumulative GAP......................    (68,254,125)      (61,781,785)    (21,699,130)       47,399,772
Cumulative GAP as a % of
  total assets......................          (31.4)%           (28.4)%         (10.0)%            21.8%
</TABLE>


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

Liquidity and Capital Resources

         The Company currently has no business other than that of the Bank and
does not currently have any material funding commitments. The Company's
principal sources of liquidity are cash on hand and dividends received from the
Bank. The Bank is subject to various regulatory restrictions on the payment of
dividends.

         The Bank's principal sources of funds for investments and operations
are net income, deposits from its primary market area, principal and interest
payments on loans, interest received on investment securities and proceeds from
maturing investment securities. Its principal funding commitments are for the
origination or purchase of loans and the payment of maturing deposits. Deposits
are considered a primary source of funds supporting the Bank's lending and
investment activities.

         The Bank's most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold and
money market mutual funds. The levels of such assets are dependent on

                                       25

<PAGE>



the Bank's operating financing and investment activities at any given time. The
variations in levels of cash and cash equivalents are influenced by deposit
flows and anticipated future deposit flows.

         Cash and cash equivalents (cash due from banks, interest-bearing
deposits in other financial institutions, and federal funds sold), as of
December 31, 1998, totaled $16,019,316, an decrease of $12,517,295 (43.9%) from
the December 31, 1997 total of $28,536,611. Most of this decrease was in Federal
funds sold which totaled $2,863,635 at December 31, 1998 compared to $18,850,000
at the end of 1997. The larger balance in Federal funds sold at the end of 1997
reflects a decision to increase liquid assets in order to fund January
securities purchase commitments.

         The Bank may draw on a $26,000,000 line of credit from the Federal Home
Loan Bank of Atlanta. Borrowings under the line are secured by a lien on the
Bank's residential mortgage loans. As of December 31, 1998, $1.0 million was
outstanding under this line. In addition the Bank has a secured line of credit
in the amount of $5.0 million from another commercial bank.

Year 2000 Readiness Disclosure

         As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. For many years, software applications routinely
conserved magnetic storage space by using only two digits to record calendar
years; for example, the year 1999 is stored as "99". On January 1, 2000, the
calendars in many software applications will change from "99" to "00". Many of
these software applications, in their current form, will produce erroneous
results or will fail to run at all since their logic cannot deal with this
transaction.

         The Company's Year 2000 plan calls for the identification of all
systems that could be affected by Year 2000 problem, the systematic assessment
of their Year 2000 readiness and the institution of appropriate remedial
measures and contingency planning. As part of its Year 2000 plan, the Company
has ranked its various computer systems according to their importance to the
continued functioning of the Bank. Assessment procedures range from actual
testing for the Company's most mission critical systems to seeking written self
assessments from individual borrowers. Based on these assessments, the Company
has instituted appropriate remedial measures which include software upgrades and
the replacement of vendors and hardware where necessary. The Company's Year 2000
plan includes contingency and back-up plans for mission critical systems.

         The Company's mainframe computer hardware and systems software are Year
2000 compliant. The Company primarily utilizes third-party vendor application
software for all computer applications. The third-party vendors for the
Company's banking applications are in the process of modifying, upgrading or
replacing their computer applications to insure Year 2000 compliance. In
addition, the Company has instituted a Year 2000 compliance program whereby the
Company is reviewing the Year 2000 compliance issues that may be faced by its
third-party vendors. Under such program, the Company will examine the need for
modifications or replacement of all non-Year 2000 compliant pieces of software.
The Company has spent approximately $400,000 in 1997 and 1998 to upgrade certain
hardware and software and believes the cost of its Year 2000 compliance program
will not be material to its financial condition. The Company believes it is in
substantial compliance with its Year 2000 plan at year end 1998. In the event of
unforseen disruptions with Year 2000 compliance, the Company business operations
could be adversely affected.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

Item 8.  Financial Statements and Supplementary Data

         The Company's Consolidated Financial Statements appear in this Annual
Report on Form 10-K beginning on the page immediately following Item 14 hereof.



                                       26

<PAGE>



Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure
------------------------------------------------------------------------

         Not applicable.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

         For information concerning the Board of Directors and executive
officers of the Company, the information contained under the section captioned
"Proposal I -- Election of Directors" in the Company's definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders (the "Proxy
Statement") which was filed with the Commission on February 10, 1999 and is
incorporated herein by reference.

Item 11.  Executive Compensation

         The information contained under the sections captioned "Director
Compensation" and "Executive Compensation and Other Benefits" in the Proxy
Statement is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
         (a)      Security Ownership of Certain Beneficial Owners

                  Information required by this item is incorporated herein by
                  reference to the section captioned "Voting Securities and
                  Principal Holders Thereof" in the Proxy Statement.

         (b)      Security Ownership of Management

                  Information required by this item is incorporated herein by
                  reference to the sections captioned "Securities Ownership of
                  Management" in the Proxy Statement.

         (c)      Changes in Control

                  Management of the Company knows of no arrangements, including
                  any pledge by any person of securities of the Company, the
                  operation of which may at a subsequent date result in a change
                  in control of the registrant.

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------
         The information required by this item is incorporated herein by
reference to the section captioned "Certain Transactions" in the Proxy
Statement. In addition, during 1998, the Company paid $83,000 to Young-Harris,
Inc., a company controlled by Senior Vice President John I. Young for consulting
services.


                                       27

<PAGE>



                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a)  List of Documents Filed as Part of this Report

         (1) Financial Statements. The following is a list of the consolidated
financial statements which are being filed as part of this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>                                                                                                               <C>
         Independent Auditors' Report                                                                               F-1
         Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996                                         F-3
         Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996                     F-4
         Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998,                     
         1997 and 1996                                                                                              F-5
         Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31,                
         1998, 1997 and 1996                                                                                        F-6
         Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996                 F-7
         Notes to Consolidated Financial Statements                                                                 F-9
</TABLE>

         (2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the required information is included in the consolidated
financial statements and related notes thereto.

         (3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.

 No.                                                 Description
 ---                                                 -----------
 3.1          Articles of Incorporation, as Amended
 3.2          By-Laws
 4.1          Rights Agreement, dated as of February 13, 1998, between Glen 
              Burnie Bancorp and The Bank of Glen Burnie, as Rights Agent **
10.1          Glen Burnie Bancorp Stockholder Purchase Plan ***
10.2          Glen Burnie Bancorp Dividend Reinvestment and Stock Purchase  
              Plan ***
10.3 +        Glen Burnie Bancorp Director Stock Purchase Plan ***
10.4          The Bank of Glen Burnie Employee Stock Purchase Plan ***
10.5          The Bank of Glen Burnie Pension Plan ***
10.6 +        Employment Agreement with Michael P. Gavin ****
10.7 +        Change-in-Control Severance Plan ****
21            Subsidiaries of the registrant ***
23            Consent of Trice & Geary LLC
27            Financial Data Schedule
---------------
+             Management contract or compensation plan or arrangement required 
              to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
*             Incorporated herein by reference to similarly numbered exhibit to
              Registrant's Annual Report on Form 10-K for the Fiscal Year Ended
              December 31, 1995.
**            Incorporated by reference herein by reference from Exhibit 4 to 
              Registrant's Current Report on Form 8-K filed March 2, 1998.
***           Incorporated herein by reference from the similarly numbered 
              exhibit to Registrant's Registration Statement on Form S-1
              (Commission File No. 333-37073).
****          Incorporated by reference to the similarly numbered exhibit to 
              Registrant's Annual Report on Form 10-K for the fiscal year ended 
              December 31, 1997.

                                       28

<PAGE>




         (b) Reports on Form 8-K. On November 24, 1998, the Company filed a
current report on Form 8-K reporting under Item 5 that the Company had
repurchased 213,169 shares of its common stock pursuant to a Stock Redemption
Agreement dated November 17, 1998, between First Mariner Bancorp and the
Company. No financial statements were filed with this report.

         (c) Exhibits. The exhibits required by Item 601 of Regulation S-K are
either filed as part of this Annual Report on Form 10-K or incorporated by
reference herein.

         (d) Financial Statements and Schedules Excluded from Annual Report.
There are no other financial statements and financial statement schedules which
were excluded from the Annual Report to Stockholders pursuant to Rule
14a-3(b)(1) which are required to be included herein.

















                                       29

<PAGE>



                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Glen Burnie Bancorp and Subsidiaries
Glen Burnie, Maryland

We have audited the accompanying consolidated balance sheets of Glen Burnie
Bancorp and subsidiaries as of December 31, 1998, 1997, and 1996, and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Glen
Burnie Bancorp and subsidiaries as of December 31, 1998, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.



/s/ Trice & Geary LLC
--------------------------
Trice & Geary LLC


Salisbury, Maryland
January 22, 1999

                                      F-1
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
December 31,                                                            1998           1997           1996
-------------------------------------------------------------------------------------------------------------
                      Assets
<S>                                                                <C>            <C>            <C>         
Cash and due from banks                                            $  8,197,344   $  8,127,732   $ 10,665,680
Interest bearing deposits in other financial institutions             4,958,337      1,558,879      1,836,981
Federal funds sold                                                    2,863,635     18,850,000     10,175,000
                                                                   ------------   ------------   ------------
    Cash and cash equivalents                                        16,019,316     28,536,611     22,677,661
Investment securities available for sale, at fair value              32,924,539     40,678,867     54,906,836
Investment securities held to maturity (fair value
    1998 $32,539,731; 1997 $41,566,019; 1996 $41,998,402)            32,561,288     41,178,804     41,667,057
Ground rents, at cost                                                   257,025        262,525        267,974
Loans, less allowance for credit losses
    1998 $2,841,060; 1997 $4,139,396; 1996 $5,060,592               125,501,252    111,545,262    124,672,414
Premises and equipment, at cost, less accumulated 
    depreciation                                                      4,420,382      4,319,423      4,154,465
Accrued interest receivable                                           1,401,660      1,556,971      1,937,928
Prepaid income taxes                                                         --        636,318      1,055,974
Deferred income tax benefits                                            892,912      1,385,395      1,380,966
Other real estate owned                                               1,099,326        748,231        602,285
Other assets                                                          2,493,363      1,051,187      1,001,141
                                                                   ------------   ------------   ------------
        Total assets                                               $217,571,063   $231,899,594   $254,324,701
                                                                   ============   ============   ============

                  Liabilities and Stockholders' Equity

Liabilities:
Deposits
    Noninterest-bearing demand                                     $ 45,360,776   $ 47,651,375   $ 49,412,930
    Interest-bearing                                                154,250,339    159,458,897    183,333,045
                                                                   ------------   ------------   ------------
        Total deposits                                              199,611,115    207,110,272    232,745,975
Short-term borrowings                                                 1,143,904        889,398        547,937
Dividends payable                                                       123,039         81,146         44,193
Accrued interest payable on deposits                                    160,597        177,922        214,977
Other liabilities                                                     2,363,735      4,676,266      2,185,249
                                                                   ------------   ------------   ------------
        Total liabilities                                           203,402,390    212,935,004    235,738,331
                                                                   ------------   ------------   ------------

Commitments and contingencies

Stockholders' equity:
Common stock, par value $10, authorized 5,000,000 shares;
    issued and outstanding 1998 894,938 shares;
    1997 1,092,768 shares; 1996 883,858 shares                        8,949,388     10,927,688      8,838,588
Surplus                                                               3,373,591      6,575,053      6,192,900
Retained earnings                                                     1,563,336      1,236,917      3,290,077
Accumulated other comprehensive income                                  282,358        224,932        264,805
                                                                   ------------   ------------   ------------
        Total stockholders' equity                                   14,168,673     18,964,590     18,586,370
                                                                   ------------   ------------   ------------
        Total liabilities and stockholders' equity                 $217,571,063   $231,899,594   $254,324,701
                                                                   ============   ============   ============
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-2
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

                       Consolidated Statements of Income

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Years Ended December 31,                                           1998            1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>        
Interest income on
    Loans, including fees                                      $10,590,864     $10,845,819     $13,081,364
    U.S. Treasury securities                                       461,808         662,237         822,215
    U.S. Government agency securities                            4,024,712       4,551,441       2,846,357
    State and municipal securities                                 202,052         978,892       1,517,827
    Federal funds sold                                             261,880         301,614         261,423
    Other                                                          347,525         136,534         116,708
                                                               -----------     -----------     -----------
        Total interest income                                   15,888,841      17,476,537      18,645,894
                                                               -----------     -----------     -----------

Interest expense on
    Deposits                                                     6,048,828       6,840,952       7,711,989
    Short-term borrowings                                           46,463          68,374          49,652
                                                               -----------     -----------     -----------
        Total interest expense                                   6,095,291       6,909,326       7,761,641
                                                               -----------     -----------     -----------
        Net interest income                                      9,793,550      10,567,211      10,884,253

Provision for credit losses                                       (500,000)        270,000       6,596,000
                                                               -----------     -----------     -----------
        Net interest income after provision for 
          credit losses                                         10,293,550      10,297,211       4,288,253
                                                               -----------     -----------     -----------

Other income
    Service charges on deposit accounts                            908,733         945,613       1,042,355
    Other fees and commissions                                     560,239         511,292         483,537
    Gains on investment securities                                 527,320         270,909         144,565
    Proceeds from insurance settlements                          1,126,077              --         560,000
                                                               -----------     -----------     -----------
        Total other income                                       3,122,369       1,727,814       2,230,457
                                                               -----------     -----------     -----------

Other expenses
    Salaries and wages                                           3,742,152       3,712,206       3,346,927
    Employee benefits                                            1,309,591       1,547,888       1,288,037
    Occupancy                                                      502,216         482,160         528,528
    Furniture and equipment                                        884,599         781,664         739,115
    Litigation charges                                           1,225,003         996,161              --
    Other expenses                                               4,112,919       4,072,983       3,116,472
                                                               -----------     -----------     -----------
        Total other expenses                                    11,776,480      11,593,062       9,019,079
                                                               -----------     -----------     -----------

Income (loss) before income taxes                                1,639,439         431,963      (2,500,369)

Federal and state income tax expense (benefits)                    806,247        (315,284)     (1,480,192)
                                                               -----------     -----------     -----------
Net income (loss)                                              $   833,192     $   747,247     $(1,020,177)
                                                               ===========     ===========     ===========
Basic and diluted earnings (loss) per share of common stock    $      0.78     $      0.68     $     (0.94)
                                                               ===========     ===========     ===========
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-3
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

                Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Years Ended December 31,                                        1998           1997           1996
------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>         
Net income (loss)                                           $   833,192    $   747,247    $(1,020,177)
                                                            -----------    -----------    ----------- 

Other comprehensive income (loss), net of tax
    Reclassification relating to adoption
        of SFAS No. 133 at October 1, 1998                      270,038             --             --
    Unrealized holding gains (losses) arising during the
        period (net of deferred tax 1998 $6,043;
        1997 $64,325; 1996 $246,951)                             (9,644)       102,320       (392,818)
    Reclassification adjustment for gains included in net
        income (net of deferred tax 1998 $127,598;
        1997 $89,391; 1996 $55,079)                            (202,968)      (142,193)       (87,613)
                                                            -----------    -----------    ----------- 
       Total other comprehensive income (loss)                   57,426        (39,873)      (480,431)
                                                            -----------    -----------    ----------- 
Comprehensive income (loss)                                 $   890,618    $   707,374    $(1,500,608)
                                                            ===========    ===========    =========== 
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-4
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

           Consolidated Statements of Changes in Stockholders' Equity

                 Years Ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         Other             Total
                                                 Common Stock                         Retained       Comprehensive     Stockholders'
                                           Shares        Par Value       Surplus      Earnings          Income             Equity
                                           ------        ---------       -------      --------       -------------     -------------
<S>                                      <C>            <C>            <C>           <C>             <C>               <C>        
Balances, December 31, 1995              $   872,838    $ 8,728,383    $ 5,917,043   $ 5,146,724     $    745,236      $20,537,386

Net loss                                          --             --             --    (1,020,177)              --       (1,020,177)
Shares issued under employee and
  director stock purchase plans                  200          2,000          3,384            --               --            5,384
Cash dividends, $.77 per share                    --             --             --      (836,470)              --         (836,470)
Dividends reinvested                          10,820        108,205        272,473            --               --          380,678
Other comprehensive loss, net of tax              --             --             --            --         (480,431)        (480,431)
                                         -----------    -----------    -----------   -----------     ------------      -----------
Balances, December 31, 1996                  883,858      8,838,588      6,192,900     3,290,077          264,805       18,586,370

Net income                                        --             --             --       747,247               --          747,247
Shares issued with stock dividends            26,782        267,820        382,153      (649,973)              --               --
Stock split effected in form of 20%
  stock dividend                             182,128      1,821,280             --    (1,821,280)              --               --
Cash dividends, $.30 per share                    --             --             --      (329,154)              --         (329,154)
Other comprehensive loss, net of tax              --             --             --            --          (39,873)         (39,873)
                                         -----------    -----------    -----------   -----------     ------------      -----------
Balances, December 31, 1997                1,092,768     10,927,688      6,575,053     1,236,917          224,932       18,964,590

Net income                                        --             --             --       833,192               --          833,192
Shares issued under employee
  stock purchase plan                            935          9,350         10,519            --               --           19,869
Shares issued under stockholder
  stock purchase plan                          7,388         73,880        119,131            --               --          193,011
Shares repurchased and retired              (213,168)    (2,131,680)    (3,449,084)           --               --       (5,580,764)
Cash dividends, $.50 per share                    --             --             --      (506,773)              --         (506,773)
Dividends reinvested under dividend
  reinvestment plan                            7,015         70,150         96,365            --               --          166,515
Vested stock options                              --             --         21,607            --               --           21,607
Other comprehensive income, net
  of tax                                          --             --             --            --           57,426           57,426
                                         -----------    -----------    -----------   -----------     ------------      -----------
Balances, December 31, 1998              $   894,938    $ 8,949,388    $ 3,373,591   $ 1,563,336     $    282,358      $14,168,673
                                         ===========    ===========    ===========   ===========     ============      ===========
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-5
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                  1998            1997            1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>             <C>          
Cash flows from operating activities:
    Net income (loss)                                                $    833,192    $    747,247    $ (1,020,177)
    Adjustments to reconcile net income (loss) to net
      cash provided by operating activities
        Depreciation, amortization, and accretion                         953,579         664,428         606,650
        Compensation expense from vested stock options                     21,607              --              --
        Provision for credit losses                                      (500,000)        270,000       6,596,000
        Losses on real estate owned                                         6,000          64,214          13,192
        Deferred income taxes (benefits)                                  456,350          20,659        (814,821)
        Gains on disposals of assets, net                                (478,839)       (241,183)       (144,318)
        Changes in assets and liabilities:
            Decrease in accrued interest receivable                       155,311         380,957         216,671
            (Increase) decrease in prepaid income taxes and
                other assets                                             (732,269)        251,382       2,108,195
            Decrease in accrued interest payable                          (17,325)        (37,055)        (14,738)
            Increase (decrease) in other liabilities                    1,209,969      (1,031,483)       (115,693)
                                                                     ------------    ------------    ------------ 
                Net cash provided by operating activities               1,907,575       1,089,166       7,430,961
                                                                     ------------    ------------    ------------ 

Cash flows from investing activities:
    Maturities of held to maturity mortgage-backed securities             674,870              --              --
    Maturities of other held to maturity investment securities         20,485,350      23,405,000       4,984,661
    Maturities of available for sale mortgage-backed securities         6,749,884       1,780,092         451,504
    Maturities of other available for sale investment securities        1,525,000       7,785,900       8,557,219
    Sales of debt securities                                           25,899,152      19,095,130      10,802,522
    Purchases of held to maturity investment securities               (27,992,219)    (16,314,976)    (40,650,194)
    Purchases of held to maturity mortgage-backed securities           (9,521,417)             --              --
    Purchases of available for sale mortgage-backed securities                 --     (16,126,491)             --
    Purchases of other available for sale investment securities        (4,527,891)     (1,188,100)     (6,711,564)
    (Increase) decrease in loans, net                                 (13,453,506)     17,457,529      19,203,353
    Purchases of loans from other financial institutions                       --      (4,779,164)             --
    Proceeds from sales of other real estate                                   --         420,577              --
    Purchases of other real estate                                       (359,579)       (451,950)       (182,551)
    Purchases of premises and equipment and computer software            (993,614)       (727,320)       (449,275)
                                                                     ------------    ------------    ------------ 
                Net cash provided (used) by investing activities       (1,513,970)     30,356,227      (3,994,325)
                                                                     ------------    ------------    ------------ 

Cash flows from financing activities:
    Increase (decrease) in noninterest-bearing deposits, NOW
        accounts, money market accounts, and savings accounts, net     (4,194,857)    (15,436,924)      4,817,350
    Increase (decrease) in time deposits, net                          (3,304,300)    (10,198,779)      6,807,862
    Increase (decrease) in short-term borrowings                          254,506         341,461      (1,209,785)
    Cash dividends paid                                                  (464,880)       (292,201)     (1,010,485)
    Common stock dividends reinvested                                     166,515              --         380,678
    Repurchase and retirement of common stock                          (5,580,764)             --              --
    Issuance of common stock                                              212,880              --           5,384
                                                                     ------------    ------------    ------------ 
                Net cash provided (used) by financing activities      (12,910,900)    (25,586,443)      9,791,004
                                                                     ------------    ------------    ------------
Increase (decrease) in cash and cash equivalents                      (12,517,295)      5,858,950      13,227,640

Cash and cash equivalents, beginning of year                           28,536,611      22,677,661       9,450,021
                                                                     ------------    ------------    ------------ 
Cash and cash equivalents, end of year                               $ 16,019,316    $ 28,536,611     $22,677,661
                                                                     ============    ============     ===========
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-6
<PAGE>

                      Glen Burnie Bancorp and Subsidiaries

                     Consolidated Statements of Cash Flows
                                  (Continued)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                  1998            1997            1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>             <C>          
Supplementary Cash Flow Information:
    Interest paid                                                    $  6,112,616    $  6,946,381     $ 7,776,379
    Income taxes refunded                                                      --        (755,597)     (1,718,184)
    Total increase (decrease) in unrealized appreciation
      (depreciation) on securities available for sale                      93,559         (64,961)       (782,715)
</TABLE>

         The Notes to Consolidated Financial Statements are an integral
                part of these consolidated financial statements.

                                      F-7
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies

         The Bank of Glen Burnie (the Bank) provides financial services to
         individuals and corporate customers located in Anne Arundel County and
         surrounding areas of Central Maryland, and is subject to competition
         from other financial institutions. The Bank is also subject to the
         regulations of certain Federal and State of Maryland (the State)
         agencies and undergoes periodic examinations by those regulatory
         authorities. The accounting policies of the Bank conform to generally
         accepted accounting principles and to general practices within the
         banking industry.

         Significant accounting policies not disclosed elsewhere in the
         consolidated financial statements are as follows:

         Principles of Consolidation:

         The consolidated financial statements include the accounts of Glen
         Burnie Bancorp (the Company) and its subsidiaries, The Bank of Glen
         Burnie and GBB Properties, Inc., a company engaged in the acquisition
         and disposition of other real estate. Intercompany balances and
         transactions have been eliminated. The Parent Only financial statements
         (see Note 21) of the Company account for the subsidiaries using the
         equity method of accounting.

         Use of Estimates:

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         dates of the financial statements and the reported amounts of revenues
         and expenses during the reporting periods. Actual results could differ
         from those estimates.

         Securities Held to Maturity:

         Bonds, notes and debentures for which the Bank has the positive intent
         and ability to hold to maturity are reported at cost, adjusted for
         premiums and discounts that are recognized in interest income using the
         effective interest rate method over the period to maturity. Securities
         transferred into held to maturity from the available for sale portfolio
         are recorded at fair value at time of transfer with unrealized gains or
         losses reflected in equity and amortized over the remaining life of the
         security.

         Securities Available for Sale:

         Marketable debt and equity securities not classified as held to
         maturity are classified as available for sale. Securities available for
         sale may be sold in response to changes in interest rates, loan demand,
         changes in prepayment risk and other factors. Changes in unrealized
         appreciation (depreciation) on securities available for sale are
         reported in other comprehensive income. Realized gains (losses) on
         securities available for sale are included in other income (expense)
         and, when applicable, are reported as a reclassification adjustment,
         net of tax, in other comprehensive income. The gains and losses on
         securities sold are determined by the specific identification method.
         Premiums and discounts are recognized in interest income using the
         effective interest rate method over the period to maturity.
         Additionally, declines in the fair value of individual investment
         securities below their cost that are other than temporary are reflected
         as realized losses in the consolidated statements of income.

                                      F-8
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 1.  Summary of Significant Accounting Policies (continued)

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

         While management believes it has established the allowance for credit
         losses in accordance with generally accepted accounting principles and
         has taken into account the views of its regulators and the current
         economic environment, there can be no assurance that in the future the
         Bank's regulators or its economic environment will not require further
         increases in the allowance.

         Other Real Estate Owned (OREO):

         OREO comprises properties acquired in partial or total satisfaction of
         problem loans. The properties are recorded at the lower of cost or fair
         value (appraised value) at the date acquired. Losses arising at the
         time of acquisition of such properties are charged against the
         allowance for credit losses. Subsequent write-downs that may be
         required and expenses of operation are included in other income or
         expenses. Gains and losses realized from the sale of OREO are included
         in other expenses. Loans converted to OREO through foreclosure
         proceedings totaled $359,579, $610,557, and $182,551 for the years
         ended December 31, 1998, 1997, and 1996, respectively. Sales of OREO
         that were financed by the Bank totaled $178,787 for 1997. No sales of
         OREO were financed by the Bank for 1998 or 1996.

         Bank Premises and Equipment:

         Bank premises and equipment are stated at cost less accumulated
         depreciation. The provision for depreciation is computed using the
         straight-line method over the estimated useful lives of the assets.
         Leasehold improvements are depreciated over the lesser of the terms of
         the leases or their estimated useful lives. Expenditures for
         improvements which extend the life of an asset are capitalized and
         depreciated over the asset's remaining useful life. Gains or losses
         realized on the disposition of premises and equipment are reflected in
         the consolidated statements of income. Expenditures for repairs and
         maintenance are charged to other expenses as incurred. Computer
         software is recorded at cost and amortized over three to five years.

                                      F-9
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 1.  Summary of Significant Accounting Policies (continued)

         Intangible Assets:

         Cost incurred related to goodwill represents the excess of the cost of
         companies acquired over the fair value of their net assets at dates of
         acquisition and is being amortized on the straight-line method over 10
         years. The net book value of goodwill was approximately $368,000,
         $422,000, and $477,000 at December 31, 1998, 1997, and 1996,
         respectively.

         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.

         Income Taxes:

         The provision for Federal and State income taxes is based upon the
         results of operations, adjusted for tax-exempt income. Deferred income
         taxes are provided by applying enacted statutory tax rates to temporary
         differences between financial and taxable bases.

         Temporary differences which give rise to deferred tax assets relate
         principally to the allowance for credit losses, unearned income on
         loans, other real estate owned, accrued compensation benefits, unused
         deductible expense, operating loss, and tax credit carryovers.

         Temporary differences which give rise to deferred tax liabilities
         relate principally to accumulated depreciation, accretion of discount
         on investment securities, and prepaid pension expense.

         Credit Risk:

         The Bank has deposits in other financial institutions in excess of
         amounts insured by the Federal Deposit Insurance Corporation. The Bank
         had deposits and Federal funds sold of approximately $11,480,000 with
         one financial institution as of December 31, 1998.

         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.

         Earnings (loss) per share:

         In 1997, the Company adopted Statement of Financial Accounting
         Standards (SFAS) No. 128, Earnings per Share which changed the earnings
         per share disclosure from primary and fully diluted per share amounts
         to basic and diluted earnings per share. Basic earnings per common
         share are determined by dividing net income (loss) by the weighted
         average number of shares of common stock outstanding. Diluted earnings
         per share is calculated including the average dilutive common stock
         equivalents outstanding during the period. Dilutive common equivalent
         shares consist of stock options, calculated using the treasury stock
         method. In loss periods, dilutive common equivalent shares are excluded
         since the effect would be antidilutive. Earnings (loss) per share
         disclosures for 1996 were restated to conform to these new calculation
         methods.

         Financial Statement Presentation:

         Certain amounts in the prior years' financial statements have been
         reclassified to conform to the current year's presentation.

                                      F-10
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 2.  Restrictions on Cash and Due from Banks

         The Federal Reserve Board requires the Bank to maintain
         noninterest-bearing cash reserves against certain categories of average
         deposit liabilities. Such reserves averaged approximately $2,094,000,
         $2,464,000 and $2,200,000 during the years ended December 31, 1998,
         1997 and 1996, respectively.


Note 3.  Investment Securities

         Investment securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                 Gross            Gross               
                                              Amortized       Unrealized       Unrealized          Fair
         December 31, 1998                       Cost            Gains           Losses            Value
         -----------------                   -----------      -----------      -----------      -----------
<S>                                          <C>              <C>              <C>              <C>        
         Available for sale
           U.S. Treasury                     $ 2,584,565      $   129,844      $        --      $ 2,714,409
           U.S. Government agency             16,430,674          249,927            8,340       16,672,261
           Mortgage-backed                    12,512,882           90,225            1,638       12,601,469
                                             -----------      -----------      -----------      -----------
                                              31,528,121          469,996            9,978       31,988,139
           Federal Home Loan Bank stock          936,400               --               --          936,400
                                             -----------      -----------      -----------      -----------
                                             $32,464,521      $   469,996      $     9,978      $32,924,539
                                             ===========      ===========      ===========      ===========

         Held to maturity
           U.S. Treasury                     $ 2,497,627      $    54,164      $        --      $ 2,551,791
           U.S. Government agency             15,486,672           41,176           92,043       15,435,805
           Mortgage-backed                    14,576,989           19,248           44,102       14,552,135
                                             -----------      -----------      -----------      -----------
                                             $32,561,288      $   114,588      $   136,145      $32,539,731
                                             ===========      ===========      ===========      ===========

<CAPTION>
                                                                 Gross            Gross               
                                              Amortized       Unrealized       Unrealized          Fair
         December 31, 1997                       Cost            Gains           Losses            Value
         -----------------                   -----------      -----------      -----------      -----------
<S>                                          <C>              <C>              <C>              <C>         
         Available for sale
           U.S. Treasury                     $ 4,081,080      $    58,197      $     1,183      $ 4,138,094 
           U.S. Government agency             12,141,760           66,145           42,385       12,165,520
           State and municipal                 6,959,106          311,471            2,251        7,268,326
           Mortgage-backed                    16,194,063           26,140           49,676       16,170,527
                                             -----------      -----------      -----------      -----------
                                              39,376,009          461,953           95,495       39,742,467
           Federal Home Loan Bank stock          936,400               --               --          936,400
                                             -----------      -----------      -----------      -----------
                                             $40,312,409      $   461,953      $    95,495      $40,678,867
                                             ===========      ===========      ===========      ===========

         Held to maturity
           U.S. Treasury                     $ 4,986,658      $    69,633      $     3,651      $ 5,052,640
           U.S. Government agency             35,077,853          277,037           24,452       35,330,438
           State and municipal                 1,114,293           68,648               --        1,182,941
                                             -----------      -----------      -----------      -----------
                                             $41,178,804      $   415,318      $    28,103      $41,566,019
                                             ===========      ===========      ===========      ===========
</TABLE>

                                      F-11
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 3.  Investment Securities (continued)

<TABLE>
<CAPTION>
                                                                 Gross            Gross               
                                              Amortized       Unrealized       Unrealized          Fair
         December 31, 1996                       Cost            Gains           Losses            Value
         -----------------                   -----------      -----------      -----------      -----------
<S>                                          <C>              <C>              <C>              <C>         
         Available for sale
           U.S. Treasury                     $ 6,575,244      $    54,518      $     7,793      $ 6,621,969
           U.S. Government agency             20,625,552           43,627          199,626       20,469,553
           State and municipal                24,612,517          568,919           26,908       25,154,528
           Mortgage-backed                     1,913,804           24,355           25,673        1,912,486
                                             -----------      -----------      -----------      -----------
                                              53,727,117          691,419          260,000       54,158,536
           Federal Home Loan Bank stock          748,300               --               --          748,300
                                             -----------      -----------      -----------      -----------
                                             $54,475,417      $   691,419      $   260,000      $54,906,836
                                             ===========      ===========      ===========      ===========


         Held to maturity
           U.S. Treasury                     $ 6,485,244      $    59,711      $    19,992      $ 6,524,963
           U.S. Government agency             34,067,907          270,302           23,166       34,315,043
           State and municipal                 1,113,906           44,490               --        1,158,396
                                             -----------      -----------      -----------      -----------
                                             $41,667,057      $   374,503      $    43,158      $41,998,402
                                             ===========      ===========      ===========      ===========
</TABLE>

         Effective October 1, 1998, the Bank adopted the provisions of SFAS No.
         133 (see also Note 20), which provides for a special opportunity to
         reclassify held to maturity securities to available for sale. In
         connection therewith, the Bank reclassified held to maturity securities
         with amortized cost approximating $20,300,000 as available for sale,
         resulting in an increase in accumulated other comprehensive income of
         approximately $270,000, net of deferred taxes of approximately
         $170,000.

         Contractual maturities of investment securities at December 31, 1998,
         1997, and 1996 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.

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

                                      F-12
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 3.  Investment Securities (continued)

<TABLE>
<CAPTION>
                                                     Available for Sale                  Held to Maturity
                                                 Amortized          Fair           Amortized          Fair
         December 31, 1997                          Cost            Value             Cost            Value
         -----------------                      -----------      -----------      -----------      -----------
<S>                                            <C>              <C>              <C>              <C>        
         Due within one year                   $ 1,615,229      $ 1,617,252      $ 1,000,000      $   999,060
         Due over one to five years              9,164,702        9,335,742       18,176,856       18,333,563
         Due over five to ten years              6,735,960        6,946,219       15,888,529       16,046,560
         Due over ten years                      5,666,055        5,672,727        6,113,419        6,186,836
         Mortgage-backed, due in monthly
           installments                         16,194,063       16,170,527               --               --
                                               -----------      -----------      -----------      -----------
                                               $39,376,009      $39,742,467      $41,178,804      $41,566,019
                                               ===========      ===========      ===========      ===========

<CAPTION>

                                                     Available for Sale                  Held to Maturity
                                                Amortized          Fair           Amortized          Fair
         December 31, 1996                         Cost            Value             Cost            Value
         -----------------                     -----------      -----------      -----------      -----------
<S>                                            <C>              <C>              <C>              <C>        
         Due within one year                   $ 2,728,910      $ 2,733,114      $ 1,500,791      $ 1,506,090
         Due over one to five years             10,870,162       10,969,608       19,969,083       20,087,636
         Due over five to ten years             12,578,991       12,838,012       15,113,223       15,265,730
         Due over ten years                     25,635,250       25,705,316        5,083,960        5,138,946
         Mortgage-backed, due in monthly
           installments                          1,913,804        1,912,486               --               --
                                               -----------      -----------      -----------      -----------
                                               $53,727,117      $54,158,536      $41,667,057      $41,998,402
                                               ===========      ===========      ===========      ===========
</TABLE>

         Proceeds from sales of securities available for sale prior to maturity
         were $25,889,152, $19,095,130 and $10,103,956 for the years ended
         December 31, 1998, 1997, and 1996, respectively. Gains of $418,519 and
         losses of $5,011 were realized on those sales for 1998. Gains of
         $251,535 and losses of $26,840 were realized on those sales for 1997.
         Gains of $154,119 and losses of $9,554 were realized on those sales for
         1996. 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 was $127,598,
         $86,732, and $55,831 for the years ended December 31, 1998, 1997, and
         1996, respectively.

         Securities with amortized costs of approximately $2,994,000,
         $2,997,000, and $4,999,000 were pledged as collateral for short-term
         borrowings and financial instruments with off-balance sheet risk at
         December 31, 1998, 1997, and 1996, respectively.

         Investment securities include obligations of the State of Maryland and
         its subdivisions with an amortized cost of $8,073,399 and $16,982,447
         at December 31, 1997 and 1996, respectively.

                                      F-13
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 4.  Loans

         Major categories of loans are as follows:

<TABLE>
<CAPTION>
                                                       1998                1997                1996
                                                  ------------        ------------        ------------
<S>                                               <C>                 <C>                 <C>         
         Mortgage
           Residential                            $ 33,931,494        $ 38,048,174        $ 36,504,904
           Commercial                               43,915,342          43,275,731          47,757,381
           Construction and land development         2,382,657           4,888,634           5,514,565
         Lease financing                             1,059,382           3,285,439           7,537,563
         Demand and time                             4,654,006           6,678,218           9,557,470
         Installment                                43,147,377          20,259,198          23,714,889
                                                  ------------        ------------        ------------
                                                   129,090,258         116,435,394         130,586,772
         Unearned income on loans                     (747,946)           (750,736)           (853,766)
                                                  ------------        ------------        ------------
                                                   128,342,312         115,684,658         129,733,006
         Allowance for credit losses                (2,841,060)         (4,139,396)         (5,060,592)
                                                  ------------        ------------        ------------
                                                  $125,501,252        $111,545,262        $124,672,414
                                                  ============        ============        ============
</TABLE>

         During 1998 the Bank instituted an automotive indirect lending program,
         where vehicle collateralized loans made by dealers to consumers are
         assigned to the Bank. The Bank's installment loan portfolio included
         approximately $24,630,000 of such loans at December 31, 1998.

         In December 1997, the Bank purchased a pool of thirty-year fixed rate
         residential mortgage loans totaling $4,779,164 from a local financial
         institution, with an average yield of 7.78%.

         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, 1998, 1997, and 1996, the amounts of such loans outstanding were
         $1,495,082, $1,270,382, and $2,587,122, respectively. During 1998, loan
         additions and repayments were $506,645 and $281,945, respectively.

         The allowance for credit losses is as follows:

<TABLE>
<CAPTION>
                                                       1998               1997                1996
                                                  ------------        ------------        ------------
<S>                                               <C>                 <C>                 <C>         
         Balance, beginning of year               $  4,139,396        $  5,060,592        $  3,698,271
         Provision for credit losses                  (500,000)            270,000           6,596,000
         Recoveries                                    296,617             426,604             234,614
         Loans charged off                          (1,094,953)         (1,617,800)         (5,468,293)
                                                  ------------        ------------        ------------
         Balance, end of year                     $  2,841,060        $  4,139,396        $  5,060,592
                                                  ============        ============        ============
</TABLE>

         Loans on which the accrual of interest has been discontinued amounted
         to $1,724,782, $3,481,434, and $4,545,581 at December 31, 1998, 1997,
         and 1996, respectively. Interest that would have been accrued under the
         terms of these loans was $269,112, $307,950, and $457,035 for the years
         ended December 31, 1998, 1997, and 1996, respectively.

                                      F-14
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 4.  Loans (continued)

         Information regarding loans classified by the Bank as impaired are
         summarized as follows:

<TABLE>
<CAPTION>
                                                               1998            1997            1996
                                                            ----------      ----------      ----------
<S>                                                         <C>             <C>             <C>       
         Loans classified as impaired                       $2,528,851      $3,718,021      $5,953,621
         Allowance for credit losses on impaired loans         423,571         718,787       1,232,366
         Average balance of impaired loans                   2,417,615       5,251,152       6,563,679
</TABLE>

         Following is a summary of cash receipts on impaired loans and how they
         were applied:

<TABLE>
<S>                                                         <C>             <C>             <C>       
         Cash receipts applied to reduce principal balance  $   62,811      $  107,155      $  194,535
         Cash receipts recognized as interest income             7,313          97,948         182,795
                                                            ----------      ----------      ----------
             Total cash receipts                            $   70,124      $  205,103      $  377,330
                                                            ==========      ==========      ==========
</TABLE>

         At December 31, 1998, the total recorded investment in troubled debt
         restructurings amounted to $293,821. The average recorded investment in
         troubled debt restructurings amounted to $290,924 for the year ended
         December 31, 1998. The allowance for credit losses relating to troubled
         debt restructurings was $68,000 at December 31, 1998. Interest income
         on troubled debt restructurings of $16,765 was recognized for cash
         payments received in 1998. All investments in troubled debt were
         performing under the terms of the modified agreements, with the
         exception of one loan classified as impaired in the amount of $156,947
         as of December 31, 1998.

         At December 31, 1997, the total recorded investment in troubled debt
         restructurings amounted to $334,061. The average recorded investment in
         troubled debt restructurings amounted to $346,540 for the year ended
         December 31, 1997. The allowance for credit losses relating to troubled
         debt restructurings was $49,112 at December 31, 1997. Interest income
         on troubled debt restructurings of $16,408 was recognized for cash
         payments received in 1997. All investments in troubled debt were
         performing under the terms of the modified agreements.

         At December 31, 1996, the Bank had no recorded investments in troubled
         debt restructurings.

         The Bank has no commitments to loan additional funds to the borrowers
         of restructured, impaired or non-accrual loans.

Note 5.  Premises and Equipment

         A summary of premises and equipment is as follows:

<TABLE>
<CAPTION>
                                                  Useful
                                                  lives                  1998            1997             1996
                                                ----------           ------------     -----------      -----------
<S>                                            <C>                   <C>              <C>              <C>        
         Land                                                        $    509,803     $   509,803      $   509,803
         Buildings                              5-50 years              3,900,421       3,710,425        3,713,427
         Equipment and fixtures                 5-30 years              4,125,205       3,865,902        3,640,241
         Construction in progress                                          21,675         102,879           46,505
                                                                     ------------     -----------      -----------
                                                                        8,584,104       8,189,009        7,909,976
         Accumulated depreciation                                      (4,163,722)     (3,869,586)      (3,755,511)
                                                                     ------------     -----------      -----------
                                                                     $  4,420,382     $ 4,319,423     $  4,154,465
                                                                     ============     ===========     ============
</TABLE>

                                      F-15
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 5.  Premises and Equipment (continued)

         Depreciation expense was $596,716, $532,637, and $543,393 for the years
         ended December 31, 1998, 1997, and 1996, respectively. Amortization of
         software and intangible assets was $179,369, $123,676, and $110,602 for
         the years ended December 31, 1998, 1997, and 1996, respectively.

         The Bank leases its South Crain Highway and Ferndale Shopping Center
         branches. Minimum obligations under the leases are $23,460 and $30,000
         per year, respectively, until the leases expire in June 2000 and May
         2003, respectively. The Bank is also required to pay all maintenance
         costs under both leasing arrangements. Total rent expense was $53,591,
         $32,153, and $37,188 for the years ended December 31, 1998, 1997, and
         1996, respectively.

Note 6.  Short-term borrowings

         Short-term borrowings are as follows:

<TABLE>
<CAPTION>
                                              1998            1997           1996
                                           ----------      ----------      --------
<S>                                        <C>             <C>             <C>     
         Notes payable - U.S. Treasury     $  143,904      $  889,398      $547,937
         FHLB advances                      1,000,000              --            --
                                           ----------      ----------      --------
                                           $1,143,904      $  889,398      $547,937
                                           ==========      ==========      ========
</TABLE>

         The Bank owns shares of common stock of the Federal Home Loan Bank of
         Atlanta (FHLB). This investment was a condition for obtaining a $26
         million variable rate credit facility with the FHLB. At December 31,
         1998, the Bank had outstanding advances of $1,000,000, bearing interest
         at 5.15%, and maturing within the next year. There were no borrowings
         outstanding under this credit arrangement at December 31, 1997 or 1996.
         The credit facility is secured by a floating lien on the Bank's
         residential mortgage loan portfolio and by investment securities with
         amortized cost of approximately $1,000,000 at December 31, 1998.

         Notes payable to the U.S. Treasury are Federal treasury tax and loan
         deposits accepted by the Bank from its customers to be remitted on
         demand to the Federal Reserve Bank. The Bank pays interest on these
         balances at a slight discount to the Federal funds rate. The note
         payable is secured by investment securities with an amortized cost of
         approximately $1,494,000 at December 31, 1998.

         The Bank also has available $5,000,000 in short-term secured credit and
         a $1,000,000 letter of credit facility from another bank for short term
         liquidity needs, if necessary. There were no borrowings outstanding at
         December 31, 1998, 1997, and 1996 under these credit lines.

                                      F-16
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 7.  Deposits

         Major classifications of interest-bearing deposits are as follows:

<TABLE>
<CAPTION>
                                                            1998              1997              1996
                                                        ------------      ------------      ------------
<S>                                                     <C>               <C>               <C>         
         NOW and SuperNOW                               $ 20,600,751      $ 20,581,703      $ 22,792,376
         Money Market                                     20,049,677        19,876,925        26,210,655
         Savings                                          40,965,943        43,062,001        48,192,967
         Certificates of Deposit, $100,000 or more         5,758,269         5,260,809         6,753,155
         Other time deposits                              66,875,699        70,677,459        79,383,892
                                                        ------------      ------------      ------------
                                                        $154,250,339      $159,458,897      $183,333,045
                                                        ============      ============      ============
</TABLE>

         Interest expense on deposits is as follows:

<TABLE>
<CAPTION>
                                                            1998              1997             1996
                                                       -------------      ------------      ------------
<S>                                                    <C>                <C>               <C>         
         NOW and SuperNOW                              $     377,632      $    462,395      $    599,089
         Money Market                                        546,382           622,464           818,240
         Savings                                           1,069,853         1,233,294         1,475,426
         Certificates of Deposit, $100,000 or more           443,489           466,360           484,267
         Other time deposits                               3,611,472         4,056,439         4,334,967
                                                       -------------      ------------      ------------
                                                       $   6,048,828      $  6,840,952      $  7,711,989
                                                       =============      ============      ============
</TABLE>

         At December 31, 1998, the scheduled maturities of time deposits are
         approximately as follows:

<TABLE>
<CAPTION>
                                                                               1998
                                                                          ------------
<S>                                                                         <C>       
                           1999                                             43,053,000
                           2000                                             15,331,000
                           2001                                             10,706,000
                           2002                                              1,485,000
                           2003 and thereafter                               2,059,000
                                                                          ------------
                                                                          $ 72,634,000
                                                                          ============
</TABLE>

         Deposit balances of executive officers and directors and their
         affiliated interests totaled approximately $356,000, $485,000, and
         $1,067,000 at December 31, 1998, 1997, and 1996, respectively.

         The Bank had no brokered deposits at December 31, 1998, 1997, and 1996.

                                      F-17
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 8.  Income Taxes

         The components of income tax expense (benefits) for the years ended
         December 31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                           1998              1997             1996
                                                                       -----------       -----------      ------------
<S>                                                                    <C>               <C>               <C>         
         Current                                       
           Federal                                                     $    (1,841)      $      (218)      $  (398,491)
           State                                                           351,738          (335,725)         (266,880)
                                                                       -----------       -----------       -----------
         Total current                                                     349,897          (335,943)         (665,371)
                                                                       -----------       -----------       -----------
         Deferred income taxes (benefits)              
           Federal                                                         352,880           (27,040)         (764,511)
           State                                                           103,470            47,699           (50,310)
                                                                       -----------       -----------       -----------
         Total Deferred                                                    456,350            20,659          (814,821)
                                                                       -----------       -----------       -----------
             Income tax expense (benefits)                             $   806,247       $  (315,284)      $(1,480,192)
                                                                       ===========       ===========       ===========
</TABLE>                                              

         The 1998 current State provision consists of disallowed prior years'
         refund claims.

         A reconciliation of income tax expense (benefits) computed at the
         statutory rate of 34 percent to the actual income tax expense for the
         years ended December 31, 1998, 1997, and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                          1998              1997             1996
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>         
         Income (loss) before income taxes                             $ 1,639,439       $   431,963       $(2,500,369)
                                                                       ===========       ===========       ===========
         Taxes computed at Federal income tax rate                     $   557,409       $   146,867       $  (850,125)  
         Increase (decrease) resulting from                             
           Tax-exempt income                                               (61,361)         (296,323)         (456,790)
           State income taxes, net of Federal income tax benefit           300,437          (221,579)         (176,141)
           Other                                                             9,762            55,751             2,864
                                                                       -----------       -----------       -----------
             Income tax expense (benefits)                             $   806,247       $  (315,284)      $(1,480,192)
                                                                       ===========       ===========       ===========
</TABLE>

         Sources of deferred income taxes and the tax effects of each for the
         years ended December 31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                          1998              1997             1996
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>         
         Depreciation                                                  $    13,318       $   (23,201)      $   (30,990)
         Securities discount accretion                                     (19,471)            4,280             9,380
         Provision for credit losses                                       658,694           295,799          (241,077)
         Unearned income on loans                                               --            31,469           106,816
         Deferred compensation and benefit plans                           (76,205)          (61,589)          (56,096)
         Charitable contributions                                          (15,844)           (9,971)          (35,987)
         Write-downs on other real estate owned                             (2,317)           25,736           (28,192)
         AMT credits                                                       (16,764)         (242,422)         (538,117)
         Net operating loss carryover                                      (85,061)               --                --
         Other                                                                  --               558              (558)
                                                                       -----------       -----------       -----------
             Deferred income tax expense (benefits)                    $   456,350       $    20,659       $  (814,821)
                                                                       ===========       ===========       ===========
</TABLE>

                                      F-18
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 8.  Income Taxes (continued)

         The components of the net deferred income tax benefits as of December
         31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                          1998              1997              1996
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>        
         Deferred income tax benefits:
           Allowance for credit losses                                 $   123,966       $   782,660       $ 1,078,459
           Unearned income on loans                                             --                --            31,469
           Deferred compensation and benefit plans                         728,247           179,869           122,116
           Other real estate owned                                           4,773             2,456            28,192
           Charitable contributions                                         61,802            45,958            35,987
           Alternative minimum tax credits                                 797,303           780,539           538,117
           Net operating loss carryover                                     85,061                --                --
           Other                                                                --                --               558
                                                                       -----------       -----------       -----------
               Total deferred income tax benefits                        1,801,152         1,791,482         1,834,898
                                                                       -----------       -----------       -----------

         Deferred income tax liabilities:
           Accumulated depreciation                                        204,328           191,010           214,211
           Securities discount accretion                                    19,559            39,030            34,750
           Prepaid pension contributions                                   506,694            34,521            38,357
           Net unrealized appreciation on investment
             securities available for sale                                 177,659           141,526           166,614
                                                                       -----------       -----------       -----------
               Total deferred income tax liabilities                       908,240           406,087           453,932
                                                                       -----------       -----------       -----------
               Net deferred income tax benefits                        $   892,912       $ 1,385,395       $ 1,380,966
                                                                       ===========       ===========       ===========
</TABLE>

         Management has determined that no valuation allowance is required as it
         is more likely than not that the net deferred income tax benefits will
         be fully realizable in future years.


Note 9.  Pension and Profit Sharing Plans

         Through 1998, the Bank had a defined benefit pension plan covering
         substantially all of its employees. Benefits are based on the
         employee's average rate of earnings for the five consecutive years
         before retirement. The Bank's funding policy is to contribute annually
         an amount between the minimum and maximum actuarially determined
         contribution, using the frozen entry age actuarial cost method. Assets
         of the plan are held in a trust fund principally comprised of growth
         and income mutual funds managed by another bank.

         The Bank decided to terminate this plan, effective December 31, 1998.
         The Bank has also established a defined contribution plan as a
         replacement plan, effective January 1, 1999. Upon termination of the
         plan all participants became 100% vested. All accrued benefits under
         the terminated pension plan will be provided to participants through
         the purchase of annuities, or, in the case of actively employed
         participants, at their option, in the form of a lump sum rollover to
         the defined contribution plan. Any excess assets remaining in the
         defined benefit plan after payment of all accrued benefits to active,
         terminated, and retired participants are to be transferred to the new
         defined contribution plan.

         As a result of the termination of the defined benefit plan and the
         ultimate funding of the defined contribution plan, the Bank has
         recorded a prepaid pension asset of $1,248,153 and an accrued liability
         of the same amount at December 31, 1998.

                                      F-19
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 9.  Pension and Profit Sharing Plans (continued)

         The following table sets forth the financial status of the pension plan
         at December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                                                                                  1998               1997                1996      
                                                                               -----------        -----------        -----------
         <S>                                                                   <C>                <C>                <C>        
         Projected benefit obligation at January 1,                            $ 4,124,137        $ 3,804,330        $ 3,443,582
            Service cost                                                           208,699            218,504            208,566
            Interest                                                               346,128            317,295            292,704
            Actual benefit payments                                               (189,504)          (138,314)          (134,408)
            Interest on distributions                                               (6,850)            (9,232)            (6,114)
            Decrease from curtailment\termination                               (1,435,130)                --                 --
            Other adjustments                                                      (59,044)           (68,446)                --
                                                                               -----------        -----------        -----------
         Projected benefit obligation at December 31,                          $ 2,988,436        $ 4,124,137        $ 3,804,330
                                                                               ===========        ===========        ===========
         
         Accumulated benefit obligation
           Vested                                                              $ 2,988,436        $ 2,671,233        $ 2,244,790
           Nonvested                                                                    --            119,829             28,066
                                                                               -----------        -----------        -----------
                                                                               $ 2,988,436        $ 2,791,062        $ 2,525,451
                                                                               ===========        ===========        ===========
         
         Plan assets at January 1,                                             $ 4,670,182        $ 3,720,145        $ 3,399,653
            Actual contributions                                                        --            223,083            170,000
            Actual distributions                                                   189,504            138,314            134,408
            Actual returns                                                       1,218,395            865,268            284,900
                                                                               -----------        -----------        -----------
         Plan assets at December 31,                                           $ 5,699,073        $ 4,670,182        $ 3,720,145 
                                                                               ===========        ===========        ===========
         
         Plan assets at fair value                                             $ 5,699,073        $ 4,670,182        $ 3,720,145
         Projected benefit obligation                                           (2,988,436)        (4,124,137)        (3,804,330)
                                                                               -----------        -----------        -----------
         Plan assets in excess of (less than)                                    
           projected benefit obligation                                          2,710,637            546,045            (84,185)  
         Unrecognized prior service cost                                                --            148,730            174,327
         Unrecognized net (gain) loss                                           (1,425,979)          (556,714)            70,020
         Unrecognized net asset from transition                                    (36,505)           (48,674)           (60,843)
                                                                               -----------        -----------        -----------
         Prepaid pension expense included in other assets                      $ 1,248,153        $    89,387        $    99,319
                                                                               ===========        ===========        ===========
         
         Net pension expense includes the following:
           Service cost                                                        $   201,699        $   218,504        $   208,566
           Interest cost                                                           339,278            311,064            286,590
           Actual return on assets                                              (1,218,395)          (865,268)          (284,900)
           Net amortization and deferral                                           830,649            568,715             15,472
                                                                               -----------        -----------        -----------
         Net pension expense                                                   $   153,231        $   233,015        $   225,728 
                                                                               ===========        ===========        ===========
         
         Assumptions used in the accounting for net pension expense were:
         
         Discount rates                                                                8.5%               8.5%               8.5%
         Rate of increase in compensation levels                                       6.5%               6.5%               6.5%
         Long-term rate of return on assets                                            8.5%               8.5%               8.5%
</TABLE>
         
                                      F-20
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 9.  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 Bank's contributions to the plan are determined
         annually by the Board of Directors. The plan covers substantially all
         employees. The Bank's contributions to the plan included in expense
         were $102,757 and $83,500 for the years ended December 31, 1998 and
         1997, respectively. No contributions were made for 1996. Effective
         January 1, 1999, the plan was amended to provide for discretionary
         employer matching contributions to be determined annually by the Board
         of Directors.

Note 10. Post-Retirement Health Care Benefits

         The Bank provides health care benefits to employees who retire at age
         65. The plan is funded only by the Bank's monthly payments of insurance
         premiums due. The following table sets forth the financial status of
         the plan at December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                                                                   1998           1997            1996
                                                                ---------       ---------       ---------
<S>                                                             <C>             <C>             <C>      
         Accumulated post-retirement benefit obligation
           Retirees                                             $ 239,773       $ 191,817       $ 229,258
           Other active participants, fully eligible               27,741              --              --
           Other active participants, not fully eligible          493,449         482,529         648,414
                                                                ---------       ---------       ---------
                                                                  760,963         674,346         877,672
         Unrecognized net gain                                    347,097         359,178          23,715
         Unrecognized transition obligation                      (534,383)       (567,782)       (601,181)
                                                                ---------       ---------       ---------
         Accrued post-retirement benefit cost                   $ 573,677       $ 465,742       $ 300,206
                                                                =========       =========       =========
</TABLE>

         Net post-retirement benefit expense for the years ended December 31,
         1998, 1997, and 1996 includes the following:

<TABLE>
<S>                                                             <C>             <C>             <C>      
         Service cost                                           $  56,771       $  75,736       $  71,381
         Interest cost                                             48,979          72,930          69,792
         Amortization of unrecognized transition obligation        33,399          33,399          33,399
         Amortization of net gain                                 (13,052)         (1,669)             --
                                                                ---------       ---------       ---------
         Net post-retirement benefit expense                    $ 126,097       $ 180,396       $ 174,572
                                                                =========       =========       =========
</TABLE>

         Assumptions used in the accounting for net post-retirement benefit
         expense were:

<TABLE>
<S>                                                             <C>             <C>             <C> 
         Health care cost trend rate                                  5.0%            5.0%            8.0%
         Discount rate                                                6.8%            7.0%            8.5%
</TABLE>

         If the assumed health care cost trend rate were increased to 6% for
         1998 and 1997 and 9% for 1996, the total of the service and interest
         cost components of net periodic post-retirement health care benefit
         cost would increase by $28,471, $36,820, and $36,816, for the years
         ended December 31, 1998, 1997, and 1996, respectively, and the
         accumulated post-retirement benefit obligation would increase to
         $154,568, $217,216, and $211,388 as of December 31, 1998, 1997, and
         1996, respectively.

                                      F-21
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 11. Other Benefit Plans (see also Note 14)

         In March 1998, the Bank established and funded a grantor trust for
         $1,500,000 as part of a change in control severance plan covering
         substantially all employees. Participants in the plan are entitled to
         cash severance benefits upon termination of employment, for any reason
         other than just cause, should a "change in control" of the Company
         occur.

         In March 1998, the Company and Bank also established and the Bank
         funded a grantor trust for $2,000,000 for indemnification of the
         officers and directors of the Bank and/or Company for any litigation
         expenses incurred in connection with any "change of control" of the
         Company.

         Subsequent to the repurchase of the Company's common stock under a
         "Redemption Agreement" and entering into a standstill agreement (see
         Note 14), and effective as of December 31, 1998, all assets held by
         these trusts were returned to the Bank. The severance trust continues
         to exist on an unfunded status, while the litigation trust was
         terminated on December 31, 1998.

         In March 1998, the Bank established and funded a grantor trust for
         $285,000 as part of an employment agreement with the Chief Operating
         Officer of the Bank. The agreement provides for the payment of benefits
         upon termination of employment, for any reason other than just cause,
         after a "change in control" of the Company. Balances held in this trust
         of approximately $293,000 at December 31, 1998 are prepaid expenses and
         included in other assets.

Note 12. Other Operating Expenses

         Other operating expenses include the following:

<TABLE>
<CAPTION>
                                                                1998            1997             1996
                                                             ----------      ----------      ----------
<S>                                                          <C>             <C>             <C>       
         Professional services                               $2,163,448      $1,995,049      $1,454,449
         Stationery, printing and supplies                      241,029         275,020         218,397
         Postage and delivery                                   239,519         270,976         271,050
         FDIC assessment                                         81,162          92,456          33,595
         Directors fees and expenses                            151,737         168,061         196,622
         Marketing                                              305,794         249,958         124,897
         Data processing                                        205,839         135,326         129,449
         Correspondent bank services                            114,689         119,479         115,864
         Telephone                                               95,572          69,873          59,808
         Liability insurance                                     89,149          89,146          71,015
         Losses and expenses on real estate owned (OREO)         33,414         143,045          45,445
         Other                                                  391,567         464,594         395,881
                                                             ----------      ----------      ----------
                                                             $4,112,919      $4,072,983      $3,116,472
                                                             ==========      ==========      ==========
</TABLE>

Note 13. Litigation Charges

         In 1997, the Company incurred losses of $996,161 relating to two claims
         involving fraudulent check endorsement issues. These nonrecurring
         charges are included in other expenses for 1997.

         In 1998, the Company incurred losses of $1,225,003 relating to claims
         involving fraudulent check endorsement issues and\or bankruptcies.
         These nonrecurring charges are included in other expenses for 1998.

                                      F-22
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 14. Repurchase and Retirement of Company Common Stock

         During 1998, the Company was pursued by another competing financial
         institution (the institution) in a hostile take-over attempt. In
         November 1998, the Company reached an agreement with the institution to
         repurchase 213,168 shares of its common stock, or approximately 19.5%
         of its outstanding shares, for an aggregate purchase price of
         $5,580,764. In conjunction with the redemption agreement, the Company
         and the institution also entered into a standstill agreement through
         November 2008. Under the standstill agreement, the Company will make
         payments over five years totaling $675,510 beginning with the first
         payment of $150,000 in January 1999 and four subsequent annual payments
         of $131,378.


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:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                  ---------------------------------------------
                                                      1998             1997             1996
                                                  -----------      -----------      -----------
<S>                                               <C>              <C>              <C>        
         Loan commitments
           Construction and land development      $ 1,537,400      $   150,000      $ 1,865,000
           Other mortgage loans                     1,671,050          330,500          185,000
                                                  -----------      -----------      -----------
                                                  $ 3,208,450      $   480,500      $ 2,050,000
                                                  ===========      ===========      ===========
         Unused lines of credit
           Home-equity lines                      $ 3,029,929      $ 2,629,589      $ 2,944,867
           Commercial lines                         6,149,939        7,524,017        8,030,635
           Unsecured consumer lines                   851,390          799,826        3,434,501
                                                  -----------      -----------      -----------
                                                  $10,031,258      $10,953,432      $14,410,003
                                                  ===========      ===========      ===========
         Letters of credit                        $ 2,012,626      $ 2,221,173      $ 3,132,661
                                                  ===========      ===========      ===========
</TABLE>

         Loan commitments and lines of credit are agreements to lend to
         customers as long as there is no violation of any conditions of the
         contracts. Loan commitments generally have interest rates fixed at
         current market amounts, fixed expiration dates, and may require payment
         of a fee. Lines of credit generally have variable interest rates. Many
         of the loan commitments and lines of credit are expected to expire
         without being drawn upon; accordingly, the total commitment amounts do
         not necessarily represent future cash requirements. The Bank evaluates
         each customer's creditworthiness on a case-by-case basis. The amount of
         collateral or other security obtained, if deemed necessary by the Bank
         upon extension of credit, is based on management's credit evaluation.
         Collateral held varies but may include deposits held in financial
         institutions, U.S. Treasury securities, other marketable securities,
         accounts receivable, inventory, property and equipment, personal
         residences, income-producing commercial properties, and land under
         development. Personal guarantees are also obtained to provide added
         security for certain commitments.

         Letters of credit are conditional commitments issued by the Bank to
         guarantee the performance of a customer to a third party. Those
         guarantees are primarily issued to guarantee the installation of real
         property improvements and similar transactions. The credit risk
         involved in issuing letters of credit is

                                      F-23
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 15. Commitments and Contingencies (continued)

         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,
         1998, 1997, and 1996, $67,168, $70,168, and $139,382, respectively,
         have been provided as an allowance for credit losses related to these
         financial instruments with off-balance sheet risk, which is reflected
         as a reduction of loans.

         Legal proceedings:

         The Bank is a defendant in certain claims and legal actions arising in
         the ordinary course of business. The Bank is being sued for
         approximately $250,000 for allegedly honoring checks with invalid
         endorsements. The Bank's management is contesting the suit vigorously
         and asserting the Bank's counterclaim which seeks damages in an amount
         in excess of the damage sought by the plaintiff.

Note 16. Stockholders' Equity

         Restrictions on dividends:

         The Bank is subject to certain restrictions on the amount of dividends
         that it may pay. Under Maryland banking law, the Board of Directors may
         declare cash dividends from undivided profits after providing for
         expenses, losses, interest and taxes accrued or due. In 1997 and 1996
         the Bank's payment of dividends was restricted by a Memorandum of
         Understanding (M.O.U.) (see also Note 18) which required prior approval
         of the FDIC and the State Banking Commissioner of the State of Maryland
         for the payment of dividends by the Bank in excess of 50% of its net
         operating income or if the Bank's Tier 1 capital ratio would be reduced
         below 6%. This M.O.U. was lifted in June 1998.

         Employee stock purchase benefit plans:

         During 1998, the Company established a stock-based compensation plan,
         which is described below. The Bank applies Accounting Principles Board
         Opinion ("APB") No. 25 and related Interpretations in accounting for
         this plan. Compensation cost of $21,607 has been recognized in the
         accompanying consolidated financial statements for options granted in
         1998. If compensation cost for the Company's stock-based compensation
         plan had been determined based on the fair value at the grant date for
         awards under this plan consistent with the methods outlined in SFAS No.
         123 Accounting for Stock-Based Compensation, there would be no material
         change in reported net income.

         Employees who have completed one year of service are eligible to
         participate in the employee stock purchase plan. The number of shares
         of common stock granted under options will bear a uniform relationship
         to compensation. The plan allows employees to buy stock under options
         granted at the lesser of 85 percent of the fair market value of the
         stock on the date of grant or exercise. Options granted will expire no
         later than 27 months from the grant date or upon termination of
         employment. Activity under this plan is as follows:

                                      F-24
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 16. Stockholders Equity (continued)

<TABLE>
<CAPTION>
                                                                                                Grant
                                                                                    Shares      Price
<S>                                                                                 <C>        <C>    
         Granted on July 1, 1998, expiring October 1, 1999                          5,794      $ 21.25
         Expired                                                                      (32)
         Exercised                                                                   (935)
                                                                                    ----- 
         Outstanding December 31, 1998                                              4,827      $ 21.25
                                                                                    ===== 
</TABLE>

         At December 31, 1998, there were 24,065 shares of common stock reserved
         for issuance under the plan.

         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 percent of the fair
         market value on the dividend payment date.

         In October 1996, the Company suspended participation in the dividend
         reinvestment and stock purchase plan until the Company completed
         additional filings with the Securities and Exchange Commission. The
         plan was reinstated in 1998.

         During 1998 and 1996, 7,015 and 10,820 shares of common stock,
         respectively, were purchased under the plan. At December 31, 1998,
         there were 199,335 shares of common stock reserved for issuance under
         the plan.

         The Board of Directors may suspend or discontinue the plan at its
         discretion.

         Stockholder purchase plan:

         The Company's stockholder purchase plan allows participating
         stockholders an option to purchase newly issued shares of common stock.
         The number of shares that may be purchased pursuant to options shall be
         determined by the Board of Directors. Options granted will expire no
         later than 3 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.

<TABLE>
<CAPTION>
                                                                                                Grant
                                                                                    Shares      Price
<S>                                                                                 <C>        <C>    
         Granted on November 30, 1998, expiring January 29, 1999                   110,396     $26.125
         Exercised                                                                  (7,388)
                                                                                   -------

         Outstanding December 31, 1998                                             103,008     $26.125
                                                                                   =======
</TABLE>

         At December 31, 1998 there were 112,612 shares of common stock reserved
         for issuance under the plan.

         The Board of Directors may suspend or discontinue the plan at its 
         discretion.

                                      F-25
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 16. Stockholders Equity (continued)

         Regulatory capital requirements:

         The Company and Bank are subject to various regulatory capital
         requirements administered by Federal and State banking agencies.
         Failure to meet minimum capital requirements can initiate certain
         mandatory, and possibly additional discretionary actions by regulators
         that, if undertaken, could have a direct material effect on the
         Company's financial statements. The Company and Bank must meet specific
         capital guidelines that involve quantitative measures of the Company's
         and Bank's assets, liabilities, and certain off-balance sheet items as
         calculated under regulatory accounting principles. The Company's and
         Bank's capital amounts and classification are also subject to
         qualitative judgments by the regulators about components, risk
         weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
         adequacy require the Company and Bank to maintain minimum amounts and
         ratios (as defined in the regulations) of total and Tier I capital to
         risk-weighted assets and of Tier I capital to average assets.
         Management believes, as of December 31, 1998, 1997, and 1996, that the
         Company and Bank meet all capital adequacy requirements to which it is
         subject.

         As of December 31, 1998, the most recent notification from the FDIC
         categorized the Bank as well capitalized under the regulatory framework
         for prompt corrective action. To be categorized as well capitalized the
         Bank must maintain minimum total risk-based, Tier I risk-based, and
         Tier I leverage ratios. There are no conditions or events since that
         notification that management believes have changed the Bank's category.

         A comparison of capital as of December 31, 1998, 1997, and 1996 with
         minimum requirements is approximately as follows:

<TABLE>
<CAPTION>
                                                                                                   To Be Well Capitalized
                                                                               For Capital         Under Prompt Corrective
                                                       Actual               Adequacy Purposes         Action Provisions
                                              Amount           Ratio       Amount        Ratio       Amount         Ratio
                                           ------------        -----    -----------      -----     -----------      ------
<S>                                         <C>                <C>      <C>                <C>                         
         As of December 31, 1998
           Total Capital
             (to Risk Weighted Assets)
             Company                        $14,785,000        10.5%    $11,265,000        8.0%                 N/A
             Bank                            14,495,000        10.4%     11,150,000        8.0%    $13,938,000        10.0%

           Tier I Capital
             (to Risk Weighted Assets)
             Company                         13,018,000         9.3%      5,599,000        4.0%                 N/A
             Bank                            12,736,000         9.1%      5,598,000        4.0%      8,397,000         6.0%



           Tier I Capital
             (to Average Assets)
             Company                         13,018,000         6.0%      8,722,000        4.0%                 N/A
             Bank                            12,736,000         5.8%      8,723,000        4.0%     10,904,000         5.0%
</TABLE>

                                      F-26
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 16. Stockholders' Equity (continued)

<TABLE>
<CAPTION>
                                                                                                   To Be Well Capitalized
                                                                               For Capital         Under Prompt Corrective
                                                       Actual               Adequacy Purposes         Action Provisions
                                              Amount           Ratio       Amount        Ratio       Amount         Ratio
                                           ------------        -----    -----------      -----     -----------      ------
<S>                                         <C>                <C>      <C>                <C>                         
         As of December 31, 1997                                                 
           Total Capital
              (to Risk Weighted Assets)
              Company                       $19,359,000        16.0%    $ 9,656,000        8.0%                 N/A  
              Bank                           18,908,000        15.7%      9,649,000        8.0%    $12,061,000        10.0%
                                             
           Tier I Capital
              (to Risk Weighted Assets)
              Company                        17,818,000        14.8%      4,828,000        4.0%                 N/A    
              Bank                           17,368,000        14.4%      4,824,000        4.0%      7,237,000         6.0%
                                             
           Tier I Capital
              (to Average Assets)
              Company                        17,818,000         7.6%     14,107,000        6.0%                 N/A      
              Bank                           17,368,000         7.4%     14,089,000        6.0%     11,741,000         5.0%
                                            
         As of December 31, 1996
           Total Capital
              (to Risk Weighted Assets)
              Company                        19,614,000        14.0%     11,221,000        8.0%                 N/A
              Bank                           19,215,000        13.3%     11,590,000        8.0%     14,487,200        10.0%
                                             
           Tier I Capital
              (to Risk Weighted Assets)
              Company                        17,845,000        12.7%      5,610,000        4.0%                 N/A 
              Bank                           17,367,000        12.0%      5,789,000        4.0%      8,683,500         6.0%
                                            
           Tier I Capital
              (to Average Assets)
              Company                        17,845,000         7.2%     14,949,000        6.0%                 N/A
              Bank                           17,367,000         7.0%     14,886,000        6.0%     12,405,000         5.0%
</TABLE>

                                      F-27
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 17. Earnings Per Common Share

         Earnings per common share are calculated as follows:

<TABLE>
<CAPTION>
                                                         1998            1997            1996
                                                    -----------      -----------      -----------
<S>                                                 <C>              <C>              <C>         
Basic:
   Net income (loss)                                $   833,192      $   747,247      $(1,020,177)
   Weighted average common shares outstanding         1,071,026        1,092,768        1,089,495
   Basic net income (loss) per share                $      0.78      $      0.68      $     (0.94)

Diluted:
   Net income                                       $   833,192
   Weighted average common shares outstanding         1,071,026
   Dilutive effect of stock options                         362
                                                    -----------
   Average common shares outstanding - diluted        1,071,388
   Diluted net income per share                     $      0.78
</TABLE>

         Diluted earnings per share calculations were not required for 1997 and
         1996 due to the Company having a simple capital structure in 1997 and
         net losses in 1996.

         Options relating to the stockholder purchase plan have an anti-dilutive
         effect, and therefore were not included in the diluted calculation.

Note 18. Regulatory Matters

         In June 1996, the Bank entered into a Memorandum of Understanding
         (M.O.U.) with the Federal Deposit Insurance Corporation and the State
         Bank Commissioner of the State of Maryland to accomplish corrective
         actions regarding matters including violations of law, loan collection
         and delinquencies, loan administration, methodology for allowance for
         credit loss calculations, management reporting, strategic planning, and
         maintenance of capital.

         In July 1997, the Bank entered into a revised M.O.U., which stipulated
         certain dividend restrictions and corrective actions regarding
         management, asset quality, earnings, capital, sensitivity to market
         risk, and risk management.

         In June 1998, the Bank was found to be in compliance with the revised
         M.O.U., resulting in termination of the agreement.

                                      F-28
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 19. Fair Values of Financial Instruments

         In accordance with the disclosure requirements of Statement of
         Financial Accounting Standards No. 107, the estimated fair value and
         the related carrying values of the Company's financial instruments are
         as follows:

<TABLE>
<CAPTION>

                                             1998                         1997                      1996
                                -------------------------------------------------------------------------------------
                                    Carrying        Fair         Carrying       Fair        Carrying      Fair   
                                     Amount         Value         Amount        Value        Amount       Value
                                -------------------------------------------------------------------------------------
<S>                               <C>            <C>           <C>           <C>           <C>           <C>         
Financial assets:
   Cash and due from banks        $  8,197,344   $  8,197,344  $  8,127,732  $  8,127,732  $ 10,665,680  $ 10,665,680
   Interest-bearing deposits in     
     other financial institutions    4,958,337      4,958,337     1,558,879     1,558,879     1,836,981     1,836,981   
   Federal funds sold                2,863,635      2,863,635    18,850,000    18,850,000    10,175,000    10,175,000
   Investment securities            
     available for sale             32,924,539     32,924,539    40,678,867    40,678,867    54,906,836    54,906,836
   Investment securities held to    
      maturity                      32,561,288     32,539,731    41,178,804    41,566,019    41,667,057    41,998,402
   Loans, less allowance for       
      credit losses                125,501,252    125,980,000   111,545,262   109,301,000   124,672,414   120,992,000  
   Ground rents                        257,025        257,025       262,525       262,525       267,974       267,974
   Accrued interest receivable       1,401,660      1,401,660     1,556,971     1,556,971     1,937,928     1,937,928

Financial liabilities:
   Deposits                        199,611,115    201,124,000   207,110,272   207,622,000   232,745,975   232,702,000
   Short-term borrowings             1,143,904      1,143,904       889,398       889,398       547,937       547,937
   Dividends payable                   123,039        123,039        81,146        81,146        44,193        44,193
   Accrued interest payable            160,597        160,597       177,922       177,922       214,977       214,977

Unrecognized financial
   instruments:
   Commitments to extend           
      credit                        13,239,708     13,172,540    11,433,932    11,363,764    16,460,003    16,320,621
   Standby letters of credit         2,012,626      2,012,626     2,221,173     2,221,173     3,132,661     3,132,661
</TABLE>

         For purposes of the disclosures of estimated fair value, the following
         assumptions were used.

         Loans:

         The estimated fair value for loans is determined by discounting future
         cash flows using current rates at which similar loans would be made to
         borrowers with similar credit ratings and for the same remaining
         maturities.

         Investment securities:

         Estimated fair values are based on quoted market prices.
         Deposits:

         The estimated fair value of deposits with no stated maturity, such as
         noninterest-bearing demand deposits, savings, NOW accounts and money
         market accounts, is equal to the amount payable on demand at the
         reporting date (that is, their carrying amounts). The fair value of
         certificates of deposit is based on the rates currently offered for
         deposits of similar maturities. The fair value estimates do not include
         the benefit that results from the low-cost funding provided by the
         deposit liabilities compared to the cost of borrowing funds in the
         market.

                                      F-29
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 19. Fair Values of Financial Instruments (continued)

         Other assets and liabilities:

         The estimated fair values for cash and due from banks, interest-bearing
         deposits in other financial institutions, Federal funds sold, accrued
         interest receivable and payable, and short-term borrowings are
         considered to approximate cost because of their short-term nature.

         Other assets and liabilities of the Bank that are not defined as
         financial instruments are not included in the above disclosures, such
         as property and equipment. Also, non-financial instruments typically
         not recognized in the financial statements nevertheless may have value
         but are not included in the above disclosures. These include, among
         other items, the estimated earnings power of core deposit accounts, the
         trained work force, customer goodwill, and similar items.

Note 20. Adoption of Recently Issued Accounting Pronouncements

         Statement of Financial Accounting Standards No. 130, Reporting
         Comprehensive Income (SFAS No. 130), establishes additional standards
         for reporting and display of "comprehensive income" and its components
         on the Company's financial statements. Effective for 1998, the Bank
         retroactively adopted this pronouncement. Comprehensive income is
         defined as the change in equity of a business enterprise from
         transactions and other events and circumstances from non-owner sources
         (including net income). It includes all changes in equity except those
         resulting from investments by owners. Changes in unrealized
         appreciation (depreciation) on securities available for sale, net of
         taxes, are an item of comprehensive income. The column previously
         reported as "net unrealized depreciation on securities available for
         sale" on the Statements of Changes in Stockholders' Equity has been
         changed to "accumulated other comprehensive income."

         Statements of Financial Accounting Standards No. 132, Employers'
         Disclosure about Pensions and Other Post-retirement Benefits (SFAS No.
         132), revised the disclosures about pension and other post-retirement
         benefit plans (see Note 9 and 10). Effective in 1998, it did not change
         the measurement or recognition of those plans.

         Statements of Financial Accounting Standards No. 133, Accounting for
         Derivative Instruments and Hedging Activities (SFAS No. 133), requires
         that an entity recognize all derivatives as either assets or
         liabilities in the statement of financial position and measure those
         instruments at fair value. The Bank adopted this pronouncement
         effective October 1, 1998, and, while there were no derivative
         instruments held by the Bank and no hedging activities in 1998, the
         Bank elected to reclassify certain held to maturity securities to
         available for sale as allowed under this pronouncement (see also Note
         3).

                                      F-30
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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:

<TABLE>
<CAPTION>
                                                      Balance Sheets
         ----------------------------------------------------------------------------------------------------
         December 31,                                               1998             1997             1996
         ----------------------------------------------------------------------------------------------------
         Assets
<S>                                                             <C>              <C>              <C>        
         Cash                                                   $   239,226      $   166,195      $   122,167
         Investment in The Bank of Glen Burnie                   13,886,563       18,514,844       18,109,107
         Investment in GBB Properties, Inc.                         165,637          365,341          373,357
         Due from affiliates                                          4,789               --               --
         Other assets                                                    --            1,259           25,932
                                                                -----------      -----------      -----------
             Total assets                                       $14,296,215      $19,047,639      $18,630,563
                                                                ===========      ===========      ===========

         Liabilities and Stockholders' Equity

         Dividend payable                                       $   123,039      $    81,146      $    44,193
         Income taxes payable                                         4,503               --               -- 
         Due to affiliates                                               --            1,903               --
                                                                -----------      -----------      -----------
             Total liabilities                                      127,542           83,049           44,193
                                                                -----------      -----------      -----------

         Stockholders' equity
           Common stock                                           8,949,388       10,927,688        8,838,588
           Surplus                                                3,373,591        6,575,053        6,192,900
           Retained earnings                                      1,563,336        1,236,917        3,290,077
           Accumulated other comprehensive income, net of
             taxes (benefits)                                       282,358          224,932          264,805
                                                                -----------      -----------      -----------
             Total stockholders' equity                          14,168,673       18,964,590       18,586,370
                                                                -----------      -----------      -----------
             Total liabilities and stockholders' equity         $14,296,215      $19,047,639      $18,630,563 
                                                                ===========      ===========      ===========

<CAPTION>

                                                    Statements of Income
         ----------------------------------------------------------------------------------------------------
         Years Ended December 31,                                   1998             1997             1996
         ----------------------------------------------------------------------------------------------------
                                                                      
         Dividends and distributions from subsidiaries          $ 5,740,764      $   312,097      $   885,000
         Expenses, net of revenues of $279 in 1998                      840            3,704            6,632
                                                                -----------       ----------      -----------
         Income before income taxes and equity in                 
           undistributed net income of subsidiaries               5,739,924          308,393          878,368
         Income tax benefit                                             286            1,259            2,255
         Change in undistributed net income of subsidiaries      (4,907,018)         437,595       (1,900,800)
                                                                -----------       ----------      -----------
              Net income (loss)                                 $   833,192      $   747,247      $(1,020,177)
                                                                ===========       ==========      ===========
</TABLE>

                                      F-31
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 21. Parent Company Financial Information (continued)

<TABLE>
<CAPTION>
                                                 Statements of Cash Flows
         ----------------------------------------------------------------------------------------------------
         Years Ended December 31,                                   1998             1997             1996
         ----------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>              <C>          
         Cash flows from operating activities:

           Net income (loss)                                    $   833,192      $   747,247      $(1,020,177) 
           Adjustments to reconcile net income (loss) to net
             cash provided by operating activities:
                Decrease in other assets                              1,259           24,674            1,210
                Increase in due from subsidiaries                    (4,789)              --               --
                (Decrease) increase in due to subsidiaries           (1,903)           1,903          (10,000)
                Increase in income taxes payable                      4,503               --               --
                Equity in net (income) losses of subsidiaries     4,907,018         (437,595)       1,900,800
                                                                -----------      -----------      -----------
                  Net cash provided by operating activities       5,739,280          336,229          871,833
                                                                -----------      -----------      -----------
         Cash flows from investing activities:
           Capital contributed to subsidiary                             --               --         (390,000)
                                                                -----------      -----------      -----------

         Cash flows from financing activities:
           Proceeds from dividend reinvestment plan                 166,515               --          380,678
           Proceeds from sales of common stock                      212,880               --            5,384
           Repurchase and retirement common stock                (5,580,764)              --               --
           Dividends paid                                          (464,880)        (292,201)      (1,010,485)
                                                                -----------      -----------      -----------
                  Net cash used in financing activities          (5,666,249)        (292,201)        (624,423)
                                                                -----------      -----------      -----------
         Increase (decrease) in cash and cash equivalents            73,031           44,028         (142,590)
         Cash and cash equivalents, beginning of year               166,195          122,167          264,757
                                                                -----------      -----------      -----------
         Cash and cash equivalents, end of year                 $   239,226      $   166,195      $   122,167
                                                                ===========      ===========      ===========
</TABLE>

                                      F-32
<PAGE>

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 22. Quarterly Results of Operations (Unaudited)

         The following is a summary of the Company's unaudited quarterly results
of operations:

<TABLE>
<CAPTION>
                                 1998                                          Three months ended,
         -----------------------------------------------------------------------------------------------------------
         (Dollars in thousands, except per share amounts)       December 31    September 30    June 30      March 31
         -----------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>          <C>    
         Interest income                                          $ 3,977        $ 3,986       $ 3,930      $ 3,996
         Interest expense                                           1,499          1,537         1,520        1,540
         Net interest income                                        2,478          2,449         2,410        2,456
         Provision for credit losses                                   --           (500)           --           --
         Net securities gains                                         111            165           219           32
         Income (loss) before income taxes                            460            895           371          (86)
         Net income                                                    84            516           230            3
         Net income per share (basic and diluted)                 $  0.10        $  0.47       $  0.21      $  0.00

<CAPTION>
                                 1997                                          Three months ended,
         -----------------------------------------------------------------------------------------------------------
         (Dollars in thousands, except per share amounts)       December 31    September 30    June 30      March 31
         -----------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>          <C>    
         Interest income                                          $ 4,131        $ 4,290       $ 4,468      $ 4,587
         Interest expense                                           1,621          1,697         1,755        1,836
         Net interest income                                        2,510          2,593         2,713        2,751
         Provision for credit losses                                   --             --            --          270
         Net securities gains                                          44            223             1            3
         Income (loss) before income taxes                            184            140          (256)         364
         Net income                                                   168            193            11          375
         Net income per share (basic and diluted)                 $  0.15        $  0.18       $  0.01      $  0.34

<CAPTION>
                                 1996                                          Three months ended,
         -----------------------------------------------------------------------------------------------------------
         (Dollars in thousands, except per share amounts)       December 31    September 30    June 30      March 31
         -----------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>          <C>    
         Interest income                                          $ 4,567        $ 4,789       $ 4,466      $ 4,824
         Interest expense                                           1,925          1,947         1,917        1,973
         Net interest income                                        2,642          2,842         2,549        2,851
         Provision for credit losses                                3,771            375         2,075          375
         Net securities gains                                          50              6             2           87
         Income (loss) before income taxes                         (2,599)           585        (1,342)         856
         Net income (loss)                                         (1,436)           450          (671)         637
         Net income (loss) per share (basic and diluted)          $ (1.33)       $   .41       $  (.61)     $   .59
</TABLE>

                                      F-33
<PAGE>





                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                  GLEN BURNIE BANCORP


March 25, 1999                    By: /s/ F. William Kuethe, Jr.
                                      -----------------------------------------
                                      F. William Kuethe, Jr.
                                      President and Chief Executive Officer
                                      (Duly Authorized Representative)

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


By:  /s/ F. William Kuethe, Jr.                           March 25, 1999
     -------------------------------------------
     F. William Kuethe, Jr.
     President and  Chief Executive Officer
     (Principal Executive Officer)

By:  /s/ John E. Porter                                   March 25, 1999
     -------------------------------------------
     John E. Porter
     Chief Financial Officer
     (Principal Financial and Accounting Officer)

By:  /s/ John E. Demyan                                   March 25, 1999
     -------------------------------------------
     John E. Demyan
     Chairman of the Board

By:  /s/ Theodore L. Bertier, Jr.                         March 25, 1999
     -------------------------------------------
     Theodore L. Bertier, Jr.
     Director

By:  /s/ Shirley E. Boyer                                 March 25, 1999
     -------------------------------------------
     Shirley E. Boyer
     Director

By:  /s/ Thomas Clocker                                   March 25, 1999
     -------------------------------------------
     Thomas Clocker
     Director

By:  /s/ Alan E. Hahn                                     March 25, 1999
     -------------------------------------------
     Alan E. Hahn
     Director



<PAGE>



By:  /s/ Charles L. Hein                                  March 25, 1999
     -------------------------------------------
     Charles L. Hein
     Director


By:  /s/ F. W. Kuethe, III                                March 25, 1999
     -------------------------------------------
     F. W. Kuethe, III
     Director


By:  /s/ Eugene P. Nepa                                   March 25, 1999
     -------------------------------------------
     Eugene P. Nepa
     Director


By:  /s/ William N. Scherer, Sr.                          March 25, 1999
     -------------------------------------------
     William N. Scherer, Sr.
     Director


By:  /s/ Karen B. Thorwarth                               March 25, 1999
     -------------------------------------------
     Karen B. Thorwarth
     Director


By:  /s/ Mary Lou Wilcox                                  March 25, 1999
     -------------------------------------------
     Mary Lou Wilcox
     Director