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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002 or

[  ]  Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______to ______.

Commission file number: 0-24047

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

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

|                                                   |  |               
|-------------------------------------------------- |  | --------------
|Registrants telephone number, including area code |  | (410) 766-3300

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

|               |  |                                          
|-------------- |  | -----------------------------------------
|Title of Class |  | Name of Each Exchange on Which Registered
|None           |  | None                                     

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

Title of ClassCommon Stock, $1.00 par value
Common Stock Purchase Rights

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   YesX     No______

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   X

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 27, 2003 was $25,037,865.

The number of shares of common stock outstanding as of February 27, 2003 was
1,677,174.

DOCUMENTS INCORPORATED BY REFERENCE

To the extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrants definitive proxy statement for its 2003 Annual
Meeting of Shareholders (to be filed).





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GLEN BURNIE BANCORP
2003 ANNUAL REPORT ON FORM 10-K

Table of Contents

|               |  |                                                                                        |  |     
|-------------- |  | -------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                        |  | Page
|              
|               |  | PART I                                                                                 |  |     
|Item 1.        |  | Business                                                                               |  | 3   
|Item 2.        |  | Properties                                                                             |  | 16  
|Item 3.        |  | Legal Proceedings                                                                      |  | 16  
|Item 4.        |  | Submission of Matters to a Vote of Security-Holders                                    |  | 17  
|               |  | Executive Officers of the Registrant                                                   |  | 17  
|               |  | PART II                                                                                |  |     
|Item 5.        |  | Market for Registrants Common Equity and Related
Stockholder Matters                  |  | 18  
|Item 6.        |  | Selected Financial Data                                                                |  | 19  
|Item 7.        |  | Managements Discussion and Analysis of Financial
Conditions and Results of Operations |  | 20  
|Item 7A.       |  | Quantitative And Qualitative Disclosures About Market Risk                             |  | 27  
|Item 8.        |  | Financial Statements and Supplementary Data                                            |  | 27  
|Item 9.        |  | Changes in and Disagreements with Accountant
on Accounting and Financial Disclosures   |  | 27  
|               |  | PART III                                                                               |  |     
|Item 10.       |  | Directors and Executive Officers of the Registrant                                     |  | 28  
|Item 11.       |  | Executive Compensation                                                                 |  | 28  
|Item 12.       |  | Security Ownership of Certain Beneficial Owners
and Management                         |  | 28  
|Item 13.       |  | Certain Relationships and Related Transactions                                         |  | 28  
|Item 14.       |  | Controls and Procedures                                                                |  | 28  
|Item 15.       |  | Principal Accountant Fees and Services                                                 |  | 28  
|               |  | PART IV                                                                                |  |     
|Item 16.       |  | Exhibits, Financial Statement Schedules and Reports
on Form 8-K                        |  | 29  
|Signatures     |  | 30                                                                                    
|Certifications |  | 32                                                                                    





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PART I

ITEM 1. BUSINESS

General

Glen Burnie Bancorp (the Company) is a bank holding company organized in
1990 under the laws of the State of Maryland. It presently owns all the
outstanding shares of capital stock of The Bank of Glen Burnie (the Bank), a
commercial bank organized in 1949 under the laws of the State of Maryland,
serving northern Anne Arundel County and surrounding areas from its main office
and branch in Glen Burnie, Maryland and branch offices in Glen Burnie (South
Crain location) Odenton, Riviera Beach, Crownsville, Severn and Severna Park,
Maryland. The Bank also maintains four remote Automated Teller Machine (ATM)
locations in Ferndale, Gambrills, Jessup and Pasadena, Maryland. The Bank
maintains a website at www.thebankofglenburnie.com. The Bank is the oldest
independent commercial bank in Anne Arundel County. The Bank is engaged in the
commercial and retail banking business as authorized by the banking statutes of
the State of Maryland, including the acceptance of demand and time deposits,
and the origination of loans to individuals, associations, partnerships and
corporations. The Banks real estate financing consists of residential first
and second mortgage loans, home equity lines of credit and commercial mortgage
loans. Commercial lending consists of both secured and unsecured loans. The
Bank also originates automobile loans through arrangements with local
automobile dealers. The Banks deposits are insured up to applicable limits by
the Federal Deposit Insurance Corporation (FDIC).

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

Market Area

The Bank considers its principal market area for lending and deposit
products to consist of Northern Anne Arundel County, Maryland, which consists
of those portions of the county north of U.S. Route 50. Northern Anne Arundel
County includes mature suburbs of the City of Baltimore, which in recent years
have experienced modest population growth and are characterized by an aging
population. Management believes that the majority of the working population in
its market area either commutes to Baltimore or is employed at businesses
located at or around 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, 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 consumer lending currently
consists primarily of automobile loans originated through local dealers. The
Bank has expanded its indirect automobile loans by entering into arrangements
with individual automobile dealers.

The Companys total loan portfolio increased during the 2000, 1999 and
1998 fiscal years, primarily as a result of the introduction of an indirect
automobile lending program in 1998. The commercial mortgage portfolio, which
had been slowly declining over the last several years, declined in 2002 and
2001 as a result of softening loan demand. In contrast, the residential
mortgage portfolio achieved large increases during 2002 and 2001 in a strong
housing market environment.

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

|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |  
|--------------------------- | --------------------------------- | ---------------------------------- | ------- | ------ | ------- | ---- | ---- | ----- | ------ | ---- | ------- | ------ | ------- | - | ---- | ----- | ------ | - | ------- | --------------- | ------- |  | ---- | ----- | ------ | - | ------- | ------ | ------- |  | ---- | ----- | ------ | - | ------- | ------ | ------- |  | ---- | ----- | ------ | -
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         | At December 31, |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |       
|                            |                                   |                                    |         | 2002   |         | 2001 |      | 2000  |        | 1999 |         | 1998  
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |       
|(Dollars in Thousands)      |                                   | $                                  |         | %      |         | $    |      | %     |        | $    |         | %      |         | $ |      | %     |        | $ |         | %              
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                
|Mortgage:                   |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            | Residential                       |                                    | $       | 49,572 |         |      |      | 30.67 | %      |      | $       | 44,293 |         |   |      | 26.32 | %      |   | $       | 36,187          |         |  |      | 21.74 | %      |   | $       | 34,099 |         |  |      | 22.03 | %      |   | $       | 33,931 |         |  |      | 26.28 | %     
|                            | Commercial                        |                                    |         | 31,584 |         |      |      | 19.54 |        |      |         | 36,920 |         |   |      | 21.94 |        |   |         | 40,169          |         |  |      | 24.13 |        |   |         | 42,342 |         |  |      | 27.36 |        |   |         | 43,915 |         |  |      | 34.02 |       
|                            | Construction and land
development |                                    |         | 2,338  |         |      |      | 1.45  |        |      |         | 2,355  |         |   |      | 1.40  |        |   |         | 5,257           |         |  |      | 3.16  |        |   |         | 6,095  |         |  |      | 3.94  |        |   |         | 2,383  |         |  |      | 1.85  |       
|Consumer:                   |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            | Installment                       |                                    |         | 19,758 |         |      |      | 12.22 |        |      |         | 20,063 |         |   |      | 11.92 |        |   |         | 19,119          |         |  |      | 11.49 |        |   |         | 16,203 |         |  |      | 10.47 |        |   |         | 17,119 |         |  |      | 13.26 |       
|                            | Credit card                       |                                    |         | 228    |         |      |      | .14   |        |      |         | 272    |         |   |      | 0.16  |        |   |         | 281             |         |  |      | 0.16  |        |   |         | 1,348  |         |  |      | 0.88  |        |   |         | 1,398  |         |  |      | 1.08  |       
|                            | Indirect automobile               |                                    |         | 52,795 |         |      |      | 32.66 |        |      |         | 59,308 |         |   |      | 35.24 |        |   |         | 61,725          |         |  |      | 37.08 |        |   |         | 50,967 |         |  |      | 32.93 |        |   |         | 24,630 |         |  |      | 19.08 |       
|Commercial                  |                                   |                                    | 5,374   |        |         |      | 3.32 |       |        |      | 5,083   |        |         |   | 3.02 |       |        |   | 3,726   |                 |         |  | 2.24 |       |        |   | 3,701   |        |         |  | 2.39 |       |        |   | 5,714   |        |         |  | 4.43 |      
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            |                                   | Gross loans                        |         |        | 161,649 |      |      |       | 100.00 | %    |         |        | 168,294 |   |      |       | 100.00 | % |         |                 | 166,464 |  |      |       | 100.00 | % |         |        | 154,755 |  |      |       | 100.00 | % |         |        | 129,090 |  |      |       | 100.00 | %
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|Unearned income on loans    |                                   |                                    | (847    | )      |         |      |      |       |        |      | (786    | )      |         |   |      |       |        |   | (705    | )               |         |  |      |       |        |   | (727    | )      |         |  |      |       |        |   | (748    | )      |         |  |      |      
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            |                                   | Gross loans net of
unearned income |         |        | 160,802 |      |      |       |        |      |         |        | 167,508 |   |      |       |        |   |         |                 | 165,759 |  |      |       |        |   |         |        | 154,028 |  |      |       |        |   |         |        | 128,342 |  |      |       |        |  
|Allowance for credit
losses |                                   |                                    | (2,515  | )      |         |      |      |       |        |      | (2,939  | )      |         |   |      |       |        |   | (3,385  | )               |         |  |      |       |        |   | (2,922  | )      |         |  |      |       |        |   | (2,841  | )      |         |  |      |      
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|Loans, net                  |                                   | $                                  | 158,287 |        |         |      |      |       |        | $    | 164,569 |        |         |   |      |       |        | $ | 162,374 |                 |         |  |      |       |        | $ | 151,106 |        |         |  |      |       |        | $ | 125,501 |        |         |  |      |      
|                            |                                   |                                    |         |        |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |                 |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      

The following table sets forth the maturities for various categories of
the loan portfolio at December 31, 2002. Demand loans and loans, which have no
stated maturity, are treated as due in one year or less. At December 31, 2002,
the Bank had $12,264,870 in loans due after one year with variable rates and
$133,029,911 in such loans with fixed rates. The Banks long-term real estate
loans allow the Bank to call the loan after three years in order to adjust the
interest rate if necessary. The Bank has generally not exercised its call
option and the following table assumes no exercise of the Banks call option.

|                           |             |   |                |       |                 |   |            |       |       |   |        |        |  |   |         |        | 
|-------------------------- | ----------- | - | -------------- | ----- | --------------- | - | ---------- | ----- | ----- | - | ------ | ------ |  | - | ------- | ------ | 
|                           |             |   | Due Within     |       | Due Over One To |   | Due Over   |       |       |   |       
|                           |             |   | One Year       |       | Five Years      |   | Five Years |       | Total
|                           |             |   |                |       |                 |   |            |       |      
|                           |             |   | (In Thousands)
|Real Estate  mortgage:    |             |   |                |       |                 |   |            |       |       |   |        |        |  |   |         |       
|                           | Residential |   | $              | 3,851 |                 |   | $          | 1,589 |       |   | $      | 44,132 |  |   | $       | 49,572 | 
|                           | Commercial  |   |                | 2,065 |                 |   |            | 9,743 |       |   |        | 19,776 |  |   |         | 31,584 | 
|Real Estate  construction |             |   |               |       |                 |   | 740        |       |       |   | 1,598  |        |  |   | 2,338   |       
|Installment                |             |   | 2,224          |       |                 |   | 12,960     |       |       |   | 4,574  |        |  |   | 19,758  |       
|Credit Card                |             |   | 198            |       |                 |   |           |       |       |   | 30     |        |  |   | 228     |       
|Indirect automobile        |             |   | 1,541          |       |                 |   | 49,124     |       |       |   | 2,130  |        |  |   | 52,795  |       
|Commercial                 |             |   | 5,301          |       |                 |   | 39         |       |       |   | 34     |        |  |   | 5,374   |       
|                           |             |   |                |       |                 |   |            |       |       |   |        |        |  |   |         |       
|                           |             | $ | 15,180         |       |                 | $ | 74,195     |       |       | $ | 72,274 |        |  | $ | 161,649 |       
|                           |             |   |                |       |                 |   |            |       |       |   |        |        |  |   |         |       

Real Estate Lending.The Bank offers long-term mortgage financing for
residential and commercial real estate as well as shorter term construction and
land development loans. Residential mortgage and residential construction
loans are originated with fixed rates while commercial mortgages may be
originated on either a fixed or variable rate basis. Commercial construction
loans are generally originated on a variable rate basis. The Banks long-term,
fixed-rate mortgages include a provision allowing the Bank to call the loan
after three years in order to adjust the interest rate. The Bank, however, has
never exercised this right. Substantially all of the Banks real estate loans
are secured by properties in northern Anne Arundel County, Maryland. Under the
Banks loan policies, the maximum permissible loan-to-value ratio for
owner-occupied residential mortgages is 80% of the lesser of the purchase price
or appraised value. The Bank, however, will make loans secured by
owner-occupied residential real estate with loan-to-value ratios up to 95%
provided the borrower obtains private mortgage insurance for the portion of the
loan in excess of 80%. For residential investment properties, the maximum
loan-to-value ratio is 75%. The maximum permissible loan-to-value ratio for
residential and commercial construction loans is 80%. The maximum
loan-to-value ratio for permanent commercial mortgages is 75%. The maximum
loan-to-value ratio for land development loans is 70% and for unimproved land
is 65%. The Bank also offers home equity loans secured by the borrowers
primary residence provided that the aggregate indebtedness on the property does
not exceed 80% of its value.

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Commercial Lending.The Banks commercial loan portfolio consists
principally of demand and time loans for commercial purposes. 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.

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, 2002, approximately 69.8% of the installment
loans in the Banks portfolio (other than indirect automobile lending) had been
originated for commercial purposes and 30.2% had been originated for consumer
purposes.

Indirect Automobile Lending.The Bank commenced its indirect automobile
lending program in January 1998. The Bank finances new and used automobiles
for terms of up to 60 months. Used vehicles must be no more than five years
old and the maximum loan term is reduced for higher mileage vehicles. The Bank
does not lend more than the invoice price on new vehicles and on used vehicles
will not lend more than the fair market value as published in a nationally
recognized used vehicle pricing guide. The Bank requires all borrowers to
obtain vendors single interest coverage protecting the Bank against loss. The
Bank originates indirect loans through a network of 21 dealers which are
primarily new car dealers located in Anne Arundel County. Participating
dealers take loan applications from their customers and transmit them to the
Bank for approval. If the loan is approved, the Bank will immediately fund the
principal of the loan and credit the dealers reserve account for the premium
due to the dealer. Funds are disbursed from the dealer reserve account on a
monthly basis net of any unpaid interest resulting from borrower prepayments or
defaults on other loans purchased from the dealer. The Bank does not offer
dealer floor plan financing.

Credit Card and Related Loans.Credit card and related loans consist of
outstanding balances on credit cards and overdraft lines of credit. The Bank
offered no annual fee VISA® and MasterCard® credit cards to qualified
customers. Credit card billing and payment processing was done for the Bank by
an unaffiliated third party which received a fee for such services. In
February, 2000, however, the Bank sold its portfolio of credit card loans. The
Banks overdraft protection line of credit is offered as a convenience to
qualified customers.

Although the risk of non-payment for any reason exists with respect to all
loans, certain other specific risks are associated with each type of loan. The
primary risks associated with commercial loans, including commercial real
estate loans, are the quality of the borrowers management and a number of
economic and other factors which induce business failures and depreciate the
value of business assets pledged to secure the loan, including competition,
insufficient capital, product obsolescence, changes in the cost of production,
environmental hazards, weather, changes in laws and regulations and general
changes in the marketplace. Primary risks associated with residential real
estate loans include fluctuating land and property values and rising interest
rates with respect to fixed-rate, long-term loans. Residential construction
lending exposes the Company to risks related to builder performance. Consumer
loans, including indirect automobile loans, are affected primarily by domestic
instability and a variety of factors that may lead to the borrowers
unemployment, including deteriorating economic conditions in one or more
segments of a local or broader economy. Because the Bank deals with borrowers
through an intermediary on indirect automobile loans, this form of lending
potentially carries greater risks of defects in the application process for
which claims may be made against the Bank. Indirect automobile lending may
also involve the Bank in consumer disputes under state lemon or other laws.
The Bank seeks to control these risks by following strict underwriting and
documentation guidelines and by only dealing with well-established dealerships
who are contractually obligated to indemnify the Bank for such losses.

The Banks lending activities are conducted pursuant to written policies
approved by the Board of Directors intended to ensure proper management of
credit risk. Loans are subject to a well defined credit process that includes
credit evaluation of borrowers, establishment of lending limits and application
of lending procedures, including the holding of adequate collateral and the
maintenance of compensating balances, as well as procedures for on-going
identification and management of credit deterioration. Regular portfolio
reviews are performed by the Senior Credit Officer to identify potential
underperforming credits, estimate loss exposure and to ascertain compliance
with the

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Banks policies. On a quarterly basis, the internal auditor performs an
independent loan review in accordance with the Banks loan review policy. For
significant problem loans, management review consists of evaluation of the
financial strengths of the borrower and the guarantor, the related collateral,
and the effects of economic conditions.

The Banks loan approval policy provides for various levels of individual
lending authority. The maximum lending authority granted by the Bank to any
one individual is $500,000. A combination of approvals from certain officers
may be used to lend up to an aggregate of $750,000. The Banks Executive
Committee is authorized to approve loans up to $1.0 million. Larger loans must
be approved by the full Board of Directors.

Under Maryland law, the maximum amount which the Bank is permitted to lend
to any one borrower and their related interests may generally not exceed 10% of
the Banks unimpaired capital and surplus which is defined to include the
Banks capital, surplus, retained earnings and 50% of its reserve for possible
loan losses. Under this authority, the Bank would have been permitted to lend
up to $2.59 million to any one borrower at December 31, 2002. By interpretive
ruling of the Commissioner of Financial Regulation, Maryland banks have the
option of lending up to the amount that would be permissible for a national
bank which is generally 15% of unimpaired capital and surplus (defined to
include a banks total capital for regulatory capital purposes plus any loan
loss allowances not included in regulatory capital). Under this formula, the
Bank would have been permitted to lend up to $4.08 million to any one borrower
at December 31, 2002. It is currently the Banks policy to limit its exposure
to any one borrower to no more than $2.2 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, 2002, the largest amount outstanding to any one
borrower and their related interests was $2,219,104 which was within the Banks
lending limit at the time when made.

Non-Performing Loans

It is the 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.

The Bank seeks to control delinquencies through diligent collection
procedures. For consumer loans, the Bank sends out payment reminders on the
seventh and twelfth days after a payment is due. If a consumer loan becomes 15
days past due, the account is transferred to the Banks collections department,
which will contact the borrower by telephone and letter before the account
becomes 30 days past due. If a consumer loan becomes more than 30 days past
due, the Bank will continue its collection efforts and will move to
repossession or foreclosure by the 45th day if the Bank has reason to believe
that the collateral may be in jeopardy or the borrower has failed to respond to
prior communications. The Bank will move to repossess or foreclose in all
instances in which a consumer loan becomes more than 60 days delinquent. After
repossession of a motor vehicle, the borrower has a 15-day statutory right to
redeem the vehicle and is entitled to 10 days notice before the sale of a
repossessed vehicle. The Bank sells the vehicle as promptly as feasible after
the expiration of these periods. If the amount realized from the sale of the
vehicle is less than the loan amount, the Bank will seek a deficiency judgment
against the borrower. The Bank follows similar collection procedures with
respect to commercial loans.

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

|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |     |        |    | 
|--------------------------------------- | -------------------------- | ------------------------------------------------------------- | --------------- | --- | ---------------------- | -- | ---- | --- | ------ | -- | ---- | --- | ------ | -- | --- | --- | ------ | -- | --- | --- | ------ | -- | 
|                                        |                            |                                                               |                 |     | At December 31,       
|                                        |                            |                                                               |                 |     |                       
|                                        |                            |                                                               |                 |     | 2002                   |    | 2001 |     | 2000   |    | 1999 |     | 1998  
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |       
|                                        |                            |                                                               |                 |     | (Dollars In Thousands)
|Restructured Loans                      |                            | $                                                             | 41              |     |                        | $  |     |     |        | $  | 370  |     |        | $  | 243 |     |        | $  | 137 |    
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|Non-accrual loans:                      |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        | Real estate  mortgage:    |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |     |       
|                                        | Residential                |                                                               | $               | 264 |                        |    | $    | 284 |        |    | $    | 120 |        |    | $   | 237 |        |    | $   | 336 |       
|                                        | Commercial                 |                                                               |                 | 178 |                        |    |      | 189 |        |    |      | 77  |        |    |     | 135 |        |    |     | 505 |       
|                                        | Real estate  construction |                                                               |                 | 7   |                        |    |      |    |        |    |      |    |        |    |     | 280 |        |    |     | 316 |       
|                                        | Installment                |                                                               |                 | 112 |                        |    |      | 88  |        |    |      | 72  |        |    |     | 315 |        |    |     | 463 |       
|                                        | Commercial                 |                                                               |                 | 10  |                        |    |      | 40  |        |    |      | 101 |        |    |     | 45  |        |    |     | 105 |       
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        |                            | Total non-accrual loans                                       |                 |     | 571                    |    |      |     | 601    |    |      |     | 370    |    |     |     | 1,012  |    |     |     | 1,725  |   
|Accruing loans past due 90 days or more |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        | Real estate  mortgage:    |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |     |       
|                                        | Residential                |                                                               |                 | 1   |                        |    |      | 45  |        |    |      | 34  |        |    |     | 43  |        |    |     |    |       
|                                        | Commercial                 |                                                               |                 |    |                        |    |      |    |        |    |      |    |        |    |     |    |        |    |     |    |       
|                                        | Real estate  construction |                                                               |                 |    |                        |    |      |    |        |    |      |    |        |    |     |    |        |    |     |    |       
|                                        | Installment                |                                                               |                 | 13  |                        |    |      | 13  |        |    |      |    |        |    |     |    |        |    |     |    |       
|                                        | Credit card & related      |                                                               |                 |    |                        |    |      | 1   |        |    |      |    |        |    |     |    |        |    |     | 18  |       
|                                        |                            | Total accruing loans past due                                 |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |     |        |   
|                                        |                            |                                                               | 90 days or more |     |                        | 15 |      |     |        | 59 |      |     |        | 34 |     |     |        | 43 |     |     |        | 18 | 
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        |                            | Total non-accrual and past due loans                          |                 | $   | 586                    |    |      | $   | 660    |    |      | $   | 404    |    |     | $   | 1,055  |    |     | $   | 1,743  |   
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        |                            | Non-accrual and past due loans to
gross loans                 |                 |     | 0.36                   | %  |      |     | 0.39   | %  |      |     | 0.24   | %  |     |     | 0.68   | %  |     |     | 1.36   | % 
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    
|                                        |                            | Allowance for credit losses to
non-accrual and past due loans |                 |     | 429.13                 | %  |      |     | 445.30 | %  |      |     | 837.87 | %  |     |     | 276.97 | %  |     |     | 162.99 | % 
|                                        |                            |                                                               |                 |     |                        |    |      |     |        |    |      |     |        |    |     |     |        |    |     |    

For the year ended December 31, 2002, interest of approximately $9,188,
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. Approximately $526,402 or 92.2%, of the
Banks non-accrual loans at December 31, 2002 were attributable to 9 borrowers.
No charge-offs have previously been taken on these loans. Seven of these
borrowers with loans totaling $466,111 were in bankruptcy at that date. Because
of the legal protections afforded to borrowers in bankruptcy, collections on
such loans are difficult and the Bank anticipates that such loans may remain
delinquent for an extended period of time. Each of these loans is secured by
collateral with a value well in excess of the current active balance of the
Banks loan.

At December 31, 2002, 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, 2002, the Company had $413,373 in real estate acquired in
partial or total satisfaction of debt compared to $420,162 and $484,148 in such
properties at December 31, 2001 and 2000, respectively. All such properties are
recorded at the lower of cost or fair value at the date acquired and carried on
the balance sheet as other real estate owned. Losses arising at the date of
acquisition are charged against the allowance for credit losses. Subsequent
write-downs that may be required and expense of operation are included in
non-interest expense. Gains and losses realized from the sale of other real
estate owned are included in non-interest income or expense. For a description
of the properties comprising other real estate owned at December 31, 2002, see
Item 2.  Properties.

-7-



---



##### 



Allowance For Credit Losses

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

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

|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |     |    |       | 
|-------------------------------- | -------------------------- | ----------- | ------- | --- | ----------------------- | --- | ------- | --- | ---- | --- | ------- | --- | ---- | ----- | ------- | --- | -- | --- | ------- | --- | -- | ----- | 
|                                 |                            |             |         |     | Year Ended December 31,
|                                 |                            |             |         |     |                        
|                                 |                            |             |         |     | 2002                    |     | 2001    |     | 2000 |     | 1999    |     | 1998
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |     
|                                 |                            |             |         |     | (Dollars In Thousands) 
|Beginning Balance                |                            | $           | 2,939   |     |                         | $   | 3,385   |     |      | $   | 2,922   |     |      | $     | 2,841   |     |    | $   | 4,139   |    
|Loans charged off                |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|                                 | Real estate  mortgage:    |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |     |   
|                                 |                            | Residential |         |     | 1                       |     |         |     |     |     |         |     | 19   |       |         |     |   |     |         |     | 51 |      
|                                 |                            | Commercial  |         |     |                        |     |         |     | 4    |     |         |     | 4    |       |         |     | 50 |     |         |     |   |      
|                                 | Real estate  construction |             |         |    |                         |     |         |    |      |     |         |    |      |       |         | (27 | )  |     |         | 189 |   
|                                 | Installment                |             |         | 594 |                         |     |         | 498 |      |     |         | 470 |      |       |         | 477 |    |     |         | 473 |   
|                                 | Credit card & related      |             |         | 95  |                         |     |         | 89  |      |     |         | 101 |      |       |         | 92  |    |     |         |    |   
|                                 | Commercial                 |             |         | 80  |                         |     |         | 96  |      |     |         | 167 |      |       |         | 81  |    |     |         | 382 |   
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|                                 |                            |             | Total   |     |                         | 730 |         |     |      | 687 |         |     |      | 761   |         |     |    | 673 |         |     |    | 1,095 | 
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|Recoveries                       |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|                                 | Real estate  mortgage:    |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |     |   
|                                 |                            | Residential |         |     | 1                       |     |         |     |     |     |         |     | 52   |       |         |     | 32 |     |         |     | 51 |      
|                                 |                            | Commercial  |         |     | 1                       |     |         |     |     |     |         |     |     |       |         |     | 16 |     |         |     | 26 |      
|                                 | Real estate  construction |             |         |    |                         |     |         |    |      |     |         | 470 |      |       |         | 36  |    |     |         | 1   |   
|                                 | Installment                |             |         | 215 |                         |     |         | 310 |      |     |         | 111 |      |       |         | 259 |    |     |         | 116 |   
|                                 | Credit card & related      |             |         | 30  |                         |     |         | 53  |      |     |         | 41  |      |       |         | 4   |    |     |         | 4   |   
|                                 | Commercial                 |             |         | 59  |                         |     |         | 28  |      |     |         | 550 |      |       |         | 107 |    |     |         | 99  |   
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|                                 |                            |             | Total   |     |                         | 306 |         |     |      | 391 |         |     |      | 1,224 |         |     |    | 454 |         |     |    | 297   | 
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|Net charge offs/(recoveries)     |                            |             | 424     |     |                         |     | 296     |     |      |     | (463    | )   |      |       | 219     |     |    |     | 798     |    
|Provisions charged to operations |                            |             |        |     |                         |     | (150    | )   |      |     |        |     |      |       | 300     |     |    |     | (500    | )  
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|Ending balance                   |                            | $           | 2,515   |     |                         | $   | 2,939   |     |      | $   | 3,385   |     |      | $     | 2,922   |     |    | $   | 2,841   |    
|                                 |                            |             |         |     |                         |     |         |     |      |     |         |     |      |       |         |     |    |     |         |    
|Average loans                    |                            | $           | 164,818 |     |                         | $   | 163,695 |     |      | $   | 159,810 |     |      | $     | 142,077 |     |    | $   | 118,372 |    
|Net charge-offs to average loans |                            |             | 0.26    | %   |                         |     | 0.18    | %   |      |     | (0.28   | )%  |      |       | 0.15    | %   |    |     | 0.67    | %  

-8-



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##### 



The following table shows the allowance for credit losses broken down by loan
category as of December 31, 2002, 2001, 2000, 1999 and 1998:

|                           |             |               |       |                        |       |                     |       |                     |        |                     |       |     |       |                     |       |       |        |  
|-------------------------- | ----------- | ------------- | ----- | ---------------------- | ----- | ------------------- | ----- | ------------------- | ------ | ------------------- | ----- | --- | ----- | ------------------- | ----- | ----- | ------ | -
|                           |             |               |       | At December 31,       
|                           |             |               |       |                       
|                           |             |               |       | 2002                   |       | 2001               
|                           |             |               |       |                        |       |                    
|                           |             |               |       |                        |       |                     |       | Percentage Of Loans |        |                     |       |     |       | Percentage Of Loans
|                           |             |               |       | Allowance For          |       | In Each Category To |       | Allowance For       |        | In Each Category To
|Portfolio                  |             | Each Category |       | Total Loans            |       | Each Category       |       | Total Loans        
|                           |             |               |       |                        |       |                     |       |                    
|                           |             |               |       | (Dollars In Thousands)
|Real Estate  mortgage:    |             |               |       |                        |       |                     |       |                     |        |                     |       |     |       |                     |       |      
|                           | Residential |               | $     | 131                    |       |                     |       | 27.60               | %      |                     | $     | 164 |       |                     |       | 26.32 | %     
|                           | Commercial  |               |       | 349                    |       |                     |       | 21.02               |        |                     |       | 456 |       |                     |       | 21.94 |       
|Real Estate  construction |             |               | 48    |                        |       |                     | 1.33  |                     |        |                     | 71    |     |       |                     | 1.40  |      
|Installment                |             |               | 152   |                        |       |                     | 5.83  |                     |        |                     | 237   |     |       |                     | 11.92 |      
|Credit Card                |             |               |      |                        |       |                     |      |                     |        |                     |      |     |       |                     | 0.16  |      
|Indirect automobile        |             |               | 1,461 |                        |       |                     | 33.00 |                     |        |                     | 1,390 |     |       |                     | 35.24 |      
|Commercial                 |             |               | 168   |                        |       |                     | 11.22 |                     |        |                     | 300   |     |       |                     | 3.02  |      
|Unallocated                |             |               | 206   |                        |       |                     |      |                     |        |                     | 321   |     |       |                     |      |      
|                           |             |               |       |                        |       |                     |       |                     |        |                     |       |     |       |                     |       |      
|                           |             | Total         |       | $                      | 2,515 |                     |       |                     | 100.00 | %                   |       | $   | 2,939 |                     |       |       | 100.00 | %
|                           |             |               |       |                        |       |                     |       |                     |        |                     |       |     |       |                     |       |      

|                           |             |               |       |                        |       |                  |       |                        |        |                  |     |               |       |                        |       |       |        |   |     |                     |       |  |       |       |        |  
|-------------------------- | ----------- | ------------- | ----- | ---------------------- | ----- | ---------------- | ----- | ---------------------- | ------ | ---------------- | --- | ------------- | ----- | ---------------------- | ----- | ----- | ------ | - | --- | ------------------- | ----- |  | ----- | ----- | ------ | -
|                           |             |               |       | At December 31,       
|                           |             |               |       |                       
|                           |             |               |       | 2000                   |       | 1999             |       | 1998                  
|                           |             |               |       |                        |       |                  |       |                       
|                           |             |               |       |                        |       |                  |       | Percentage Of Loans In |        |                  |     |               |       | Percentage Of Loans In |       |       |        |   |     | Percentage Of Loans
|                           |             |               |       | Allowance For          |       | Each Category To |       | Allowance For          |        | Each Category To |     | Allowance For |       | In Each Category To   
|Portfolio                  |             | Each Category |       | Total Loans            |       | Each Category    |       | Total Loans            |        | Each Category    |     | Total Loans  
|                           |             |               |       |                        |       |                  |       |                        |        |                  |     |              
|                           |             |               |       | (Dollars In Thousands)
|Real Estate  mortgage:    |             |               |       |                        |       |                  |       |                        |        |                  |     |               |       |                        |       |       |        |   |     |                     |       |  |       |      
|                           | Residential |               | $     | 199                    |       |                  |       | 21.74                  | %      |                  | $   | 200           |       |                        |       | 22.03 | %      |   | $   | 273                 |       |  |       | 26.28 | %     
|                           | Commercial  |               |       | 506                    |       |                  |       | 24.13                  |        |                  |     | 613           |       |                        |       | 27.36 |        |   |     | 311                 |       |  |       | 34.02 |       
|Real Estate  construction |             |               | 292   |                        |       |                  | 3.16  |                        |        |                  | 296 |               |       |                        | 3.94  |       |        |   | 335 |                     |       |  | 1.85  |      
|Installment                |             |               | 221   |                        |       |                  | 11.49 |                        |        |                  | 177 |               |       |                        | 10.47 |       |        |   | 143 |                     |       |  | 13.26 |      
|Credit Card                |             |               |      |                        |       |                  | 0.16  |                        |        |                  | 92  |               |       |                        | 0.88  |       |        |   | 60  |                     |       |  | 1.08  |      
|Indirect automobile        |             |               | 1,486 |                        |       |                  | 37.08 |                        |        |                  | 793 |               |       |                        | 32.93 |       |        |   | 312 |                     |       |  | 19.08 |      
|Commercial                 |             |               | 288   |                        |       |                  | 2.24  |                        |        |                  | 526 |               |       |                        | 2.39  |       |        |   | 966 |                     |       |  | 4.43  |      
|Unallocated                |             |               | 393   |                        |       |                  |      |                        |        |                  | 225 |               |       |                        |      |       |        |   | 441 |                     |       |  |      |      
|                           |             |               |       |                        |       |                  |       |                        |        |                  |     |               |       |                        |       |       |        |   |     |                     |       |  |       |      
|                           |             | Total         |       | $                      | 3,385 |                  |       |                        | 100.00 | %                |     | $             | 2,922 |                        |       |       | 100.00 | % |     | $                   | 2,841 |  |       |       | 100.00 | %
|                           |             |               |       |                        |       |                  |       |                        |        |                  |     |               |       |                        |       |       |        |   |     |                     |       |  |       |      

Investment Securities

The Bank maintains a substantial portfolio of investment securities to
provide liquidity as well as a source of earnings. The Banks investment
securities portfolio consists primarily of U.S. Treasury securities, securities
issued by U.S. Government agencies including mortgage-backed securities,
securities issued by certain states and their political subdivisions, and
corporate trust preferred securities. The portfolio of securities issued by
certain states and their political subdivisions has recently been increased due
to a change in the Companys deferred tax position allowing the Company to use
the full tax advantage of this portfolio.

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

|                                                        |                             |   |                 |        |      |   |        |        |  |   |        |        | 
|------------------------------------------------------- | --------------------------- | - | --------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                        |                             |   | At December 31,
|                                                        |                             |   |                
|                                                        |                             |   | 2002            |        | 2001 |   | 2000  
|                                                        |                             |   |                 |        |      |   |       
|                                                        |                             |   | (In Thousands) 
|U.S. Treasury securities                                |                             | $ | 499             |        |      | $ | 1,248  |        |  | $ | 1,746  |       
|U.S. Government agencies and mortgage backed
securities |                             |   | 51,916          |        |      |   | 45,603 |        |  |   | 39,057 |       
|Obligations of states and political subdivisions        |                             |   | 31,899          |        |      |   | 20,659 |        |  |   | 8,721  |       
|Corporate trust preferred                               |                             |   | 5,057           |        |      |   | 4,820  |        |  |   | 2,821  |       
|                                                        |                             |   |                 |        |      |   |        |        |  |   |        |       
|                                                        | Total investment securities |   | $               | 89,371 |      |   | $      | 72,330 |  |   | $      | 52,345 | 
|                                                        |                             |   |                 |        |      |   |        |        |  |   |        |       

-9-



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##### 



The following table sets forth the scheduled maturities, book values and
weighted average yields for the Companys investment securities portfolio at
December 31, 2002:

|                                                        |  |                  |     |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  
|------------------------------------------------------- |  | ---------------- | --- | ----------------- |  | ----------------- | ---- | ------------------- |  | ----- | ------ | -------- |  | ----- | ---- | ------- |  | -------- | ------ | ------- |  |  | ---- | -------- |  | - | ------ |  |  | -------- | ---- | - |  | - | ------ |  |  |  | ---- | -
|                                                        |  | 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  
|                                                        |  |                  |     |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |        
|U.S. Treasury securities                                |  | $                | 499 |                   |  |                   | 5.75 | %                   |  | $     |       |          |  |       |     | %       |  | $        |       |         |  |  |     | %        |  | $ |       |  |  |          |     | % |  | $ | 499    |  |  |  | 5.75 | %
|U.S. Government agencies
and mortgage backed
securities |  |                  |    |                   |  |                   |     |                     |  |       | 8,166  |          |  |       | 5.52 |         |  |          | 10,617 |         |  |  | 5.96 |          |  |   | 33,166 |  |  |          | 6.31 | % |  |   | 51,916 |  |  |  | 6.11 |  
|Obligations of states
and political
subdivisions        |  |                  | 80  |                   |  |                   | 4.60 | %                   |  |       | 3,852  |          |  |       | 3.27 |         |  |          | 3,237  |         |  |  | 4.19 |          |  |   | 24,730 |  |  |          | 5.03 |   |  |   | 31,899 |  |  |  | 4.73 |  
|Corporate trust preferred                               |  |                  |    |                   |  |                   |     |                     |  |       |       |          |  |       |     |         |  |          |       |         |  |  |     |          |  |   | 5,057  |  |  |          | 6.95 | % |  |   | 5,057  |  |  |  | 6.95 |  
|                                                        |  |                  |     |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  
|Total investment
securities                             |  | $                | 579 |                   |  |                   | 5.60 | %                   |  | $     | 12,018 |          |  |       | 4.80 | %       |  | $        | 13,854 |         |  |  | 5.55 | %        |  | $ | 62,920 |  |  |          | 5.86 | % |  | $ | 89,371 |  |  |  | 5.66 | %
|                                                        |  |                  |     |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  

At December 31, 2002, the Bank had no investments in securities of a
single issuer (other than the U.S. Government securities and securities of
federal agencies and government-sponsored enterprises, which aggregated more
than 10% of stockholders equity.

Deposits And Other Sources Of Funds

The funds needed by the Bank to make loans are primarily generated by
deposit accounts solicited from the communities surrounding its main office and
six branches in northern Anne Arundel County. Consolidated total deposits were
$241,419,607 as of December 31, 2002. The Bank uses borrowings from the Federal
Home Loan Bank (FHLB) of Atlanta to supplement funding from deposits. The
Bank was permitted to borrow up to $33.4 million under a line of credit from
the FHLB of Atlanta as of December 31, 2002.

Deposits.The Banks deposit products include regular savings accounts
(statements), money market deposit accounts, demand deposit accounts, NOW
checking accounts, IRA and SEP accounts, Christmas Club accounts and
certificates of deposit. Variations in service charges, terms and interest
rates are used to target specific markets. Ancillary products and services for
deposit customers include safe deposit boxes, money orders and travelers
checks, night depositories, automated clearinghouse transactions, wire
transfers, ATMs, telephone banking, and a customer call center. The Bank is a
member of the Cirrus® and Star® ATM networks.

The Bank obtains deposits principally through its network of seven
offices. The Bank does not solicit brokered deposits. At December 31, 2002, the
Bank had approximately $22 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, 2002:

|                              |  |                |        | 
|----------------------------- |  | -------------- | ------ | 
|                              |  | Amount        
|                              |  | (In Thousands)
|Three months or less          |  | $              | 2,752  | 
|Over three through six months |  |                | 8,650  | 
|Over six through 12 months    |  |                | 5,737  | 
|Over 12 months                |  |                | 5,059  | 
|                              |  |                |        | 
|Total                         |  | $              | 22,198 | 
|                              |  |                |        | 

Borrowings.In addition to deposits, the Bank from time to time obtains
advances from the FHLB of Atlanta of which it is a member. FHLB of Atlanta
advances may be used to provide funds for residential housing finance, for
small business lending, and to meet specific and anticipated needs. The Bank
may draw on a $33.4 million line of credit from the FHLB of Atlanta, which is
secured by a floating lien on the Banks residential first mortgage loans and
various federal and agency securities. There was $7 million in a long-term
convertible advance under this credit arrangement at December 31, 2002. The
advance matures in September 2010 and bears a 5.84% rate of interest. On
September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior
Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a
Connecticut statutory trust wholly owned by the Company.

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The Trust, in turn, issued $5 million of its 10.6% capital securities to
institutional investors. The debentures are scheduled to mature on September
7, 2030, unless called by the Company not earlier than September 7, 2010. The
Bank also has a secured line of credit in the amount of $5 million from another
commercial bank but has not drawn on this line. The Bank has a mortgage note
on the 103 Crain Highway address with a balance of $251,489 as of December 31,
2002. This note is payable monthly through October 2010 and has a 7% interest
rate.

Competition

The Bank faces competition from other community banks and financial
institutions and larger intra- and inter- state banks and financial
institutions, which compete vigorously (currently, sixteen FDIC-insured
depository institutions operate within two miles of the Banks headquarters).
In 1996, former directors of the Bank, including a former Chief Executive
Officer, established a new bank with a main office in Glen Burnie close to the
Banks headquarters which has solicited business from many Bank customers. With
respect to indirect lending, the Bank faces competition from other banks and
the financing arms of automobile manufacturers. The Bank competes in this area
by offering competitive rates and responsive service to dealers.

The Banks interest rates, loan and deposit terms, and offered products
and services are impacted, 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 the Bank believes would welcome personal
service and flexibility. While the Bank believes it is the ninth largest
deposit holder in Anne Arundel County, Maryland, with an estimated 4.55% market
share as of June 30, 2002 (the latest date for which relevant data is available
from the FDIC), it believes its greatest competition comes from smaller
community banks which offer similar personalized services.

Other Activities

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

Employees

At December 31, 2002, the Bank had 123 full-time equivalent employees.
Neither the Company nor GBB currently has any employees.

Regulation of the Company

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

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

Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency of 1994 (the Riegle-Neal Act) authorized the Federal
Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all
or substantially all of the assets of, a 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

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

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

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

Effective with the enactment of the Gramm-Leach-Bliley Act (G-L-B) on
November 12, 1999, bank holding companies whose financial institution
subsidiaries are well capitalized and well managed and have satisfactory
Community Reinvestment Act records can elect to become financial holding
companies which will be permitted to engage in a broader range of financial
activities than are currently permitted to bank holding companies. Financial
holding companies are authorized to engage in, directly or indirectly,
financial activities. A financial activity is an activity that is: (i)
financial in nature; (ii) incidental to an activity that is financial in
nature; or (iii) complementary to a financial activity and that does not pose a
safety and soundness risk. The G-L-B Act includes a list of activities that are
deemed to be financial in nature. Other activities also may be decided by the
Federal Reserve Board to be financial in nature or incidental thereto if they
meet specified criteria. A financial holding company that intends to engage in
a new activity to acquire a company to engage in such an activity is required
to give prior notice to the Federal Reserve Board. If the activity is not
either specified in the G-L-B Act as being a financial activity or one that the
Federal Reserve Board has determined by rule or regulation to be financial in
nature, the prior approval of the Federal Reserve Board is required.

The Maryland Financial Institutions Code prohibits a bank holding company
from acquiring more than 5% of any class of voting stock of a bank or bank
holding company without the approval of the Commissioner of Financial
Regulation except as otherwise expressly permitted by federal law or in certain
other limited situations. The Maryland Financial Institutions Code additionally
prohibits any person from acquiring voting stock in a bank or bank holding
company without 60 days prior notice to the Commissioner if such acquisition
will give the person control of 25% or more of the voting stock of the bank or
bank holding company or will affect the power to direct or 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

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Commissioner determines it to be anti-competitive or to threaten the
safety or soundness of a banking institution. Voting stock acquired in
violation of this statute may not be voted for five years.

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

Dividends and Distributions.The Federal Reserve Board has the power to
prohibit dividends by bank holding companies if their actions constitute unsafe
or unsound practices. The Federal Reserve Board has issued a policy statement
on the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Boards view that a bank holding company should pay cash
dividends only to the extent that the companys net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention
that is consistent with the companys capital needs, asset quality, and overall
financial condition.

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

Regulation of the Bank

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

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

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

The regulations of the Federal Reserve Board and the FDIC require bank
holding companies and state non-member banks, respectively, to maintain a
minimum leverage ratio of Tier 1 capital (as defined in the risk-based
capital guidelines discussed in the following paragraphs) to total assets of
3.0%. Although setting a minimum 3.0% leverage ratio, the capital regulations
state that only the strongest bank holding companies and banks, with 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

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experiencing or anticipating significant growth would be expected to
maintain capital well above the minimum levels. In addition, the Federal
Reserve Board has indicated that whenever appropriate, and in particular when a
bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on
a case-by-case basis, the level of an organizations ratio of tangible Tier 1
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.

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

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

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

The FDIC has issued regulations which classify state non-member banks by
capital levels and which authorize the FDIC to take various prompt corrective
actions to resolve the problems of any bank that fails to satisfy the capital
standards. Under such regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has or exceeds the following capital levels: a total risk-based
capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage
ratio of 5%. An adequately capitalized bank is one that does not qualify as
well-capitalized but meets or exceeds the following capital requirements: a
total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%,
and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest
composite examination rating. A bank not meeting these criteria is treated as
undercapitalized, significantly undercapitalized, or critically
undercapitalized depending on the extent to which the banks capital levels are
below these standards. A state non-member bank that falls within any of the
three undercapitalized categories established by the prompt corrective action
regulation will be subject to severe regulatory sanctions. As of December 31,
2002, the Bank was well capitalized as defined by the FDICs regulations.

Branching.Maryland law provides that, with the approval of the
Commissioner, Maryland banks may establish branches within the State of
Maryland without geographic restriction and may establish branches in other
states by any means permitted by the laws of such state or by federal law. The
Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by
state banks, only in states that specifically allow for such branching. The
Riegle-Neal Act also requires the appropriate federal banking agencies to
prescribe regulations by June 1, 1997 that 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 that they serve.

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

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

Under the risk-based deposit insurance assessment system adopted by the
FDIC, the assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC, which
is determined by the institutions capital level and supervisory evaluations.
Based on the data reported to regulators for the date closest to the last day
of the seventh month preceding the semi-annual assessment period, institutions
are assigned to one of three capital groups  well capitalized, adequately
capitalized or undercapitalized. Within each capital group, institutions are
assigned to one of three subgroups on the basis of supervisory evaluations by
the institutions primary supervisory authority and such other information as
the FDIC determines to be relevant to the institutions financial condition and
the risk posed to the deposit insurance fund. Under the current assessment
schedule, well-capitalized banks with the best supervisory ratings are not
required to pay any premium for deposit insurance. All BIF-insured banks,
however, will be required to begin paying an assessment to the FDIC in an
amount equal to 2.12 basis points times their assessable deposits to help fund
interest payments on certain bonds issued by the Financing Corporation, an
agency established by the federal government to finance takeovers of insolvent
thrifts.

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

Loans To Directors, Executive Officers and Principal Stockholders.Loans
to directors, executive officers and principal stockholders of a state
non-member bank must be made on substantially the same terms as those
prevailing for comparable transactions with persons who are not executive
officers, directors, principal stockholders or employees of the Bank unless the
loan is made pursuant to a compensation or benefit plan that is widely
available to employees and does not favor insiders. Loans to any executive
officer, director and principal stockholder together with all other outstanding
loans to such person and affiliated interests generally may not exceed 15% of
the banks unimpaired capital and surplus and all loans to such persons may not
exceed the institutions unimpaired capital and unimpaired surplus. Loans to
directors, executive officers and principal stockholders, and their respective
affiliates, in excess of the greater of $25,000 or 5% of capital and surplus
(up to $500,000) must be approved in advance by a majority of the board of
directors of the bank with any interested director not

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participating in the voting. State non-member banks are prohibited from
paying the overdrafts of any of their executive officers or directors. In
addition, loans to executive officers may not be made on terms more favorable
than those afforded other borrowers and are restricted as to type, amount and
terms of credit.

ITEM 2. PROPERTIES

The following table sets forth certain information with respect to the
Banks offices:

|                                                                           |  |        |  |        |  |            |  |                |  |            
|-------------------------------------------------------------------------- |  | ------ |  | ------ |  | ---------- |  | -------------- |  | -----------
|                                                                           |  | Year   |  | Owned/ |  |            |  | Approximate    |  |            
|                                                                           |  | Opened |  | Leased |  | Book Value |  | Square Footage |  | Deposits   
|                                                                           |  |        |  |        |  |            |  |                |  |            
|Main Office:                                                               |  |        |  |        |  |            |  |                |  |            
|101 Crain Highway, S.E.
        Glen Burnie, MD 21061                      |  | 1953   |  | Owned  |  | $927,025   |  | 10,000         |  | $85,432,943
|Branches:                                                                  |  |        |  |        |  |            |  |                |  |            
|Odenton
        1405 Annapolis Road
        Odenton, MD 21113              |  | 1969   |  | Owned  |  | 112,148    |  | 6,000          |  | 33,879,330 
|Riviera Beach
        8707 Ft. Smallwood Road
        Pasadena, MD 21122   |  | 1973   |  | Owned  |  | 179,988    |  | 2,500          |  | 29,122,617 
|Crownsville
        1221 Generals Highway
        Crownsville, MD 21032    |  | 1979   |  | Owned  |  | 355,499    |  | 3,000          |  | 41,461,329 
|Severn
        811 Reece Road
        Severn, MD 21144                     |  | 1984   |  | Owned  |  | 285,445    |  | 2,500          |  | 23,694,659 
|South Crain
        7984 Crain Highway
        Glen Burnie, MD 21061       |  | 1995   |  | Leased |  | 53,669     |  | 2,600          |  | 19,871,033 
|Severna Park
        790 Ritchie Highway
        Severna Park, MD 21146    |  | 1999   |  | Leased |  | 31,809     |  | 1,250          |  | 6,958,081  
|Severna Park(1)
        534 Ritchie Highway
        Severna Park, MD 21146 |  | 2002   |  | Leased |  |           |  | 2,184          |  |           
|Operations Centers:                                                        |  |        |  |        |  |            |  |                |  |            
|106 Padfield Blvd.
        Glen Burnie, MD 21061                           |  | 1991   |  | Owned  |  | 1,160,727  |  | 16,200         |  | N/A        
|103 Crain Highway, S.E.
        Glen Burnie, MD 21061                      |  | 2000   |  | Owned  |  | 303,636    |  | 3,727          |  | N/A        



---

(1)  This property was under lease as of December 31, 2002 in preparation for a transfer of the 790 Ritchie
Highway branch office to this new location. The transfer was completed in February, 2003.

At December 31, 2002, the Bank owned 2 foreclosed real estate properties
with a total book value of $413,373. The Bank is holding these commercial
properties for sale.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company and the Bank are involved in various legal
actions relating to their business activities. At December 31, 2002, there were
no actions to which the Company or the Bank was a party which involved claims
for money damages exceeding 10% of the Companys consolidated current assets in
any one case or in any group of proceedings presenting in large degree the same
legal and factual issues.

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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, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

|                       |  |     |    |           |  |                                                     
|---------------------- |  | --- | -- | --------- |  | ----------------------------------------------------
|NAME                   |  | AGE |    | POSITIONS
|                       |  |     |    |          
|F. William Kuethe, Jr. |  |     | 70 |           |  | President and Chief Executive Officer               
|John I. Young          |  |     | 65 |           |  | Executive Vice President and Chief Operating
Officer
|Michael G. Livingston  |  |     | 49 |           |  | Senior Vice President and Chief Lending Officer     
|John E. Porter         |  |     | 49 |           |  | Senior Vice President and Chief Financial Officer   

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

JOHN I. YOUNG was appointed Executive Vice President and Chief Operating
Officer of the Bank in December 1999 after joining the Bank as Senior Vice
President in March 1999. Prior to joining the Bank, he had been president of
Young-Harris, Inc., a financial industry consulting company since 1980. Mr.
Young was president of American Bank Services Corp. from January 1977 to 1980
and was Senior Vice President of Operations of Equitable Trust Bank from 1958
until December 1976. Mr. Young is a member of the Independent Bankers
Association of America, the Maryland Bankers Association and an associate
member of the Robert Morris Association. He is also the President of the St.
Andrews Society of Baltimore.

MICHAEL G. LIVINGSTON was appointed Senior Vice President in January 1998
and has been Chief Lending Officer of the Bank since 1996. He was Regional Vice
President and commercial loan officer with Citizens Bank from March 1993 until
April 1996.

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

-17-



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##### 



PART II

ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Prior to June 22, 2001, the Companys common stock, par value $1.00 per
share (the Common Stock), was traded in the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol GLBZ. Since that date, the
Common Stock is traded on the Nasdaq SmallCap Market under the same symbol. As
of February 11, 2003, there were 475 record holders of the Common Stock. The
closing price for the Common Stock on that date was $19.48

The following table sets forth the high and low sales prices for the
Common Stock for each full quarterly period during 2002 and 2001 as reported by
Nasdaq and as available through the OTC market. The quotations represent
prices between dealers and do not reflect the retailer markups, markdowns or
commissions, and may not represent actual transactions. Also shown are
dividends declared per share for these periods. Data has been adjusted to give
retroactive effect to a three-for-two stock split effected through a stock
dividend paid on June 21, 2001.

|              |  |      |       |      |  |           |       |      |  |     |      |           |  |   |       |  |  |   |       |  |  |   |      | 
|------------- |  | ---- | ----- | ---- |  | --------- | ----- | ---- |  | --- | ---- | --------- |  | - | ----- |  |  | - | ----- |  |  | - | ---- | 
|              |  | 2002 |       | 2001
|              |  |      |       |     
|Quarter Ended |  | High |       | Low  |  | Dividends |       | High |  | Low |      | Dividends
|              |  |      |       |      |  |           |       |      |  |     |      |          
|             
|March 31,     |  | $    | 22.40 |      |  | $         | 13.80 |      |  | $   | 0.10 |           |  | $ | 10.50 |  |  | $ | 8.25  |  |  | $ | 0.10 | 
|June 30,      |  |      | 20.90 |      |  |           | 18.70 |      |  |     | 0.10 |           |  |   | 14.00 |  |  |   | 10.00 |  |  |   | 0.10 | 
|September 30  |  |      | 18.49 |      |  |           | 16.65 |      |  |     | 0.12 |           |  |   | 17.20 |  |  |   | 12.25 |  |  |   | 0.10 | 
|December 31   |  |      | 17.93 |      |  |           | 16.27 |      |  |     | 0.18 |           |  |   | 15.00 |  |  |   | 13.15 |  |  |   | 0.15 | 

A regular dividend of $0.12 and a bonus dividend of $0.06 were declared
for stockholders of record on December 26, 2002, payable on January 7, 2003
and January 14, 2003, respectively.

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.

-18-



---



##### 



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 a
six-for-five stock split effected through a stock dividend paid on January 11,
2000 and a three-for-two stock split effected through a stock dividend paid on
June 21, 2001.

|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |           | 
|-------------------------------------------------------------- | ------- | - | ------------------------------------------- | --------- | ---- | - | ------- | --------- | ---- | - | ------- | --------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|                                                               |         |   | Year Ended December 31,                    
|                                                               |         |   |                                            
|                                                               |         |   | 2002                                        |           | 2001 |   | 2000    |           | 1999 |   | 1998   
|                                                               |         |   |                                             |           |      |   |         |           |      |   |        
|                                                               |         |   | (Dollars In Thousand Except Per Share Data)
|Operations Data:                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Net Interest Income                                            |         | $ | 11,368                                      |           |      | $ | 10,674  |           |      | $ | 10,801  |           |  | $ | 9,925   |           |  | $ | 9,794   |          
|Provision for Credit Losses                                    |         |   |                                            |           |      |   | (150    | )         |      |   |        |           |  |   | 300     |           |  |   | (500    | )        
|Other Income                                                   |         |   | 2,485                                       |           |      |   | 1,821   |           |      |   | 3,658   |           |  |   | 2,828   |           |  |   | 3,122   |          
|Other Expense                                                  |         |   | 9,957                                       |           |      |   | 10,332  |           |      |   | 10,746  |           |  |   | 9,822   |           |  |   | 11,776  |          
|Net Income                                                     |         |   | 2,811                                       |           |      |   | 1,725   |           |      |   | 2,275   |           |  |   | 1,455   |           |  |   | 833     |          
|                                                              
|Share Data:                                                    |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Basic Net Income (Loss) Per Share                              |         | $ | 1.68                                        |           |      | $ | 1.04    |           |      | $ | 1.38    |           |  | $ | 0.88    |           |  | $ | 0.46    |          
|Diluted Net Income (Loss) Per Share                            |         |   | 1.68                                        |           |      |   | 1.04    |           |      |   | 1.38    |           |  |   | 0.88    |           |  |   | 0.46    |          
|Cash Dividends Declared Per Common Share                       |         |   | 0.50                                        |           |      |   | 0.45    |           |      |   | 0.449   |           |  |   | 0.28    |           |  |   | 0.28    |          
|Weighted Average Common Shares
Outstanding:                    |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                               | Basic   |   |                                             | 1,668,335 |      |   |         | 1,656,904 |      |   |         | 1,652,001 |  |   |         | 1,636,275 |  |   |         | 1,804,472 | 
|                                                               | Diluted |   |                                             | 1,671,155 |      |   |         | 1,656,904 |      |   |         | 1,652,001 |  |   |         | 1,636,275 |  |   |         | 1,804,834 | 
|                                                              
|Financial Condition Data:                                      |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Total Assets                                                   |         | $ | 279,406                                     |           |      | $ | 263,362 |           |      | $ | 239,211 |           |  | $ | 213,439 |           |  | $ | 217,571 |          
|Loans Receivable, Net                                          |         |   | 158,287                                     |           |      |   | 164,569 |           |      |   | 162,373 |           |  |   | 151,107 |           |  |   | 125,501 |          
|Total Deposits                                                 |         |   | 241,420                                     |           |      |   | 229,307 |           |      |   | 205,968 |           |  |   | 194,090 |           |  |   | 199,611 |          
|Long Term Borrowings                                           |         |   | 7,251                                       |           |      |   | 7,275   |           |      |   | 7,297   |           |  |   |        |           |  |   |        |          
|Junior Subordinated Debentures                                 |         |   | 5,155                                       |           |      |   | 5,155   |           |      |   | 5,155   |           |  |   |        |           |  |   |        |          
|Total Stockholders Equity                                     |         |   | 21,789                                      |           |      |   | 17,862  |           |      |   | 17,181  |           |  |   | 15,102  |           |  |   | 14,169  |          
|                                                              
|Performance Ratios:                                            |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Return on Average Assets                                       |         |   | 1.05                                        | %         |      |   | 0.69    | %         |      |   | 1.02    | %         |  |   | 0.66    | %         |  |   | 0.38    | %        
|Return on Average Equity                                       |         |   | 14.49                                       |           |      |   | 9.77    |           |      |   | 12.94   |           |  |   | 9.97    |           |  |   | 4.54    |          
|Net Interest Margin (1)                                        |         |   | 4.76                                        |           |      |   | 4.80    |           |      |   | 5.27    |           |  |   | 4.96    |           |  |   | 4.94    |          
|Dividend Payout Ratio                                          |         |   | 29.70                                       |           |      |   | 43.27   |           |      |   | 32.61   |           |  |   | 43.48   |           |  |   | 75.75   |          
|                                                              
|Capital Ratios:                                                |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Average Equity to Average Assets                               |         |   | 9.03                                        | %         |      |   | 9.08    | %         |      |   | 8.59    | %         |  |   | 6.67    | %         |  |   | 8.40    | %        
|Leverage Ratio                                                 |         |   | 9.07                                        |           |      |   | 8.79    |           |      |   | 9.30    |           |  |   | 6.87    |           |  |   | 5.96    |          
|Total Risk-Based Capital Ratio                                 |         |   | 15.28                                       |           |      |   | 13.92   |           |      |   | 13.99   |           |  |   | 10.80   |           |  |   | 10.50   |          
|                                                              
|Asset Quality Ratios:                                          |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|Allowance for Credit Losses to
Gross Loans                     |         |   | 1.56                                        | %         |      |   | 1.75    | %         |      |   | 2.04    | %         |  |   | 1.89    | %         |  |   | 2.21    | %        
|Non-accrual and Past Due Loans to
Gross Loans                  |         |   | 0.36                                        | %         |      |   | 0.39    | %         |      |   | 0.24    | %         |  |   | 0.68    | %         |  |   | 1.36    | %        
|Allowance for Credit Losses to Non-
Accrual and Past Due Loans |         |   | 429.13                                      | %         |      |   | 445.30  | %         |      |   | 837.87  | %         |  |   | 276.97  | %         |  |   | 162.99  | %        
|Net Loan Charge-offs (Recoveries) to
Average Loans             |         |   | 0.26                                        | %         |      |   | 0.18    | %         |      |   | (0.28   | )%        |  |   | 0.15    | %         |  |   | 0.67    | %        



---

(1)  Presented on a tax-equivalent basis

-19-



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##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

During 2002, the Company continued many favorable operating trends. Most
notably, the Banks net income grew from $1,725,000 in 2001 to $2,811,000 in
2002, a 62.9% increase in net income. In addition, 2002 saw significant growth
in both the Banks deposits and investment portfolio. Deposit growth in 2002
was strong with increases of $8,736,020 in interest bearing deposits and
$3,376,869 in non-interest bearing demand deposits. Investment portfolio
growth was due primarily to the increase in the Banks investment in state and
municipal bonds which had grown to $31,899,000 by the end of 2002.

Forward-Looking Statements

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

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

Comparison of Results of Operations for the Years Ended December 31, 2002, 2001 and 2000

General.For the year ended December 31, 2002, the Company reported
consolidated net income of $2,811,083 ($1.68 basic and diluted earnings per
share) compared to consolidated net income of $1,725,236 ($1.04 basic and
diluted earnings per share) for the year ended December 31, 2001 and
consolidated net income of $2,274,866 ($1.38 basic and diluted earnings per
share) for the year ended December 31, 2000. (All per share amounts throughout
this report have been adjusted to give retroactive effect to a six-for-five
stock split effected through a stock dividend paid on January 11, 2000 and a
three-for-two stock split effected through a stock dividend paid on June 21,
2001.) Income for 2000 included a $490,000 gain on foreclosed real estate and
a non-recurring settlement gain of $1,600,126 on the termination of the Banks
pension plan. Net income for 2000, adjusted to remove the effects of these
items, net of taxes, was $991,947. Income for 2002 included a $763,644
curtailment gain on a post retirement benefit plan amendment. Net income for
2002, adjusted to remove the effects of this item, net of taxes, was
$2,342,358.

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, 2002 was
$11,368,150 compared to $10,673,730 for the year ended December 31, 2001 and
$10,801,098 for the year ended December 31, 2000. The $694,420 increase for
the most recent year was due to a decrease in the interest expense on deposits
combined with an increase in interest income on state and municipal securities,
partially offset by a decrease in interest income on loans. The $127,368
decrease in net interest income for 2001 as compared to 2000 was due to a
decline in interest income on loans combined with an increase in interest
expense for long-term borrowings and junior subordinated debentures, partially
offset by increased interest income on state and municipal securities and
corporate trust preferred securities. Since a large portion of the Companys
portfolio is invested in state and municipal securities,

-20-



---



##### 



which are tax advantaged, the after tax net interest income for 2002 was
$11,886,144, a $827,939 or 7.49% increase over the $11,058,205 after tax net
interest income for 2001. The after tax net interest income for 2001 was
$11,058,205, compared to $10,884,430 for 2000, an increase of $173,775 or
1.60%.

Interest expense decreased from $6,533,274 in 2001 to $5,202,132 in 2002,
a $1,331,142, or 20.4% decrease, primarily due to decreases in interest rates.
Interest expense increased from $5,901,617 in 2000 to $6,533,274 in 2001, a
$631,657 or 10.7% increase, primarily due to the trust preferred issuance and
the FHLB long-term borrowing in September, 2000. Net interest margin for the
year ended December 31, 2002 was 4.76% compared to 4.80% and 5.27% for the
years ended December 31, 2001 and 2000, respectively.

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

|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |      |     | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------- | ------ | ----------------------- | ------ | ---- | ------ | -------------- | ------ | -------- | ----- | ---- | ----- | -------------- | --- | ---- | ---- | - | ---- | ---- | ---- | - | ----- | ---- | --- | 
|                                                    |                                                                                                  |                                 |        | Year Ended December 31,
|                                                    |                                                                                                  |                                 |        |                        
|                                                    |                                                                                                  |                                 |        | 2002                    |        | VS.  |        | 2001           |        | 2001     |       | VS.  |       | 2000          
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |               
|                                                    |                                                                                                  |                                 |        |                         |        |      |        | Change Due To: |        |          |       |      |       | Change Due To:
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |               
|                                                    |                                                                                                  |                                 |        | Increase/               |        |      |        |                |        |          |       |      |       | Increase/      |     |      |      |   |      |      |      |  
|                                                    |                                                                                                  |                                 |        | Decrease                |        | Rate |        | Volume         |        | Decrease |       | Rate |       | Volume        
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |               
|                                                    |                                                                                                  |                                 |        | (In Thousands)         
|ASSETS                                              |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|Interest-earning assets:                            |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | Federal funds sold                                                                               |                                 | $      | (192                    | )      |      | $      | (157           | )      |          | $     | (35  | )     |                | $   | 85   |      |   | $    | (139 | )    |   | $     | 224  |    
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | Interest-bearing deposits                                                                        |                                 |        | (185                    | )      |      |        | (18            | )      |          |       | (167 | )     |                |     | 185  |      |   |      | (34  | )    |   |       | 219  |    
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|Investment securities:                              |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities |                                 |        | 75                      |        |      |        | (717           | )      |          |       | 792  |       |                |     | (296 | )    |   |      | (126 | )    |   |       | (170 | )  
|Obligations of states and
political subdivisions(1) |                                                                                                  |                                 | 616    |                         |        |      | (183   | )              |        |          | 799   |      |       |                | 579 |      |      |   | (52  | )    |      |   | 631   |     
|All other investment securities                     |                                                                                                  |                                 | 17     |                         |        |      | (78    | )              |        |          | 95    |      |       |                | 242 |      |      |   | 43   |      |      |   | 199   |     
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    |                                                                                                  | Total investment securities     |        |                         | 708    |      |        |                | (978   | )        |       |      | 1,686 |                |     |      | 525  |   |      |      | (135 | ) |       |      | 660 | 
|                                                   
|Loans, net of unearned income:                      |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | Demand, time and lease                                                                           |                                 |        | (78                     | )      |      |        | (127           | )      |          |       | 49   |       |                |     | (39  | )    |   |      | (116 | )    |   |       | 77   |    
|                                                    | Mortgage and construction                                                                        |                                 |        | (74                     | )      |      |        | (359           | )      |          |       | 285  |       |                |     | (745 | )    |   |      | (607 | )    |   |       | (138 | )  
|                                                    | Installment and credit card                                                                      |                                 |        | (685                    | )      |      |        | (239           | )      |          |       | (446 | )     |                |     | 493  |      |   |      | 114  |      |   |       | 379  |    
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    |                                                                                                  | Total gross loans(2)            |        |                         | (837   | )    |        |                | (725   | )        |       |      | (112  | )              |     |      | (291 | ) |      |      | (609 | ) |       |      | 318 | 
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | Allowance for credit losses                                                                      |                                 |        |                        |        |      |        |               |        |          |       |     |       |                |     |     |      |   |      |     |      |   |       |     |    
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    |                                                                                                  | Total net loans                 |        |                         | (837   | )    |        |                | (725   | )        |       |      | (112  | )              |     |      | (291 | ) |      |      | (609 | ) |       |      | 318 | 
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|Total interest-earning assets                       |                                                                                                  | $                               | (506   | )                       |        | $    | (1,878 | )              |        | $        | 1,372 |      |       | $              | 504 |      |      | $ | (917 | )    |      | $ | 1,421 |     
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                   
|LIABILITIES:                                        |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|Interest-bearing deposits:                          |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    | Savings and NOW                                                                                  |                                 | $      | (255                    | )      |      | $      | (323           | )      |          | $     | 68   |       |                | $   | (430 | )    |   | $    | (438 | )    |   | $     | 8    |    
|                                                    | Money market                                                                                     |                                 |        | (171                    | )      |      |        | (190           | )      |          |       | 19   |       |                |     | (93  | )    |   |      | (140 | )    |   |       | 47   |    
|                                                    | Other time deposits                                                                              |                                 |        | (889                    | )      |      |        | (1,147         | )      |          |       | 258  |       |                |     | 488  |      |   |      | (36  | )    |   |       | 524  |    
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|                                                    |                                                                                                  | Total interest-bearing deposits |        |                         | (1,315 | )    |        |                | (1,160 | )        |       |      | 345   |                |     |      | (35  | ) |      |      | (614 | ) |       |      | 579 | 
|Non-interest-bearing deposits                       |                                                                                                  |                                 |       |                         |        |      |       |                |        |          |      |      |       |                |    |      |      |   |     |      |      |   |      |     
|Borrowed funds                                      |                                                                                                  |                                 | (17    | )                       |        |      | (32    | )              |        |          | 15    |      |       |                | 666 |      |      |   | 382  |      |      |   | 284   |     
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     
|Total interest-bearing liabilities                  |                                                                                                  | $                               | (1,332 | )                       |        | $    | (1,692 | )              |        | $        | 360   |      |       | $              | 631 |      |      | $ | (232 | )    |      | $ | 863   |     
|                                                    |                                                                                                  |                                 |        |                         |        |      |        |                |        |          |       |      |       |                |     |      |      |   |      |      |      |   |       |     



---



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

-21-



---



##### 



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

|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |       |      |  | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---------------------------------- | ------------ | ------ | ----------------------- | ------- | -------- | ----- | ------ |  | ------- | ---- | -------- | - | ------- | ------ | ------- | ------- | -------- | ----- | ------- |  | ---- | ---- | ---- | - | ------- | ------ | ------- | ------- | ------ | ----- | ------ |  | ---- | ----- | ---- |  | 
|                                                    |                                                                                                  |                                    |              |        | Year Ended December 31,
|                                                    |                                                                                                  |                                    |              |        |                        
|                                                    |                                                                                                  |                                    |              |        | 2002                    |         | 2001     |       | 2000  
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |       
|                                                    |                                                                                                  |                                    |              |        | Average                 |         |          |       |        |  | Yield/  |      | Average  |   |         |        |         |         | Yield/   |       | Average |  |      |      |      |   | Yield/ 
|                                                    |                                                                                                  |                                    |              |        | Balance                 |         | Interest |       | Cost   |  | Balance |      | Interest |   | Cost    |        | Balance |         | Interest |       | Cost   
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |        
|                                                    |                                                                                                  |                                    |              |        | (Dollars In Thousands) 
|ASSETS:                                             |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Interest-earning assets:                            |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    | Federal funds sold                                                                               |                                    | $            | 5,919  |                         |         | $        | 94    |        |  |         | 1.59 | %        |   | $       | 6,733  |         |         | $        | 286   |         |  |      | 4.25 | %    |   | $       | 3,185  |         |         | $      | 201   |        |  |      | 6.31  | %   
|                                                    | Interest-bearing deposits                                                                        |                                    |              | 1,782  |                         |         |          | 55    |        |  |         | 3.09 |          |   |         | 5,878  |         |         |          | 240   |         |  |      | 4.08 |      |   |         | 472    |         |         |        | 22    |        |  |      | 4.66  |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                   
|Investment securities:                              |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    | U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities |                                    |              | 52,287 |                         |         |          | 2,517 |        |  |         | 4.81 |          |   |         | 39,491 |         |         |          | 2,442 |         |  |      | 6.18 |      |   |         | 42,098 |         |         |        | 2,738 |        |  |      | 6.50  |     
|Obligations of states and political
subdivisions(1) |                                                                                                  |                                    | 25,402       |        |                         |         | 1,741    |       |        |  | 6.85    |      |          |   | 13,761  |        |         |         | 1,125    |       |         |  | 8.18 |      |      |   | 2,766   |        |         |         | 243    |       |        |  | 8.79 |      
|All other investment securities                     |                                                                                                  |                                    | 4,935        |        |                         |         | 344      |       |        |  | 6.97    |      |          |   | 3,833   |        |         |         | 327      |       |         |  | 8.56 |      |      |   | 1,587   |        |         |         | 118    |       |        |  | 7.43 |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  | Total investment securities        |              |        | 82,624                  |         |          |       | 4,602  |  |         |      | 5.57     |   |         |        | 57,085  |         |          |       | 3,894   |  |      |      | 6.82 |   |         |        | 46,451  |         |        |       | 3,099  |  |      |       | 6.67 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                   
|Loans, net of unearned income:                      |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    | Demand, time and lease                                                                           |                                    |              | 5,066  |                         |         |          | 348   |        |  |         | 6.87 |          |   |         | 4,542  |         |         |          | 426   |         |  |      | 9.38 |      |   |         | 3,894  |         |         |        | 465   |        |  |      | 11.94 |     
|                                                    | Mortgage and construction                                                                        |                                    |              | 83,444 |                         |         |          | 6,342 |        |  |         | 7.60 |          |   |         | 79,873 |         |         |          | 6,416 |         |  |      | 8.03 |      |   |         | 81,427 |         |         |        | 7,161 |        |  |      | 8.79  |     
|                                                    | Installment and credit card                                                                      |                                    |              | 73,851 |                         |         |          | 5,647 |        |  |         | 7.65 |          |   |         | 79,416 |         |         |          | 6,332 |         |  |      | 7.97 |      |   |         | 74,489 |         |         |        | 5,839 |        |  |      | 7.83  |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  | Total gross loans(2)               |              |        | 162,361                 |         |          |       | 12,337 |  |         |      | 7.60     |   |         |        | 163,831 |         |          |       | 13,174  |  |      |      | 8.04 |   |         |        | 159,810 |         |        |       | 13,465 |  |      |       | 8.42 | 
|                                                    |                                                                                                  | Allowance for credit losses        |              |        | 2,767                   |         |          |       |        |  |         |      |          |   |         |        | 3,242   |         |          |       |         |  |      |      |      |   |         |        | 3,260   |         |        |       |        |  |      |       |      | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  | Total net loans                    |              |        | 159,594                 |         |          |       | 12,337 |  |         |      | 7.59     |   |         |        | 160,589 |         |          |       | 13,174  |  |      |      | 8.20 |   |         |        | 156,550 |         |        |       | 13,465 |  |      |       | 8.60 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Total interest-earning assets                       |                                                                                                  |                                    | 249,919      |        |                         |         | 17,088   |       |        |  | 6.84    |      |          |   | 230,285 |        |         |         | 17,594   |       |         |  | 7.64 |      |      |   | 206,658 |        |         |         | 16,787 |       |        |  | 8.12 |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Cash and due from banks                             |                                                                                                  |                                    | 8,921        |        |                         |         |          |       |        |  |         |      |          |   | 9,963   |        |         |         |          |       |         |  |      |      |      |   | 6,734   |        |         |         |        |       |        |  |      |      
|Other assets                                        |                                                                                                  |                                    | 10,199       |        |                         |         |          |       |        |  |         |      |          |   | 9,124   |        |         |         |          |       |         |  |      |      |      |   | 9,962   |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  |                                    | Total assets |        | $                       | 269,039 |          |       |        |  |         |      |          |   |         |        | $       | 249,372 |          |       |         |  |      |      |      |   |         |        | $       | 223,354 |        |       |        |  |      |       |      |  | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY:               |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Interest-bearing deposits:                          |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    | Savings and NOW                                                                                  |                                    | $            | 67,926 |                         |         |          | 485   |        |  |         | 0.71 | %        |   | $       | 61,992 |         |         | $        | 740   |         |  |      | 1.19 | %    |   | $       | 62,257 |         |         | $      | 1,188 |        |  |      | 1.90  | %   
|                                                    | Money market                                                                                     |                                    |              | 19,770 |                         |         |          | 186   |        |  |         | 0.94 |          |   |         | 18,756 |         |         |          | 357   |         |  |      | 1.90 |      |   |         | 16,919 |         |         |        | 450   |        |  |      | 2.65  |     
|                                                    | Other time deposits                                                                              |                                    |              | 88,304 |                         |         |          | 3,542 |        |  |         | 4.01 |          |   |         | 83,498 |         |         |          | 4,431 |         |  |      | 5.31 |      |   |         | 73,292 |         |         |        | 3,924 |        |  |      | 5.35  |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  | Total interest-bearing deposits    |              |        | 176,000                 |         |          |       | 4,213  |  |         |      | 2.39     |   |         |        | 164,246 |         |          |       | 5,528   |  |      |      | 3.37 |   |         |        | 152,468 |         |        |       | 5,562  |  |      |       | 3.64 | 
|Borrowed funds                                      |                                                                                                  |                                    | 13,172       |        |                         |         | 989      |       |        |  | 7.51    |      |          |   | 12,981  |        |         |         | 1,006    |       |         |  | 7.75 |      |      |   | 1,880   |        |         |         | 339    |       |        |  | 4.81 |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  | Total interest-bearing liabilities |              |        | 189,172                 |         |          |       | 5,202  |  |         |      | 2.75     |   |         |        | 177,227 |         |          |       | 6,534   |  |      |      | 3.69 |   |         |        | 154,348 |         |        |       | 5,902  |  |      |       | 3.82 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|                                                   
|Non-interest-bearing deposits                       |                                                                                                  |                                    | 58,351       |        |                         |         |          |       |        |  |         |      |          |   | 52,252  |        |         |         |          |       |         |  |      |      |      |   | 48,071  |        |         |         |        |       |        |  |      |      
|Other liabilities                                   |                                                                                                  |                                    | 1,389        |        |                         |         |          |       |        |  |         |      |          |   | 2,240   |        |         |         |          |       |         |  |      |      |      |   | 3,348   |        |         |         |        |       |        |  |      |      
|Stockholders equity                                |                                                                                                  |                                    | 20,127       |        |                         |         |          |       |        |  |         |      |          |   | 17,653  |        |         |         |          |       |         |  |      |      |      |   | 17,587  |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Total liabilities and equity                        |                                                                                                  | $                                  | 269,039      |        |                         |         |          |       |        |  |         |      |          | $ | 249,372 |        |         |         |          |       |         |  |      |      |      | $ | 223,354 |        |         |         |        |       |        |  |      |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Net interest income                                 |                                                                                                  |                                    |              |        |                         | $       | 11,886   |       |        |  |         |      |          |   |         |        |         | $       | 11,060   |       |         |  |      |      |      |   |         |        |         | $       | 10,885 |       |        |  |      |      
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Net interest spread                                 |                                                                                                  |                                    |              |        |                         |         |          |       |        |  | 4.09    | %    |          |   |         |        |         |         |          |       |         |  | 3.95 | %    |      |   |         |        |         |         |        |       |        |  | 4.30 | %    
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      
|Net interest margin                                 |                                                                                                  |                                    |              |        |                         |         |          |       |        |  | 4.76    | %    |          |   |         |        |         |         |          |       |         |  | 4.80 | %    |      |   |         |        |         |         |        |       |        |  | 5.27 | %    
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |      |      |   |         |        |         |         |        |       |        |  |      |      



---

| |  | 1 Tax equivalent basis. The incremental tax rate applied was 30.73% for 2002 and 34.38% for 2001.
| |  | -------------------------------------------------------------------------------------------------
|
| |  | 2 Non-accrual loans included in average balance.                                                 

Provision For Credit Losses.During the year ended December 31, 2002, the
Company made no provision for credit losses compared to a negative $150,000
provision during the year ended December 31, 2001 and no provision during the
year ended December 31, 2000. At December 31, 2002, the allowance for loan
losses equaled 429.13% of non-accrual and past due loans compared to 445.30%
and 837.87% at December 31, 2001 and 2000, respectively. During the year ended
December 31, 2002, the Company recorded net chargeoffs of $423,755 compared to
$296,360 and $463,184 in net charge-offs during the years ended December 31,
2001 and 2000, respectively.

-22-



---



##### 



Other Income.Other income increased from $1,821,138 in 2001 to $2,484,725
in 2002, a $663,587, or 36.4% increase. The increase was largely due to the
non-recurring curtailment gain of $763,644 on a post retirement benefit plan
amendment partially offset by a decrease in securities gains realized, income
from service charges on deposit accounts and other fees and commissions also
increased. Other income decreased from $3,657,878 in 2000 to $1,821,138 in
2001, a $1,836,740, or 50.2% decrease. The decrease was largely due to a
$490,000 gain on foreclosed real estate and a non-recurring settlement gain of
$1,600,126 on the termination of the Banks pension plan in 2000 which were not
present in 2001, partially offset by a gain on investment securities of
$273,003 in 2001.

Other Expenses.Other expenses decreased from $10,332,093 in 2001 to
$9,956,847 in 2002, a $375,246 or 3.6% decrease. This decrease was primarily
due to a decline in other operating expenses and employee benefit costs, which
were partially offset by an increase in salaries and wages. Other expenses
decreased from $10,746,049 in 2000 to $10,332,093 in 2001, a $413,956 or 3.85%
decrease. This decrease was primarily due to a decline in employee benefit
expense, which relates to the termination of the Banks defined benefit
retirement plan.

Income Taxes.During the year ended December 31, 2002, the Company
recorded income tax expense of $1,084,945, compared to income tax expense of
$587,539 for the year ended December 31, 2001. The increase in income tax
expense for 2002 as compared to 2001 was primarily due to the curtailment gain
on post retirement benefits and an increase in net interest income partially
offset by the tax benefits from the Companies increased investment in state and
municipal securities. During the year ended December 31, 2001, the Company
recorded income tax expense of $587,539, compared to income tax expense of
$1,438,061 for the year ended December 31, 2000. Part of the 2000 period
income tax expense was due to nonrecurring income realized in 2000 and was
offset, in part, by the tax benefits from the Companys investments in state
and municipal securities. The decreased income tax expense for 2001 was due to
a decline in pretax income and increased investments in state and municipal
securities.

Comparison of Financial Condition at December 31, 2002, 2001 and 2000

The Companys total assets increased to $279,406,206 at December 31, 2002
from $263,361,726 at December 31, 2001. The increase in assets during the year
ended December 31, 2002 is a result primarily of growth in investment
securities and other assets partially offset by a decrease in the loan
portfolio. The Companys total assets increased to $263,361,726 at December
31, 2001 from $239,211,180 at December 31, 2000. The increase in assets during
the year ended December 31, 2001 is a result primarily of growth in the
investment portfolio.

The Companys loan portfolio declined to $158,286,746 at December 31, 2002
compared to $164,569,252 at December 31, 2001 and $162,373,731 at December 31,
2000. The decline in the loan portfolio during the 2002 period is attributable
almost entirely to a decrease in the indirect automobile portfolio. The growth
in the loan portfolio during the 2001 period is primarily attributable to
growth in residential mortgages, partially offset by a decrease in commercial
mortgages and indirect automobile lending. The decrease in indirect automobile
lending can be at least partially attributed to zero percent financing offered
by automobile manufacturers since September 2001.

During 2002, the Companys total investment securities portfolio
(including both investment securities available for sale and investment
securities held to maturity) totaled $91,860,051, a $19,795,130 or 27.5%,
increase from $72,064,921 at December 31, 2001. This increase is primarily
attributable to growth in mortgage backed and state and municipal securities,
partially offset by a decline in U.S. Government agency securities. During
2001, the Companys total investment securities portfolio totaled $72,064,921,
a $19,470,023 or 37%, increase from $52,594,898 at December 31, 2000. This
increase was primarily attributable to the use of increased deposits to
increase the Banks investment in mortgage backed securities and state, county
and municipal securities, partially offset by a decrease in U.S. governmental
agency securities.

Deposits as of December 31, 2002 totaled $241,419,607, an increase of
$12,112,890, or 5.3%, from the $229,306,717 total as of December 31, 2001. The
$229,306,717 in total deposits as of December 31, 2001 was a $23,338,380 or
11.3% increase from the $205,968,337 total deposits as of December 31, 2000.
Demand deposits as of December 31, 2002 totaled $59,061,977, a $3,376,869 or
6.1% increase from $55,685,108 at December 31, 2001. NOW and Super NOW
accounts as of December 31, 2002 increased by $1,675,470 or 7.5% from their
2001 level to $24,071,173. Money market accounts decreased by $736,522 or
3.6%, from their 2001 level to total $19,889,727

-23-



---



##### 



December 31, 2002. Savings deposits increased by $5,271,207 or 12.4% from
their 2001 level, to $47,616,167 at December 31, 2002. Time deposits over
$100,000 totaled $17,698,559 on December 31, 2002, an increase of $63,093, or
0.3% from December 31, 2001. Other time deposits (made up of certificates of
deposit less than $100,000 and individual retirement accounts) totaled
$73,082,004 on December 31, 2002, a $2,462,772 or a 3.5%, increase from
December 31, 2001.

Total stockholders equity as of December 31, 2002 increased by $3,927,801
or 22.0% from the 2001 period. The increase was attributed to an increase in
retained earnings and accumulated other comprehensive income, net of tax.
Total stockholders equity as of December 31, 2001 increased by $680,838 or
3.96% from the 2000 period. The increase was attributed to an increase in
outstanding common stock and retained earnings, offset by a decline in
accumulated other comprehensive income, net of tax.

Asset/Liability Management

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

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

-24-



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##### 



The following table sets forth the Banks interest-rate sensitivity at December
31, 2002.

|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |         |         | 
|------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ---------------------- | ------- | --------- | -------- | -------------- | ------ | ------ | ------- | ------ | ------ | - | ------- | ------ | ------- |  | - | ------- | ------- | 
|                                      |                                      |                                            |         |                        |         |           |          | Over 3 To      |        | Over 1 |         | Over 5 |        |   |         |       
|                                      |                                      |                                            |         | 0-3 Months             |         | 12 Months |          | Through 5Years |        | Years  |         | Total 
|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |       
|                                      |                                      |                                            |         | (Dollars In Thousands)
|Assets:                               |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                      | Cash and due from banks              |                                            | $       |                       |         |           | $        |               |        |        | $       |       |        |   | $       |       |         |  | $ | 11,297  |        
|                                      | Federal funds and overnight deposits |                                            |         | 4,445                  |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   |         |        
|                                      | Securities                           |                                            |         | 100                    |         |           |          | 1,299          |        |        |         | 12,434 |        |   |         | 78,730 |         |  |   | 92,663  |        
|                                      | Loans                                |                                            |         | 12,199                 |         |           |          | 2,665          |        |        |         | 75,823 |        |   |         | 70,115 |         |  |   | 160,802 |        
|                                      | Fixed Assets                         |                                            |         |                       |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 4,143   |        
|                                      | Other Assets                         |                                            |         |                       |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 5,123   |        
|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                      |                                      | Total assets                               |         | $                      | 16,744  |           |          | $              | 3,964  |        |         | $      | 88,257 |   |         | $      | 148,945 |  |   | $       | 278,473 | 
|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|Liabilities:                          |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                      | Demand deposit accounts              |                                            | $       |                       |         |           | $        |               |        |        | $       |       |        |   | $       |       |         |  | $ | 59,062  |        
|                                      | NOW accounts                         |                                            |         | 24,071                 |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 24,071  |        
|                                      | Money market deposit accounts        |                                            |         | 19,890                 |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 19,890  |        
|                                      | Savings accounts                     |                                            |         | 47,616                 |         |           |          | 1,428          |        |        |         |       |        |   |         |       |         |  |   | 49,044  |        
|                                      | IRA accounts                         |                                            |         | 2,319                  |         |           |          | 6,372          |        |        |         | 11,410 |        |   |         | 1,689  |         |  |   | 21,790  |        
|                                      | Certificates of deposit              |                                            |         | 15,888                 |         |           |          | 26,739         |        |        |         | 24,459 |        |   |         | 476    |         |  |   | 67,563  |        
|                                      | Other liabilities                    |                                            |         |                       |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 10,109  |        
|                                      | Junior Subordinated Debenture        |                                            |         |                       |         |           |          |               |        |        |         |       |        |   |         |       |         |  |   | 5,155   |        
|                                      |                                      | Stockholders equity                       |         |                        |        |           |          |                |       |        |         |        |       |   |         |        |        |  |   |         | 21,782  | 
|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                      |                                      | Total liabilities and
Stockholders equity |         | $                      | 109,784 |           |          | $              | 34,539 |        |         | $      | 35,869 |   |         | $      | 2,165   |  |   | $       | 278,473 | 
|                                      |                                      |                                            |         |                        |         |           |          |                |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|GAP                                   |                                      | $                                          | (93,040 | )                      |         | $         | (30,575  | )              |        | $      | 52,388  |        |        | $ | 146,780 |        |         |  |   |        
|Cumulative GAP                        |                                      |                                            | (93,040 | )                      |         |           | (123,615 | )              |        |        | (71,227 | )      |        |   | 75,553  |        |         |  |   |        
|Cumulative GAP as a % of
total assets |                                      |                                            | (33.41% | )                      |         |           | (44.39%  | )              |        |        | (25.58% | )      |        |   | 27.13%  |        |         |  |   |        

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

Liquidity and Capital Resources

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

The Banks principal sources of funds for investments and operations are
net income, deposits from its primary market area, principal and interest
payments on loans, interest received on investment securities and proceeds from
maturing investment securities. Its principal funding commitments are for the
origination or purchase of loans and the payment of maturing deposits.
Deposits are considered the primary source of funds supporting the Banks
lending and investment activities. The Bank also uses borrowings from the FHLB
of Atlanta to supplement deposits, residential and small business lending, and
to meet specific and anticipated needs.

The Banks most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold and
money market mutual funds. The levels of such assets are dependent on the
Banks operating financing and investment activities at any given time. The
variations in levels of cash and cash equivalents are influenced by deposit
flows and anticipated future deposit flows.

Cash and cash equivalents (cash due from banks, interest-bearing deposits
in other financial institutions, and federal funds sold), as of December 31,
2002, totaled $15,742,088, a decrease of $2,478,740 or 13.6%, from the December
31, 2001 total of $18,220,828. Most of this decrease was due to a decline in
deposits in other financial institutions and a reduction in federal funds sold.

-25-



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##### 



As of December 31, 2002, the Bank was permitted to draw on a $33.4 million
line of credit from the FHLB of Atlanta. Borrowings under the line are secured
by a floating lien on the Banks residential mortgage loans and its portfolio
of U.S. Government and Agency Securities. As of December 31, 2002, a $7
million long-term convertible advance was outstanding under this line. In
addition the Bank has a secured line of credit in the amount of $5 million from
another commercial bank on which it has not drawn. Furthermore, on September
7, 2000, the Company issued $5,155,000 of its 10.6% Junior Subordinated
Deferrable Interest Debentures to Glen Burnie Statutory Trust I, a Connecticut
statutory trust wholly owned by the Company. The Trust, in turn, issued
$5,000,000 of its 10.6% capital securities to institutional investors. The
debentures are scheduled to mature on September 7, 2030, unless called by the
Company not earlier than September 7, 2010. As of December 31, 2002, the full
$5,155,000 was outstanding.

Federal banking regulations require the Company and the Bank to maintain
specified levels of capital. At December 31, 2002, the Company was in
compliance with these requirements with a leverage ratio of 9.1%, a Tier 1
risk-based capital ratio of 14.0% and total risk-based capital ratio of 15.3%.
At December 31, 2002, the Bank met the criteria for designation as a well
capitalized depository institution under FDIC regulations.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. Unlike most industrial
companies, nearly all of the Companys assets and liabilities are monetary in
mature. As a result, interest rates have a greater impact on the Companys
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

Critical Accounting Policies

The Companys accounting policies are more fully described in Note 1 of
the Notes to the Consolidated Financial Statements, starting on page F-8 and
are essential to understanding Managements Discussion and Analysis of
Financial Condition and Results of Operations. As discussed there, the
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Since future events and their
effects cannot be determined with absolute certainty, the determination of
estimates requires the exercise of judgment. Management has used the best
information available to make the estimations necessary to value the related
assets and liabilities based on historical experience and on various
assumptions which are believed to be reasonable under the circumstances.
Actual results could differ from those estimates, and such differences may be
material to the financial statements. The Company reevaluates these variables
as facts and circumstances change. Historically, actual results have not
differed significantly from the Companys estimates. The following is a
summary of the more judgmental accounting estimates and principles involved in
the preparation of the Companys financial statements, including the
identification of the variables most important in the estimation process:

Allowance for Credit Losses. The allowance for credit losses is
managements best estimate of the probable incurred credit losses in the
lending portfolio. The Company performs periodic and systematic detailed
reviews of its loan portfolio to identify and estimate the inherent risks and
assess overall collectibility. These reviews include loss forecast modeling
based on historical experiences and current events and conditions as well as
individual loan valuations. In each analysis, numerous portfolio and economic
assumptions are made.

Accrued Taxes. Management estimates income tax expense based on the
amount it expects to owe various tax authorities. Income taxes are discussed
in more detail in Note 9 to the consolidated financial statements. Accrued
taxes represent the net estimated amount due or to be received from taxing
authorities. In estimating accrued taxes, management assesses the relative
merits and risks of the appropriate tax treatment of transactions taking into
account statutory, judicial and regulatory guidance in the context of the
Companys tax position.

-26-



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##### 



Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities(SFAS 146). This statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullified Emerging Issues Task Force (EITF) Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This statement changes the current practice of accounting for
these transactions by changing the timing of the recognition of exit or
disposal costs and generally requires such costs to be recognized when the
liability is incurred rather than on the date the entity commits to a plan of
exit or disposal. It also requires such liabilities to be measured at fair
value. The provisions of SFAS 146 are effective for exit or disposal
activities initiated after December 31, 2002. In managements opinion, the
Company and the Bank are currently in compliance with all applicable provisions
of this pronouncement (See Note 5 to the Companys Consolidated Financial
Statements).

In October 2002, FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions, an amendment of FASB Statement No. 72 and 144 and FASB
Interpretation No. 9 (SFAS 147). This statement addresses the financial
accounting and reporting for the acquisition of all or part of a financial
institution, except for a transaction between two or more mutual enterprises.
This statement removes acquisitions of financial institutions, other than
transactions between two or more mutual enterprises, from the scope of FASB No.
72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and
FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17, When a Savings
and Loan Association or a Similar Institution Is Acquired in a Business
Combination Accounting for by the Purchase Method. This statement also
provides guidance on the accounting for the impairment or disposal of acquired
long-term customer-relationship intangible assets (such as depositor and
borrower relationship intangible assets and credit cardholder intangible
assets) including those acquired in transactions between two or more mutual
enterprises. In managements opinion, the Company and the Bank are currently
in compliance with all applicable provisions of this pronouncement.

In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(SFAS 148). This statement amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transaction for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It also
amends the disclosure about the effects on reported net income of an entitys
accounting policy decisions with respect to stock based employee compensation.
Finally this statement amends Accounting Principles Board Opinion No. 28,
Interim Financial Reporting(APB 28), to require disclosure about effects in
interim financial information.

Certain of the amendments to SFAS 123 contained in SFAS 148 are effective
for financial statements for fiscal years ending after December 15, 2002, and
others are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. Management
is currently considering the impact of the change to the fair value based
method of accounting for stock-based employee compensation in the 2003
financial statements. In managements opinion, the Company and the Bank are
currently in compliance with all applicable disclosure provisions of this
pronouncement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8
are included in the Companys Consolidated Financial Statements and set forth
in the pages indicated in Item 16(a) of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

-27-



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##### 



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information with respect to the identity and business experience of
the directors of the Company and their remuneration set forth in the section
captioned Proposal I  Election of Directors in the Companys definitive
Proxy Statement to be filed pursuant to Regulation 14A and issued in
conjunction with the 2003 Annual Meeting of Stockholders (the Proxy
Statement) is incorporated herein by reference. The information with respect
to the identity and business experience of executive officers of the Company is
set forth in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference
to the sections captioned Director Compensation and Executive Compensation
in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference
to the sections captioned Voting Securities and Principal Holders Thereof and
Securities Ownership of Management in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference
to the section captioned Transactions with Management in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

Based on the evaluation of the Companys disclosure controls and
procedures by F. William Kuethe, Jr., the Companys Chief Executive Officer,
and John E. Porter, the Companys Chief Financial Officer, as of a date within
90 days of the filing date of this annual report, such officers have concluded
that the Companys disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time period specified
by the Securities and Exchange Commissions rules and forms.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference
to the section captioned Authorization for Appointment of Auditors 
Disclosure of Independent Auditor Fees in the Proxy Statement.

-28-



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##### 



PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. Financial Statements.

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors Report                                                                                    |  | F-1 
|Consolidated Balance Sheets as of December 31, 2002, 2001 and 2000                                              |  | F-2 
|Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000                          |  | F-3 
|Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002,
2001 and 2000            |  | F-4 
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2002, 2001 and 2000 |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 2001 and 2000                       |  | F-6 
|Notes to Consolidated Financial Statements                                                                      |  | F-8 

(a)  2. Financial Statement Schedules.

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

(a)  3. Exhibits required to be filed by Item 601 of Regulation S-K.

|            |  |                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                
|           
|3.1         |  | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 to the Registrants Form 8-A filed December 27, 1999, File
No. 0-24047)                                                                                                                                                 
|3.2         |  | By-Laws (incorporated by reference to Exhibit 3.2 to the Registrants
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998,
File No. 0-24047)                                                                                                                                                
|3.3         |  | Articles Supplementary, dated November 16, 1999 (incorporated by
reference to Exhibit 3.3 to the Registrants Current Report on Form 8-K
filed December 8, 1999, File No. 0-24047)                                                                                                                             
|4.1         |  | Rights Agreement, dated as of February 13, 1998, between Glen Burnie
Bancorp and The Bank of Glen Burnie, as Rights Agent, as amended and
restated as of December 27, 1999 (incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Registrants Form 8-A filed December 27, 1999,
File No. 0-24047)
|10.1        |  | Glen Burnie Bancorp Director Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the
Registrants Registration Statement on Form S-8, File No.33-62280)                                                                                                        
|10.2        |  | The Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the
Registrants Registration Statement on Form S-8, File No. 333-46943)                                                                                                  
|10.3        |  | Amended and Restated Change-in-Control Severance Plan (incorporated by
reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 2001, File No. 0-24047)                                                                                                  
|10.4        |  | The Bank of Glen Burnie Executive and Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 to the Registrants Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1999, File No.
0-24047)                                                                             
|21          |  | Subsidiaries of the Registrant (incorporated by reference to Exhibit 3.2
to the Registrants Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 2001, File No. 0-24047)                                                                                                                         
|23          |  | Consent of Trice Geary & Myers LLC                                                                                                                                                                                                                                                                             
|99.1        |  | Certification Required Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                                                                                                                               

(b)  Reports on Form 8-K.

None.

-29-



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##### 



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 24, 2003 |  | By: /s/ F. William Kuethe, Jr.
         F. William Kuethe, Jr.
         President and Chief Executive Officer

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

|                                                     |  |                                                                |  |                   
|---------------------------------------------------- |  | -------------------------------------------------------------- |  | ------------------
|Signature                                            |  | Title                                                          |  | Date              
|                                                    
|/s/ F. William Kuethe, Jr.
   F. William Kuethe, Jr. |  | President, Chief Executive Officer
and Director                |  | March 24, 2003    
|                                                    
|__________________
   John I. Young                  |  | Executive Vice President, Chief
Operating Officer and Director |  | March ______, 2003
|                                                    
|/s/ John E. Porter
   John E. Porter                 |  | Senior Vice President and Chief
Financial Officer              |  | March 24, 2003    
|                                                    
|/s/ John E. Demyan
   John E. Demyan                 |  | Chairman of the Board and Director                             |  | March 24, 2003    
|                                                    
|__________________
   Theodore L. Bertier, Jr.       |  | Director                                                       |  | March ______, 2003
|                                                    
|/s/ Shirley E. Boyer
   Shirley E. Boyer             |  | Director                                                       |  | March 24, 2003    
|                                                    
|/s/ Thomas Clocker
   Thomas Clocker                 |  | Director                                                       |  | March 24, 2003    
|                                                    
|/s/ Alan E. Hahn
   Alan E. Hahn                     |  | Director                                                       |  | March 24, 2003    
|                                                    
|/s/ Charles L. Hein
   Charles L. Hein               |  | Director                                                       |  | March 24, 2003    
|                                                    
|/s/ F. W. Kuethe, III
   F. W. Kuethe, III           |  | Director                                                       |  | March 24, 2003    

-30-



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##### 



|                                                        |  |          |  |               
|------------------------------------------------------- |  | -------- |  | --------------
|/s/  William N. Scherer, Sr.
   William N. Scherer, Sr. |  | Director |  | March 24, 2003
|                                                       
|/s/ Karen B. Thorwarth
   Karen B. Thorwarth            |  | Director |  | March 24, 2003
|                                                       
|/s/ Mary Lou Wilcox
   Mary Lou Wilcox                  |  | Director |  | March 24, 2003

-31-



---



##### 



CERTIFICATION

I, F. William Kuethe, Jr., certify that:

1.     I have reviewed this Annual Report on Form 10-K of Glen Burnie Bancorp;

2.     Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Annual Report;

4.     The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this Annual Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this Annual Report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this Annual Report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

5.     The Registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrants ability to record, process, summarize and report
financial data and have identified for the Registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal controls; and                                                                                                                                        

6.     The Registrants other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |                                                                          
|-------------------- |  | -------------------------------------------------------------------------
|Date: March 24, 2003 |  | /s/ F. William Kuethe, Jr.
F. William Kuethe, Jr.
Chief Executive Officer

-32-



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##### 



CERTIFICATION

I, John E. Porter, certify that:

1.     I have reviewed this Annual Report on Form 10-K of Glen Burnie Bancorp;

2.     Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Annual Report;

4.     The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:



| | d) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this Annual Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | e) |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this Annual Report (the Evaluation
Date); and                                                                                                  
|
| | f) |  | presented in this Annual Report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

5.     The Registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent function):



| | c) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrants ability to record, process, summarize and report
financial data and have identified for the Registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | d) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal controls; and                                                                                                                                        

6.     The Registrants other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |                                                          
|-------------------- |  | ---------------------------------------------------------
|Date: March 24, 2003 |  | /s/ John E. Porter
John E. Porter
Chief Financial Officer

-33-



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##### 



(TGMlogo)

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, 2002, 2001, and 2000, 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 auditing standards generally accepted in the
United States of America. 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, 2002, 2001, and 2000, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.

(Signature Logo)

(Address Logo)

F-1



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##### 



Glen Burnie Bancorp and Subsidiaries
Consolidated Balance Sheets

December
          31,
    
        **2002**
    
    
    2001
    
    
    2000AssetsCash and due from banks
    
    $
    11,297,175
    
    
    $
    10,888,085
    
    
    $
    9,559,329Interest-bearing deposits in other financial institutions
    
    
    41,335
    
    
    
    1,879,444
    
    
    
    50,947Federal funds sold
    
    
    4,403,578
    
    
    
    5,453,299
    
    
    
    5,898,863Cash and cash equivalents
    
    
    15,742,088
    
    
    
    18,220,828
    
    
    
    15,509,139Certificates of deposit in other financial institutions
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000Investment securities available for sale, at fair value
    
    
    84,657,682
    
    
    
    55,547,998
    
    
    
    21,308,961Investment securities held to maturity (fair value
2002 $7,615,702; 2001 $16,881,451; 2000 $31,019,121)
    
    
    7,202,369
    
    
    
    16,516,923
    
    
    
    31,285,937Federal Home Loan Bank stock, at cost
    
    
    703,200
    
    
    
    652,300
    
    
    
    652,300Common stock in the Glen Burnie Statutory Trust I
    
    
    155,000
    
    
    
    155,000
    
    
    
    155,000Ground rents, at cost
    
    
    249,900
    
    
    
    249,900
    
    
    
    249,900Loans, less allowance for credit losses
2002 $2,514,700; 2001 $2,938,455; 2000 $3,384,815
    
    
    158,286,746
    
    
    
    164,569,252
    
    
    
    162,373,731Premises and equipment, at cost, less accumulated depreciation
    
    
    4,143,429
    
    
    
    3,886,631
    
    
    
    4,268,403Accrued interest receivable on loans and investment securities
    
    
    1,547,511
    
    
    
    1,527,018
    
    
    
    1,681,219Deferred income tax benefits
    
    
    
    
    
    
    427,367
    
    
    
    126,933Other real estate owned
    
    
    413,373
    
    
    
    420,162
    
    
    
    484,148Other assets
    
    
    6,204,908
    
    
    
    1,088,347
    
    
    
    1,015,509Total assets
    
    $
    279,406,206
    
    
    $
    263,361,726
    
    
    $
    239,211,180Liabilities and Stockholders EquityLiabilities:Deposits:Noninterest-bearing
    
    $
    59,061,977
    
    
    $
    55,685,108
    
    
    $
    52,962,491Interest-bearing
    
    
    182,357,630
    
    
    
    173,621,610
    
    
    
    153,005,846Total deposits
    
    
    241,419,607
    
    
    
    229,306,718
    
    
    
    205,968,337Short-term borrowings
    
    
    837,074
    
    
    
    882,408
    
    
    
    487,978Long-term borrowings
    
    
    7,251,489
    
    
    
    7,274,791
    
    
    
    7,296,523Dividends payable
    
    
    236,291
    
    
    
    195,333
    
    
    
    213,345Accrued interest payable on deposits
    
    
    111,398
    
    
    
    155,174
    
    
    
    195,166Accrued interest payable on junior subordinated debentures
    
    
    171,518
    
    
    
    171,518
    
    
    
    166,986Deferred income tax liabilities
    
    
    915,314
    
    
    
    
    
    
    
    Other liabilities
    
    
    1,519,129
    
    
    
    2,359,199
    
    
    
    2,547,098Total liabilities
    
    
    252,461,820
    
    
    
    240,345,141
    
    
    
    216,875,433Commitments and contingenciesGuaranteed preferred beneficial interests in Glen Burnie
Bancorp junior subordinated debentures
    
    
    5,155,000
    
    
    
    5,155,000
    
    
    
    5,155,000Stockholders equity:Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding 2002 1,677,173 shares;
2001 1,663,560 shares; 2000 1,110,049 shares
    
    
    1,677,173
    
    
    
    1,663,560
    
    
    
    1,110,049Surplus
    
    
    10,637,578
    
    
    
    10,390,511
    
    
    
    10,373,549Retained earnings
    
    
    7,946,747
    
    
    
    5,970,537
    
    
    
    5,544,305Accumulated other comprehensive income (loss), net of tax
    
    
    1,527,888
    
    
    
    (163,023
    )
    
    
    152,844Total stockholders equity
    
    
    21,789,386
    
    
    
    17,861,585
    
    
    
    17,180,747Total liabilities and stockholders equity
    
    $
    279,406,206
    
    
    $
    263,361,726
    
    
    $
    239,211,180


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

F-2



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##### 



Glen Burnie Bancorp and Subsidiaries Consolidated Statements of Income Years Ended December 31,
    
        **2002**
    
    
    2001
    
    
    2000Interest income on:Loans, including fees
    
    $
    12,336,820
    
    
    $
    13,173,325
    
    
    $
    13,464,699U.S. Treasury securities
    
    
    59,818
    
    
    
    94,336
    
    
    
    129,283U.S. Government agency securities
    
    
    2,457,585
    
    
    
    2,347,049
    
    
    
    2,608,332State and municipal securities
    
    
    1,206,798
    
    
    
    738,330
    
    
    
    159,053Corporate trust preferred securities
    
    
    341,094
    
    
    
    310,484
    
    
    
    80,897Federal funds sold
    
    
    93,735
    
    
    
    286,176
    
    
    
    200,978Other
    
    
    74,432
    
    
    
    257,304
    
    
    
    59,473Total interest income
    
    
    16,570,282
    
    
    
    17,207,004
    
    
    
    16,702,715Interest expense on:Deposits
    
    
    4,212,826
    
    
    
    5,527,610
    
    
    
    5,562,428Short-term borrowings
    
    
    6,446
    
    
    
    17,885
    
    
    
    66,513Long-term borrowings
    
    
    436,430
    
    
    
    436,817
    
    
    
    105,690Junior subordinated debentures
    
    
    546,430
    
    
    
    550,962
    
    
    
    166,986Total interest expense
    
    
    5,202,132
    
    
    
    6,533,274
    
    
    
    5,901,617Net interest income
    
    
    11,368,150
    
    
    
    10,673,730
    
    
    
    10,801,098Provision for credit losses
    
    
    
    
    
    
    (150,000
    )
    
    
    Net interest income after
provision for credit losses
    
    
    11,368,150
    
    
    
    10,823,730
    
    
    
    10,801,098Other income:Service charges on deposit accounts
    
    
    917,816
    
    
    
    860,681
    
    
    
    859,734Other fees and commissions
    
    
    750,385
    
    
    
    687,454
    
    
    
    734,255Gains (losses) on investment
securities
    
    
    52,880
    
    
    
    273,003
    
    
    
    (26,237
    )Gain on sale of other real estate
owned
    
    
    
    
    
    
    
    
    
    
    490,000Curtailment gain on post-retirement
benefits plan amendment
    
    
    763,644
    
    
    
    
    
    
    
    Settlement gain on pension plan
termination
    
    
    
    
    
    
    
    
    
    
    1,600,126Total other income
    
    
    2,484,725
    
    
    
    1,821,138
    
    
    
    3,657,878Other expenses:Salaries and wages
    
    
    4,165,994
    
    
    
    4,083,115
    
    
    
    4,085,541Employee benefits
    
    
    1,614,284
    
    
    
    1,769,209
    
    
    
    2,131,481Occupancy
    
    
    589,289
    
    
    
    577,440
    
    
    
    615,201Furniture and equipment
    
    
    854,059
    
    
    
    889,924
    
    
    
    871,655Other expenses
    
    
    2,733,221
    
    
    
    3,012,405
    
    
    
    3,042,171Total other expenses
    
    
    9,956,847
    
    
    
    10,332,093
    
    
    
    10,746,049Income before income taxes
    
    
    3,896,028
    
    
    
    2,312,775
    
    
    
    3,712,927Federal and state income tax expense
    
    
    1,084,945
    
    
    
    587,539
    
    
    
    1,438,061Net income
    
    $
    2,811,083
    
    
    $
    1,725,236
    
    
    $
    2,274,866Basic and diluted earnings per share of
common stock
    
    $
    1.68
    
    
    $
    1.04
    
    
    $
    1.38
 The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-3




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##### 



Glen Burnie Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31,
    
        **2002**
    
    
    2001
    
    
    2000Net income
    
    $
    2,811,083
    
    
    $
    1,725,236
    
    
    $
    2,274,866Other comprehensive income (loss), net of taxUnrealized holding gains (losses) arising during the
period (net of deferred taxes (benefits) 2002 $1,081,095;
2001 ($98,834); 2000 $182,437)
    
    
    1,718,218
    
    
    
    (157,081
    )
    
    
    290,199Reclassification adjustment for (gains) losses included in net
income (net of deferred taxes (benefits) 2002 $17,182;
2001 $99,907; 2000 ($10,128))
    
    
    (27,307
    )
    
    
    (158,786
    )
    
    
    16,110Total other comprehensive income (loss)
    
    
    1,690,911
    
    
    
    (315,867
    )
    
    
    306,309Comprehensive income
    
    $
    4,501,994
    
    
    $
    1,409,369
    
    
    $
    2,581,175
 The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-4




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##### 



Glen Burnie Bancorp and Subsidiaries Consolidated Statements of Changes in Stockholders Equity Years Ended December 31, 2002, 2001, and 2000 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Stockholders'Shares
    
    
    Par Value
    
    
    Surplus
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalances, December 31, 1999
    
    
    1,093,496
    
    
    $
    1,093,496
    
    
    $
    10,149,247
    
    
    $
    4,013,171
    
    
    $
    (153,465
    )
    
    $
    15,102,449Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274,866
    
    
    
    
    
    
    
    2,274,866Shares issued under stockholder
stock purchase plan
    
    
    2,659
    
    
    
    2,659
    
    
    
    47,330
    
    
    
    
    
    
    
    
    
    
    
    49,989Cash dividends, $.449 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (743,732
    )
    
    
    
    
    
    
    (743,732
    )Dividends reinvested under dividend
reinvestment plan
    
    
    13,894
    
    
    
    13,894
    
    
    
    187,861
    
    
    
    
    
    
    
    
    
    
    
    201,755Expired stock options
    
    
    
    
    
    
    
    
    
    
    (10,889
    )
    
    
    
    
    
    
    
    
    
    
    (10,889
    )Other comprehensive income, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306,309
    
    
    
    306,309Balances, December 31, 2000
    
    
    1,110,049
    
    
    
    1,110,049
    
    
    
    10,373,549
    
    
    
    5,544,305
    
    
    
    152,844
    
    
    
    17,180,747Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,725,236
    
    
    
    
    
    
    
    1,725,236Shares repurchased and retired
    
    
    (10,000
    )
    
    
    (10,000
    )
    
    
    (138,750
    )
    
    
    
    
    
    
    
    
    
    
    (148,750
    )Cash dividends, $.45 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (747,807
    )
    
    
    
    
    
    
    (747,807
    )Dividends reinvested under dividend
reinvestment plan
    
    
    12,314
    
    
    
    12,314
    
    
    
    155,712
    
    
    
    
    
    
    
    
    
    
    
    168,026Stock split effected in form of 50%
stock dividend
    
    
    551,197
    
    
    
    551,197
    
    
    
    
    
    
    
    (551,197
    )
    
    
    
    
    
    
    Other comprehensive loss, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (315,867
    )
    
    
    (315,867
    )Balances, December 31, 2001
    
    
    1,663,560
    
    
    
    1,663,560
    
    
    
    10,390,511
    
    
    
    5,970,537
    
    
    
    (163,023
    )
    
    
    17,861,585Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,811,083
    
    
    
    
    
    
    
    2,811,083Cash dividends, $.50 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (834,873
    )
    
    
    
    
    
    
    (834,873
    )Dividends reinvested under dividend
reinvestment plan
    
    
    10,548
    
    
    
    10,548
    
    
    
    169,522
    
    
    
    
    
    
    
    
    
    
    
    180,070Shares issued under employee stock
purchase plan
    
    
    3,065
    
    
    
    3,065
    
    
    
    39,140
    
    
    
    
    
    
    
    
    
    
    
    42,205Vested stock options
    
    
    
    
    
    
    
    
    
    
    38,405
    
    
    
    
    
    
    
    
    
    
    
    38,405Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,690,911
    
    
    
    1,690,911Balances, December 31, 2002
    
    
    1,677,173
    
    
    $
    1,677,173
    
    
    $
    10,637,578
    
    
    $
    7,946,747
    
    
    $
    1,527,888
    
    
    $
    21,789,386
 The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-5




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##### 



Glen Burnie Bancorp and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31,
    
    2002
    
    2001
    
    2000Cash flows from operating activities:Net income
    
    $
    2,811,083
    
    
    $
    1,725,236
    
    
    $
    2,274,866Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation, amortization, and accretion
    
    
    1,241,007
    
    
    
    805,988
    
    
    
    744,678Compensation expense (benefit) from vested stock options, net
    
    
    38,405
    
    
    
    
    
    
    
    (10,889
    )Provision for credit losses
    
    
    
    
    
    
    (150,000
    )
    
    
    Losses on other real estate owned
    
    
    6,789
    
    
    
    63,986
    
    
    
    27,679Deferred income taxes (benefits), net
    
    
    278,768
    
    
    
    (101,691
    )
    
    
    (73,725
    )Losses (gains) on disposals of assets, net
    
    
    14,429
    
    
    
    (259,135
    )
    
    
    (255,803
    )Income on investment in life insurance
    
    
    (24,964
    )
    
    
    
    
    
    
    Changes in assets and liabilities:(Increase) decrease in accrued interest
receivable
    
    
    (20,493
    )
    
    
    154,201
    
    
    
    (402,152
    )(Increase) decrease in other assets
    
    
    (209,838
    )
    
    
    (59,006
    )
    
    
    2,020,004(Decrease) increase in accrued interest
payable
    
    
    (43,776
    )
    
    
    (35,460
    )
    
    
    209,597(Decrease) increase in other liabilities
    
    
    (840,072
    )
    
    
    (167,514
    )
    
    
    834,018Net cash provided by operating activities
    
    
    3,251,338
    
    
    
    1,976,605
    
    
    
    5,368,273Cash flows from investing activities:Maturities of held to maturity mortgage-backed securities
    
    
    3,179,978
    
    
    
    3,303,672
    
    
    
    1,521,930Maturities of other held to maturity investment securities
    
    
    6,134,713
    
    
    
    10,961,629
    
    
    
    500,000Maturities of available for sale mortgage-backed securities
    
    
    13,505,963
    
    
    
    2,271,148
    
    
    
    1,621,643Maturities of other available for sale investment securities
    
    
    4,098,363
    
    
    
    5,237,023
    
    
    
    500,000Sales of debt securities
    
    
    2,053,968
    
    
    
    7,067,274
    
    
    
    4,540,643Purchases of held to maturity mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    (2,990,625
    )Purchases of held to maturity investment securities
    
    
    
    
    
    
    
    
    
    
    (1,652,173
    )Purchases of available for sale mortgage-backed securities
    
    
    (30,417,008
    )
    
    
    (25,158,011
    )
    
    
    Purchases of other available for sale investment securities
    
    
    (16,085,767
    )
    
    
    (23,434,008
    )
    
    
    (12,836,928
    )Purchase of FHLB stock
    
    
    (50,900
    )
    
    
    
    
    
    
    Purchase of certificate of deposit
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Purchase of common stock in the Glen Burnie Statutory Trust I
    
    
    
    
    
    
    
    
    
    
    (155,000
    )Purchase of life insurance contracts
    
    
    (5,000,000
    )
    
    
    
    
    
    
    Decrease (increase) in loans, net
    
    
    6,282,506
    
    
    
    (2,045,521
    )
    
    
    (11,267,171
    )Proceeds from sales of other real estate
    
    
    
    
    
    
    
    
    
    
    537,000Purchases of premises and equipment
    
    
    (904,507
    )
    
    
    (432,658
    )
    
    
    (599,373
    )Net cash used by investing activities
    
    
    (17,202,691
    )
    
    
    (22,229,452
    )
    
    
    (20,380,054
    )Cash flows from financing activities:Increase in noninterest-bearing deposits, NOW accounts, money
market accounts, and savings accounts, net
    
    
    9,587,004
    
    
    
    10,990,615
    
    
    
    7,608,893Increase in time deposits, net
    
    
    2,525,885
    
    
    
    12,347,766
    
    
    
    4,269,449(Decrease) increase in short-term borrowings
    
    
    (45,334
    )
    
    
    394,430
    
    
    
    (1,976,958
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    7,000,000Repayments of long-term borrowings
    
    
    (23,302
    )
    
    
    (21,732
    )
    
    
    (3,477
    )Cash dividends paid
    
    
    (793,915
    )
    
    
    (765,819
    )
    
    
    (667,053
    )Common stock dividends reinvested
    
    
    180,070
    
    
    
    168,026
    
    
    
    201,755Repurchase and retirement of common stock
    
    
    
    
    
    
    (148,750
    )
    
    
    Issuance of guaranteed preferred beneficial interests in Glen
Burnie Bancorp junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    5,155,000Issuance of common stock
    
    
    42,205
    
    
    
    
    
    
    
    49,989Net cash provided by financing activities
    
    
    11,472,613
    
    
    
    22,964,536
    
    
    
    21,637,598(Decrease) increase in cash and cash equivalents
    
    
    (2,478,740
    )
    
    
    2,711,689
    
    
    
    6,625,817Cash and cash equivalents, beginning of year
    
    
    18,220,828
    
    
    
    15,509,139
    
    
    
    8,883,322Cash and cash equivalents, end of year
    
    $
    15,742,088
    
    
    $
    18,220,828
    
    
    $
    15,509,139 The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-6




---



##### 



Glen Burnie Bancorp and Subsidiaries Consolidated Statements of Cash Flows
(Continued) Years Ended December 31,
    
        **2002**
    
    
    2001
    
    
    2000Supplementary Cash Flow Information:Interest paid
    
    $
    5,245,908
    
    
    $
    6,568,734
    
    
    $
    5,692,020Income taxes paid
    
    
    712,844
    
    
    
    693,000
    
    
    
    205,000Total increase (decrease) in unrealized appreciation
(depreciation) on securities available for sale
    
    
    2,754,826
    
    
    
    (514,610
    )
    
    
    499,038
 The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-7




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies  The Bank of Glen Burnie (the Bank) provides financial services to
individuals and corporate customers
located in Anne Arundel County and surrounding areas of Central Maryland,
and is subject to competition
from other financial institutions. The Bank is also subject to the
regulations of certain Federal and State of
Maryland (the State) agencies and undergoes periodic examinations by
those regulatory authorities. The
accounting policies of the Bank conform to generally accepted accounting
principles and to general
practices within the banking industry.  Significant accounting policies not disclosed elsewhere in the
consolidated financial statements are as
follows:  Principles of Consolidation:  The consolidated financial statements include the accounts of Glen Burnie
Bancorp (the Company) and
its subsidiaries, The Bank of Glen Burnie and GBB Properties, Inc., a
company engaged in the acquisition
and disposition of other real estate. Intercompany balances and
transactions have been eliminated. The
Parent Only financial statements (see Note 22) of the Company account for
the subsidiaries using the
equity method of accounting.  Use of Estimates:  The preparation of the consolidated financial statements in conformity
with accounting principles generally
accepted within the United States of America requires management to make
estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting
periods. Actual results could differ from those estimates.  Securities Held to Maturity:  Bonds, notes, and debentures for which the Bank has the positive intent
and ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that are recognized
in interest income using the
effective interest rate method over the period to maturity. Securities
transferred into held to maturity from
the available for sale portfolio are recorded at fair value at time of
transfer with unrealized gains or losses
reflected in equity and amortized over the remaining life of the security.  Securities Available for Sale:  Marketable debt securities not classified as held to maturity are
classified as available for sale. Securities
available for sale may be sold in response to changes in interest rates,
loan demand, changes in
prepayment risk, and other factors. Changes in unrealized appreciation
(depreciation) on securities
available for sale are reported in other comprehensive income. Realized
gains (losses) on securities
available for sale are included in other income (expense) and, when
applicable, are reported as a
reclassification adjustment, net of tax, in other comprehensive income.
The gains and losses on securities
sold are determined by the specific identification method. Premiums and
discounts are recognized in
interest income using the effective interest rate method over the period
to maturity. Additionally, declines
in the fair value of individual investment securities below their cost
that are other than temporary are
reflected as realized losses in the consolidated statements of income.  Other Securities:  Federal Home Loan Bank (FHLB) stock is an equity interest in the FHLB,
which does not have a
readily determinable fair value for purposes of Statement of Financial
Accounting Standards (SFAS) No
115, Accounting for Certain Investments in Debt and Equity Securities,
because its ownership is restricted
and it lacks a market. FHLB stock can be sold back only at its par value
of $100 per share and only to
the FHLB or another member institution. F-8




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 90
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 accounting
principles generally accepted in the United States of America 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.  Reserve for Unfunded Commitments  The reserve for unfunded commitments is established through a provision
for unfunded commitments
charged to other expenses. The reserve is calculated by utilizing the
same methodology and factors as the
allowance for credit losses. The reserve, based on evaluations of the
collectibiltiy of loans and prior loan
loss experience, is an amount that management believes will be adequate to
absorb possible losses on
unfunded commitments (off-balance sheet financial instruments) that may
become uncollectible in the
future.  Other Real Estate Owned (OREO):  OREO comprises properties acquired in partial or total satisfaction of
problem loans. The properties are
recorded at the lower of cost or fair value (appraised value) at the date
acquired. Losses arising at the
time of acquisition of such properties are charged against the allowance
for credit losses. Subsequent
write-downs that may be required and expenses of operation are included in
other income or expenses.
Gains and losses realized from the sale of OREO are included in other
income or expenses. No loans
were converted to OREO in 2002, 2001, or 2000. The Bank financed no sales
of OREO for 2002, 2001,
or 2000. Sales of OREO financed by GBB Properties, Inc. totaled $145,000
for 2000. F-9




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (continued)  Bank Premises and Equipment:  Bank premises and equipment are stated at cost less accumulated
depreciation. The provision for
depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
Leasehold improvements are depreciated over the lesser of the terms of the
leases or their estimated useful
lives. Expenditures for improvements that extend the life of an asset are
capitalized and depreciated over
the assets remaining useful life. Gains or losses realized on the
disposition of premises and equipment are
reflected in the consolidated statements of income. Expenditures for
repairs and maintenance are charged
to other expenses as incurred. Computer software is recorded at cost and
amortized over three to five
years.  Intangible Assets:  A core deposit intangible asset of $544,652, relating to a branch
acquisition, is being amortized on the
straight-line method over 10 years. Accumulated amortization totaled
$394,872, $340,407, and $285,942
at December 31, 2002, 2001, and 2000, respectively. Amortization expense
totaled $54,465for each of
the years ended December 2002, 2001, and 2000.  Long-Lived Assets:  The carrying value of long-lived assets and certain identifiable
intangibles, including goodwill, is reviewed
by the Bank for impairment whenever events or changes in circumstances
indicate that the carrying amount
of an asset may not be recoverable, as prescribed in SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and later
superceded by SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Asset. As of
December 31, 2001, no long-lived
assets existed in which management considered impaired; however, in 2002
and 2000 certain long-lived
assets were deemed to be impaired (See Note 5).  Income Taxes:  The provision for Federal and state income taxes is based upon the results
of operations, adjusted for tax-exempt income. Deferred income taxes are provided by applying enacted
statutory tax rates to temporary
differences between financial and taxable bases.  Temporary differences which give rise to deferred tax benefits relate
principally to the allowance for credit
losses, deferred compensation and benefit plans, other real estate owned,
tax credit carryovers, net
unrealized depreciation on investment securities available for sale, and
reserve for unfunded commitments.  Temporary differences which give rise to deferred tax liabilities relate
principally to accumulated
depreciation, allowance for credit losses, securities discount accretion,
and the net unrealized appreciation
on investment securities available for sale.  Credit Risk:  The Bank has deposits in other financial institutions in excess of amounts
insured by the Federal Deposit
Insurance Corporation (FDIC). At December 31, 2002, the Bank had
deposits and Federal funds sold
with three separate financial institutions of approximately $475,000,
$2,617,000, and $7,415,000.  Cash and Cash Equivalents:  The Bank has included cash and due from banks, interest-bearing deposits
in other financial institutions,
and Federal funds sold as cash and cash equivalents for the purpose of
reporting cash flows. F-10




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (continued)  Accounting for Stock Options:  The Company applies the intrinsic value-based method of accounting
prescribed by the Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees and related
interpretations in accounting for its employee stock options. As such,
compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise
price. Statement of Financial Accounting Standards (SFAS) No. 123
Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a
fair value-based method of
accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company
has elected to continue to apply the intrinsic value-based method of
accounting prescribed above, and has
adopted the disclosure-only provisions of SFAS No.123.  Earnings per share:  Basic earnings per common share are determined by dividing net income by
the weighted average number
of shares of common stock outstanding. Diluted earnings per share are
calculated including the average
dilutive common stock equivalents outstanding during the period. Dilutive
common equivalent shares
consist of stock options, calculated using the treasury stock method.  Financial Statement Presentation:  Certain amounts in the prior years financial statements have been
reclassified to conform to the current
years presentation. Note 2. Restrictions on Cash and Due from Banks  The Federal Reserve requires the Bank to maintain noninterest-bearing cash
reserves against certain
categories of average deposit liabilities. Such reserves averaged
approximately $4,196,000, $2,923,000,
and $3,039,000 during the years ended December 31, 2002, 2001, and 2000,
respectively. Note 3. Investment Securities Investment securities are summarized as follows: ****
        ****
        ****
        ****
        ****
        ****
        ****
        **Gross**
        ****
        ****
        **Gross**
        ****
        ****
        ********
        ****
        ****
        **Amortized**
        ****
        ****
        **Unrealized**
        ****
        ****
        **Unrealized**
        ****
        ****
        **Fair****December
          31, 2002**
        ****
        **Cost**
        ****
        ****
        **Gains**
        ****
        ****
        **Losses**
        ****
        ****
        **Value**Available
            for sale:U.S.
            Treasury
        
        $
        499,497
        
        
        $
        14,568
        
        
        $
        
        
        
        $
        514,065U.S.
            Government agency
        
        
        8,084,257
        
        
        
        469,446
        
        
        
        140,000
        
        
        
        8,413,703State
            and municipal
        
        
        31,216,663
        
        
        
        812,011
        
        
        
        86,496
        
        
        
        31,942,178Corporate
            trust preferred
        
        
        5,056,735
        
        
        
        471,397
        
        
        
        
        
        
        
        5,528,132Mortgage-backed
        
        
        37,311,301
        
        
        
        948,303
        
        
        
        
        
        
        
        38,259,604$
        82,168,453
        
        
        $
        2,715,725
        
        
        $
        226,496
        
        
        $
        84,657,682Held
            to maturity:U.S.
            Government agency
        
        $
        1,499,692
        
        
        $
        106,321
        
        
        $
        
        
        
        $
        1,606,013State
            and municipal
        
        
        682,688
        
        
        
        47,014
        
        
        
        
        
        
        
        729,702Mortgage-backed
        
        
        5,019,989
        
        
        
        259,998
        
        
        
        
        
        
        
        5,279,987$
        7,202,369
        
        
        $
        413,333
        
        
        $
        
        
        
        $
        7,615,702
 F-11




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Investment Securities
    (continued) Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2001
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:U.S. Treasury
    
    $
    498,684
    
    
    $
    25,066
    
    
    $
    
    
    
    $
    523,750U.S. Government agency
    
    
    7,504,660
    
    
    
    13,859
    
    
    
    9,688
    
    
    
    7,508,831State and municipal
    
    
    19,976,500
    
    
    
    137,505
    
    
    
    313,434
    
    
    
    19,800,571Corporate trust preferred
    
    
    4,819,930
    
    
    
    126,842
    
    
    
    9,958
    
    
    
    4,936,814Mortgage-backed
    
    
    23,013,820
    
    
    
    33,127
    
    
    
    268,915
    
    
    
    22,778,032$
    55,813,594
    
    
    $
    336,399
    
    
    $
    601,995
    
    
    $
    55,547,998Held to maturity:U.S. Treasury
    
    $
    749,498
    
    
    $
    21,830
    
    
    $
    
    
    
    $
    771,328U.S. Government agency
    
    
    6,881,993
    
    
    
    161,650
    
    
    
    14,375
    
    
    
    7,029,268State and municipal
    
    
    682,560
    
    
    
    19,197
    
    
    
    
    
    
    
    701,757Mortgage-backed
    
    
    8,202,872
    
    
    
    183,604
    
    
    
    7,378
    
    
    
    8,379,098$
    16,516,923
    
    
    $
    386,281
    
    
    $
    21,753
    
    
    $
    16,881,451
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2000
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:U.S. Treasury
    
    $
    497,871
    
    
    $
    9,638
    
    
    $
    
    
    
    $
    507,509U.S. Government agency
    
    
    6,975,277
    
    
    
    45,107
    
    
    
    38,008
    
    
    
    6,982,376State and municipal
    
    
    8,038,349
    
    
    
    254,201
    
    
    
    
    
    
    
    8,292,550Corporate trust preferred
    
    
    2,821,428
    
    
    
    
    
    
    
    1,481
    
    
    
    2,819,947Mortgage-backed
    
    
    2,727,023
    
    
    
    
    
    
    
    20,444
    
    
    
    2,706,579$
    21,059,948
    
    
    $
    308,946
    
    
    $
    59,933
    
    
    $
    21,308,961Held to maturity:U.S. Treasury
    
    $
    1,248,529
    
    
    $
    14,446
    
    
    $
    620
    
    
    $
    1,262,355U.S. Government agency
    
    
    17,834,666
    
    
    
    83,636
    
    
    
    311,617
    
    
    
    17,606,685State and municipal
    
    
    682,431
    
    
    
    27,437
    
    
    
    
    
    
    
    709,868Mortgage-backed
    
    
    11,520,311
    
    
    
    51,804
    
    
    
    131,902
    
    
    
    11,440,213$
    31,285,937
    
    
    $
    177,323
    
    
    $
    444,139
    
    
    $
    31,019,121
 F-12




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Investment Securities(continued)  Contractual maturities of investment securities at December 31, 2002,
2001, and 2000 are shown below.
Actual maturities may differ from contractual maturities because debtors
may have the right to call or
prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities have no
stated maturity and primarily reflect investments in various Pass-through
and Participation Certificates
issued by the Federal National Mortgage Association and the Government
National Mortgage Association.
Repayment of mortgage-backed securities is affected by the contractual
repayment terms of the underlying
mortgages collateralizing these obligations and the current level of
interest rates. ****
        ****
        ***Available
          for Sale***
        ******
        ******
        ***Held
          to Maturity*******
        ****
        **Amortized**
        ****
        ****
        **Fair**
        ****
        ****
        **Amortized**
        ****
        ****
        **Fair****December
          31, 2002**
        ****
        **Cost**
        ****
        ****
        **Value**
        ****
        ****
        **Cost**
        ****
        ****
        **Value**Due
            within one year
        
        $
        579,445
        
        
        $
        595,838
        
        
        $
        
        
        
        $
        Due
            over one to five years
        
        
        7,370,459
        
        
        
        7,707,811
        
        
        
        1,499,692
        
        
        
        1,606,013Due
            over five to ten years
        
        
        5,762,134
        
        
        
        6,085,881
        
        
        
        
        
        
        
        Due
            over ten years
        
        
        31,145,134
        
        
        
        32,008,548
        
        
        
        682,688
        
        
        
        729,702Mortgage-backed,
            due in monthly installments
        
        
        37,311,281
        
        
        
        38,259,604
        
        
        
        5,019,989
        
        
        
        5,279,987$
        82,168,453
        
        
        $
        84,657,682
        
        
        $
        7,202,369
        
        
        $
        7,615,702
 *Available
          for Sale*
        **
        **
        *Held
          to Maturity*Amortized
        
        
        Fair
        
        
        Amortized
        
        
        FairDecember 31, 2001
        
        Cost
        
        
        Value
        
        
        Cost
        
        
        ValueDue
            within one year
        
        $
        
        
        
        $
        
        
        
        $
        1,669,481
        
        
        $
        1,715,190Due
            over one to five years
        
        
        7,277,130
        
        
        
        7,274,011
        
        
        
        1,000,000
        
        
        
        1,066,579Due
            over five to ten years
        
        
        4,195,187
        
        
        
        4,126,922
        
        
        
        499,625
        
        
        
        534,375Due
            over ten years
        
        
        21,327,457
        
        
        
        21,369,033
        
        
        
        5,144,945
        
        
        
        5,186,209Mortgage-backed,
            due in monthly installments
        
        
        23,013,820
        
        
        
        22,778,032
        
        
        
        8,202,872
        
        
        
        8,379,098$
        55,813,594
        
        
        $
        55,547,998
        
        
        $
        16,516,923
        
        
        $
        16,881,451
 *Available
          for Sale*
        **
        **
        *Held
          to Maturity*Amortized
        
        
        Fair
        
        
        Amortized
        
        
        FairDecember 31, 2000
        
        Cost
        
        
        Value
        
        
        Cost
        
        
        ValueDue
            within one year
        
        $
        
        
        
        $
        
        
        
        $
        499,841
        
        
        $
        499,478Due
            over one to five years
        
        
        6,973,148
        
        
        
        6,976,182
        
        
        
        3,634,136
        
        
        
        3,684,832Due
            over five to ten years
        
        
        679,801
        
        
        
        696,287
        
        
        
        7,490,924
        
        
        
        7,449,653Due
            over ten years
        
        
        10,679,976
        
        
        
        10,929,913
        
        
        
        8,140,725
        
        
        
        7,944,945Mortgage-backed,
            due in monthly installments
        
        
        2,727,023
        
        
        
        2,706,579
        
        
        
        11,520,311
        
        
        
        11,440,213$
        21,059,948
        
        
        $
        21,308,961
        
        
        $
        31,285,937
        
        
        $
        31,019,121
 F-13




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Investment Securities(continued)  Proceeds from sales of securities prior to maturity totaled $2,053,968, $7,067,274, and $4,540,643 for the
years ended December 31, 2002, 2001, and 2000, respectively. The Bank realized gains of $52,943and
losses of $63on those sales for 2002. The Bank realized gains of $276,392 and losses of $3,389 on those
sales for 2001. The Bank realized losses of $26,237 on those sales for 2000. Realized gains and losses
were calculated based on the amortized cost of the securities at the date of trade. Income tax benefit
(expense) relating to net gains/losses on sales of investment securities totaled ($20,422), ($105,434), and
$10,133 for the years ended December 31, 2002, 2001, and 2000, respectively.  Securities with amortized costs of approximately $999,000, $1,248,000, and $1,247,000 were pledged as
collateral for short-term borrowings at December 31, 2002, 2001, and 2000,
respectively.  The Bank has no derivative financial instruments required to be disclosed under SFAS No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments. Note 4. Loans  Major categories of loans are as follows: **2002**
    
    
    2001
    
    
    2000Mortgage:Residential
    
    $
    49,572,269
    
    
    $
    44,293,130
    
    
        $    36,187,294Commercial
    
    
    31,584,086
    
    
    
    36,920,258
    
    
    
    40,168,603Construction and land development
    
    
    2,337,489
    
    
    
    2,355,395
    
    
    
    5,256,921Lease financing
    
    
    
    
    
    
    
    
    
    
    70,675Demand and time
    
    
    5,374,283
    
    
    
    5,082,790
    
    
    
    3,655,180Installment
    
    
    72,780,383
    
    
    
    79,642,436
    
    
    
    81,124,897161,648,510
    
    
    
    168,294,009
    
    
    
    166,463,570Unearned income on loans
    
    
    (847,064
    )
    
    
    (786,302
    )
    
    
    (705,024
    )160,801,446
    
    
    
    167,507,707
    
    
    
    165,758,546Allowance for credit losses
    
    
    (2,514,700
    )
    
    
    (2,938,455
    )
    
    
    (3,384,815
    )$
    158,286,746
    
    
    $
    164,569,252
    
    
    $
    162,373,731
  The Bank has an automotive indirect lending program where vehicle
collateralized loans made by dealers
to consumers are acquired by the Bank. The Banks installment loan
portfolio included approximately
$52,795,000, $59,308,000, and $61,725,000 of such loans at December 31,
2002, 2001, and 2000,
respectively.  The Bank makes loans to customers located primarily in Anne Arundel County
and surrounding areas of
Central Maryland. Although the loan portfolio is diversified, its
performance will be influenced by the
economy of the region.  Executive officers, directors, and their affiliated interests enter into
loan transactions with the Bank in the
ordinary course of business. These loans are made on the same terms,
including interest rates and
collateral, as those prevailing at the time for comparable loans with
unrelated borrowers. They do not
involve more than normal risk of collectibility or present other
unfavorable terms. At December 31, 2002,
2001, and 2000, the amounts of such loans outstanding totaled $1,244,758,
$1,194,860, and $1,319,700,
respectively. During 2002, loan additions and repayments totaled $207,500
and $157,602, respectively. F-14




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4. Loans(continued)  The allowance for credit losses is as follows: **2002**
    
    
    2001
    
    
    2000Balance, beginning of year
    
    $
    2,938,455
    
    
    $
    3,384,815
    
    
    $
    2,921,631Provision for credit losses
    
    
    
    
    
    
    (150,000
    )
    
    
    Recoveries
    
    
    306,332
    
    
    
    390,792
    
    
    
    1,223,618Loans charged off
    
    
    (730,087
    )
    
    
    (687,152
    )
    
    
    (760,434
    )Balance, end of year
    
    $
    2,514,700
    
    
    $
    2,938,455
    
    
    $
    3,384,815
  Loans on which the accrual of interest has been discontinued totaled $571,057,
$601,120, and $370,053 at
December 31, 2002, 2001, and 2000, respectively. Interest that would have been
accrued under the terms
of these loans totaled $9,188, $14,877, and $48,484 for the years ended
December 31, 2002, 2001, and
2000, respectively.  Information regarding loans classified by the Bank as impaired is summarized as
follows: **2002**
    
    
    2001
    
    
    2000Loans classified as impaired
    
    $
    355,489
    
    
    $
    443,874
    
    
    $
    207,579Allowance for credit losses on
impaired loans
    
    
    109,310
    
    
    
    117,271
    
    
    
    77,633Average balance of impaired loans
    
    
    175,609
    
    
    
    211,294
    
    
    
    63,105Following is a summary of cash receipts on
impaired loans and how they were applied:Cash receipts applied to reduce principal balance
    
    $
    19,381
    
    
    $
    71,057
    
    
    $
    6,389Cash receipts recognized as interest income
    
    
    8,454
    
    
    
    10,878
    
    
    
    581Total cash receipts
    
    $
    27,835
    
    
    $
    81,935
    
    
    $
    6,970
  At December 31, 2002, the recorded investment in new troubled debt
restructurings totaled $40,833. The
average recorded investment in troubled debt restructurings totaled
$41,964for the year ended December
31, 2002. The allowance for credit losses relating to troubled debt
restructurings totaled $8,166at
December 31, 2002. The Bank recognized $2,304in interest income on
troubled debt restructurings for
cash payments received in 2002. All previous restructurings appear to be
performing under the terms of
the modified agreements.  According to management, no troubled debt restructurings transpired in
2001.  At December 31, 2000, the recorded investment in troubled debt
restructurings totaled $369,594. The
average recorded investment in troubled debt restructurings totaled
$383,642 for the year ended December
31, 2000. The allowance for credit losses relating to troubled debt
restructurings totaled $66,479 at
December 31, 2000. The Bank recognized $93,653 in interest income on
troubled debt restructurings for
cash payments received in 2000.  The Bank has no commitments to loan additional funds to the borrowers of
restructured, impaired, or non-accrual loans. F-15




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5. Premises and Equipment  A summary of premises and equipment is as follows: Usefullives
    
    
        **2002**
    
    
    2001
    
    
    2000Land
    
    
    
    
    
    $
    684,977
    
    
    $
    684,977
    
    
    $
    684,977Buildings
    
    5-50 years
    
    
    4,166,210
    
    
    
    4,157,641
    
    
    
    4,112,520Equipment and fixtures
    
    5-30 years
    
    
    4,682,284
    
    
    
    4,768,901
    
    
    
    4,479,403Construction in progress
    
    
    
    
    
    
    622,587
    
    
    
    17,954
    
    
    
    246,46110,156,058
    
    
    
    9,629,473
    
    
    
    9,523,361Accumulated depreciation
    
    
    
    
    
    
    (6,012,629
    )
    
    
    (5,742,842
    )
    
    
    (5,254,958
    )$
    4,143,429
    
    
    $
    3,886,631
    
    
    $
    4,268,403
  Construction in progress relates primarily to the opening of the new Severna
Park branch in January 2003
and certain computer hardware and software upgrades in the main office.  Depreciation expense totaled $508,301,$573,674, and $551,784 for the years
ended December 31, 2002,
2001, and 2000, respectively. Amortization of software and intangible assets
totaled $190,493,$192,670,
and $197,286 for the years ended December 31, 2002, 2001, and 2000,
respectively.  The Bank leases the South Crain Highway and new Severna Park branches. Minimum
lease obligations
under the South Crain Highway branch are $71,800 per year through September
2004, adjusted annually
by the CPI. Minimum lease obligations under the Severna Park branch are
$30,000 per year through
September 2007. The Bank is also required to pay all maintenance costs under
all these leasing
arrangements. Rent expense totaled $117,929, $110,612, and $122,060 for the
years ended December 31,
2002, 2001, and 2000, respectively.  In the fourth quarter of 2002, the Board of Directors of the Company decided to
close and relocate the
existing Severna Park branch. At December 31, 2002, management determined that
leasehold
improvements made to this Severna Park branch, with a book value of $64,648,
were impaired as
prescribed by SFAS No. 144, and had no net realizable value, and recorded an
asset impairment loss from
continuing operations for this amount. The Bank also accrued approximately
$77,000, as prescribed in
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities
(See Note 21), relating to
the estimated future lease and maintenance obligations. All expenses were
included in other operating
expenses for 2002 (see Note 13).  In December 2000, the Board of Directors of the Company decided to close the
Ferndale Shopping Center
branch. At December 31, 2000, management determined that leasehold
improvements made to the
Ferndale branch, with a book value of $184,535, were impaired as prescribed by
SFAS No. 144 and had
no net realizable value, and recorded an asset impairment loss from continuing
operations for this amount.
The Bank also accrued approximately $96,000 relating to the estimated cost of
closing the Ferndale
branch, which were included in other operating expenses for 2000 (see Note 13). F-16




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6. Short-term borrowings  Short-term borrowings are as follows: **2002**
    
    
    2001
    
    
    2000Notes payable  U.S. Treasury
    
    $
    837,074
    
    
    $
    882,408
    
    
    $
    487,978
  Notes payable to the U.S. Treasury represents Federal treasury tax and loan
deposits accepted by the Bank
from its customers to be remitted on demand to the Federal Reserve Bank.
The Bank pays interest on
these balances at a slight discount to the Federal funds rate. The note
payable is secured by investment
securities with an amortized cost of approximately $999,000, $998,000, and
$997,000 at
December 31, 2002, 2001, and 2000, respectively.  The Bank owned 7,032 shares of common stock of the FHLB at December 31,
2002. The Bank is
required to maintain an investment of .3% of total assets, adjusted
annually. This investment was a
condition for obtaining a variable rate credit facility with the FHLB.
The credit available under this
facility is determined at 12% of the Banks total assets, or approximately
$33,400,000 at December 31,
2002. Long-term advances totaled $7,000,000 under this credit arrangement
at December 31, 2002 (see
Note 7). This 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 $0,
$250,000, and 250,000 at December
31, 2002, 2001, and 2000, respectively. Average short-term borrowings
under this facility approximated
$233,000and $640,000 during 2002 and 2000, respectively, with no
short-term borrowings in 2001.  The Bank also has available $5,000,000 in a short-term credit facility,
secured by Federal funds sold, from
another bank for short term liquidity needs, if necessary. No outstanding
borrowings existed under this
credit arrangement at December 31, 2002, 2001, and 2000. Note 7. Long-term Borrowings  Long-term borrowings are as follows: **2002**
    
    
    2001
    
    
    2000Federal Home Loan Bank of Atlanta,
convertible advance
    
    $
    7,000,000
    
    
    $
    7,000,000
    
    
    $
    7,000,000Mortgage payable-individual, interest at 7%,
payments of $3,483, including principal
and interest, due monthly through
October 2010, secured by real estate
    
    
    251,489
    
    
    
    274,791
    
    
    
    296,523$
    7,251,489
    
    
    $
    7,274,791
    
    
    $
    7,296,523
  The Federal Home Loan Bank of Atlanta convertible advance has a final maturity
of September 2010 and
an interest rate of 5.84%, payable quarterly, which is fixed through September
2003. At that time, the
Federal Home Loan Bank of Atlanta has the option of converting the rate to a
three-month LIBOR;
however, if converted, the borrowing can be repaid without penalty. The
proceeds of the convertible
advance were used to purchase higher yielding investment securities. F-17




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7. Long-term Borrowings (continued)  At December 31, 2002, the scheduled maturities of long-term borrowings are approximately as follows: **2002**2003
    
    $
    25,0002004
    
    
    27,0002005
    
    
    29,0002006
    
    
    31,0002007
    
    
    33,0002008 and thereafter
    
    
    7,106,000$
    7,251,000
 Note 8. Deposits  Major classifications of interest-bearing deposits are as follows: **2002**
    
    
    2001
    
    
    2000NOW and SuperNOW
    
    $
    24,071,173
    
    
    $
    22,395,703
    
    
    $
    19,644,885Money Market
    
    
    19,889,727
    
    
    
    20,626,249
    
    
    
    16,766,390Savings
    
    
    47,616,167
    
    
    
    42,344,960
    
    
    
    40,687,639Certificates of Deposit, $100,000 or more
    
    
    17,698,559
    
    
    
    17,635,466
    
    
    
    11,995,756Other time deposits
    
    
    73,082,004
    
    
    
    70,619,232
    
    
    
    63,911,176$
    182,357,630
    
    
    $
    173,621,610
    
    
    $
    153,005,846
  Interest expense on deposits is as follows: **2002**
    
    
    2001
    
    
    2000NOW and SuperNOW
    
    $
    64,644
    
    
    $
    136,590
    
    
    $
    217,558Money Market
    
    
    186,059
    
    
    
    356,798
    
    
    
    449,850Savings
    
    
    431,320
    
    
    
    613,088
    
    
    
    961,028Certificates of Deposit, $100,000 or more
    
    
    684,691
    
    
    
    750,434
    
    
    
    557,693Other time deposits
    
    
    2,846,112
    
    
    
    3,670,700
    
    
    
    3,376,299$
    4,212,826
    
    
    $
    5,527,610
    
    
    $
    5,562,428
  At December 31, 2002, the scheduled maturities of time deposits are approximately as follows: **2002**2003
    
    $
    52,744,0002004
    
    
    16,840,0002005
    
    
    5,625,0002006
    
    
    4,397,0002007
    
    
    9,007,0002008 and thereafter
    
    
    2,168,000$
    90,781,000
 F-18




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8. Deposits (continued)  Deposit balances of executive officers and directors and their affiliated interests totaled approximately
$1,058,000, $526,000, and $734,000 at December 31, 2002, 2001, and 2000, respectively.The Bank had no brokered deposits at December 31, 2002, 2001, and 2000. Note 9. Income Taxes  The components of income tax expense for the years ended December 31, 2002, 2001, and 2000
are as follows: **2002**
    
    
    2001
    
    
    2000Current:Federal
    $
    739,995
    
    
    $
    594,160
    
    
    $
    1,271,219State
    
    66,182
    
    
    
    95,070
    
    
    
    240,567Total current
    
    806,177
    
    
    
    689,230
    
    
    
    1,511,786Deferred income taxes (benefits):Federal
    
    229,215
    
    
    
    (70,871
    )
    
    
    51,660State
    
    49,553
    
    
    
    (30,820
    )
    
    
    (125,385
    )Total deferred
    
    278,768
    
    
    
    (101,691
    )
    
    
    (73,725
    )Income tax expense
    $
    1,084,945
    
    
    $
    587,539
    
    
    $
    1,438,061
  A reconciliation of income tax expense computed at the statutory rate of 34% to the actual income
tax expense for the years ended December 31, 2002, 2001, and 2000 is as follows: **2002**
    
    
    2001
    
    
    2000Income before income taxes
    $
    3,896,028
    
    
    $
    2,312,775
    
    
    $
    3,712,927Taxes computed at Federal income tax rate
    $
    1,324,650
    
    
    $
    786,344
    
    
    $
    1,262,395Federal excise tax on pension plan
termination and settlement
    
    
    
    
    
    
    
    
    
    238,636Increase (decrease) resulting from:Tax-exempt income
    
    (408,130
    )
    
    
    (248,386
    )
    
    
    (49,261
    )State income taxes, net of Federal income
tax benefit
    
    108,518
    
    
    
    42,405
    
    
    
    76,021AMT credits
    
    
    
    
    
    
    
    
    
    (87,421
    )Other
    
    59,907
    
    
    
    7,176
    
    
    
    (2,309
    )Income tax expense
    $
    1,084,945
    
    
    $
    587,539
    
    
    $
    1,438,061
 F-19




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Income Taxes(continued)



| |  | Sources of deferred income taxes and the tax effects of each for the years ended December 31, 2002,
2001, and 2000 are as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------

|                                                |                                       |   |         |         |      |   |         |          |   |   |          |         |  
|----------------------------------------------- | ------------------------------------- | - | ------- | ------- | ---- | - | ------- | -------- | - | - | -------- | ------- | -
|                                                |                                       |   | 2002    |         | 2001 |   | 2000   
|                                                |                                       |   |         |         |      |   |        
|Depreciation                                    |                                       | $ | (33,128 | )       |      | $ | (52,012 | )        |   | $ | (46,174  | )      
|Securities discount accretion                   |                                       |   | 5,379   |         |      |   | 8,109   |          |   |   | 7,066    |        
|Provision for credit losses                     |                                       |   | (3,549  | )       |      |   | 52,185  |          |   |   | (18,725  | )      
|Deferred compensation and pension benefit plans |                                       |   | 310,066 |         |      |   | (89,370 | )        |   |   | (646,776 | )      
|Charitable contributions                        |                                       |   |        |         |      |   |        |          |   |   | 29,372   |        
|Write-downs on other real estate owned          |                                       |   |        |         |      |   | (22,912 | )        |   |   | (9,462   | )      
|Alternative minimum tax credits                 |                                       |   |        |         |      |   | 60,239  |          |   |   | 610,974  |        
|Reserve for unfunded commitments                |                                       |   |        |         |      |   | (57,930 | )        |   |   |         |        
|                                                |                                       |   |         |         |      |   |         |          |   |   |          |        
|                                                | Deferred income tax expense (benefit) |   | $       | 278,768 |      |   | $       | (101,691 | ) |   | $        | (73,725 | )
|                                                |                                       |   |         |         |      |   |         |          |   |   |          |        



| |  | The components of the net deferred income tax benefits as of December 31, 2002, 2001, and 2000 are as
follows:
| |  | --------------------------------------------------------------------------------------------------------------

|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |         | 
|-------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------- | - | ------- | --------- | ---- | - | ------- | ------- |  |  | ------- | ------- | 
|                                 |                                                                         |                                                |   | 2002    |           | 2001 |   | 2000   
|                                 |                                                                         |                                                |   |         |           |      |   |        
|Deferred income tax benefits:    |                                                                         |                                                |   |         |           |      |   |         |         |  |  |        
|                                 | Allowance for credit losses                                             |                                                | $ |        |           |      | $ |        |         |  |  | 2,986   |        
|                                 | Deferred compensation and benefit plans                                 |                                                |   | 105,359 |           |      |   | 415,425 |         |  |  | 326,055 |        
|                                 | Other real estate owned                                                 |                                                |   | 32,375  |           |      |   | 32,375  |         |  |  | 9,462   |        
|                                 | Alternative minimum tax credits                                         |                                                |   |        |           |      |   |        |         |  |  | 60,239  |        
|                                 | Net unrealized depreciation on investment
securities available for sale |                                                |   |        |           |      |   | 102,573 |         |  |  |        |        
|                                 | Reserve for unfunded commitments                                        |                                                |   | 57,930  |           |      |   | 57,930  |         |  |  |        |        
|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |        
|                                 |                                                                         | Total deferred income tax benefits             |   |         | 195,664   |      |   |         | 608,303 |  |  |         | 398,742 | 
|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |        
|Deferred income tax liabilities: |                                                                         |                                                |   |         |           |      |   |         |         |  |  |        
|                                 | Accumulated depreciation                                                |                                                |   | 61,016  |           |      |   | 94,144  |         |  |  | 146,156 |        
|                                 | Allowance for credit losses                                             |                                                |   | 45,650  |           |      |   | 49,199  |         |  |  |        |        
|                                 | Securities discount accretion                                           |                                                |   | 42,972  |           |      |   | 37,593  |         |  |  | 29,483  |        
|                                 | Net unrealized appreciation on investment
securities available for sale |                                                |   | 961,340 |           |      |   |        |         |  |  | 96,170  |        
|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |        
|                                 |                                                                         | Total deferred income tax liabilities          |   |         | 1,110,978 |      |   |         | 180,936 |  |  |         | 271,809 | 
|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |        
|                                 |                                                                         | Net deferred income tax (liabilities) benefits |   | $       | (915,314  | )    |   | $       | 427,367 |  |  | $       | 126,933 | 
|                                 |                                                                         |                                                |   |         |           |      |   |         |         |  |  |         |        



| |  | 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-20



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans



| |  | The Bank had a defined benefit pension plan covering substantially all of
its employees. Benefits were
based on the employees average rate of earnings for the five consecutive
years before retirement. The
Banks funding policy was to contribute annually an amount between the
minimum and maximum
actuarially determined contribution, using the frozen entry age actuarial
cost method. Assets of the plan
were held in a trust fund principally comprised of growth and income
mutual funds managed by another
bank.                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank officially terminated the plan in December 1999 and received IRS
approval for plan termination
in February 2000. The Bank settled all accrued benefits under the plan in
October 2000. The Bank
established a money purchase pension plan as a replacement plan. Upon
termination of the pension plan,
all participants became 100% vested. All accrued benefits under the
terminated and settled pension plan
were provided to participants through the purchase of annuities, or, in
the case of actively employed
participants, at their option, in the form of a lump sum rollover to the
new defined contribution money
purchase pension plan.
|
| |  | As a result of the termination of the defined benefit plan in 1999, the
Bank had recognized a curtailment
gain of $1,311,997, included in other income. The Bank also accrued a 25%
safe harbor contribution of
$328,000, included in employee benefit expense, and excise taxes of
$196,800, payable on curtailment
gains recognized, included in Federal and state income tax expense.                                                                                                                                                                                                                                                                    
|
| |  | As a result of the settlement of the defined benefit plan in October 2000,
the Bank recognized a settlement
gain of $1,600,126, included in other income. The Bank also accrued a 25%
safe harbor contribution of
$397,728, included in employee benefit expense, and excise taxes of
$238,636, payable on settlement gains
recognized, included in Federal and state income tax expense.                                                                                                                                                                                                                                                                   
|
| |  | The following table sets forth the financial status of the pension plan at
December 31, 2000:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                             |                               |   |           |            |  
|-------------------------------------------- | ----------------------------- | - | --------- | ---------- | -
|                                             |                               |   | 2000     
|                                             |                               |   |          
|Projected benefit obligation at January 1,   |                               | $ | 4,791,364 |           
|                                             | Actual benefit payments       |   |           | (4,710,262 | )
|                                             | Other adjustments             |   |           | (81,102    | )
|                                             |                               |   |           |           
|Projected benefit obligation at December 31, |                               | $ |          |           
|                                             |                               |   |           |           
|Plan assets at January 1,                    |                               | $ | 7,045,921 |           
|                                             | Actual distributions          |   |           | (7,622,385 | )
|                                             | Actual returns                |   |           | 576,464    |  
|                                             |                               |   |           |           
|Plan assets at December 31,                  |                               | $ |          |           
|                                             |                               |   |           |           
|Net pension expense includes the following:  |                               |   |           |           
|                                             | Actual return on assets       |   | $         | (576,464   | )
|                                             | Net amortization and deferral |   |           | 874,288    |  
|                                             |                               |   |           |           
|Net pension expense                          |                               | $ | 297,824   |           
|                                             |                               |   |           |           

F-21



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans(continued)



| |  | The Bank has a money purchase pension plan, which provides for annual
employer contributions based on
employee compensation, and covers substantially all employees.
Contributions under this plan, made from
the safe harbor accrual, totaled $188,470,$175,794, and $156,988 for the
years ended December 31,
2002, 2001 and 2000, respectively. The Bank is also making additional
contributions under this plan to
certain employees whose retirement funds were negatively affected by the
termination of the defined
benefit pension plan. These additional contributions, included in
employee benefit expense, totaled
$103,476and $149,045 for the years ended December 31, 2002 and 2001,
respectively. The Bank made
no additional contributions for the year ended December 31, 2000. As of
December 31, 2002, the Bank
has accrued approximately $477,000 relating to the remaining safe harbor
contributions and the additional
contributions to negatively affected employees.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank also has a defined contribution retirement plan qualifying under
Section 401(k) of the Internal
Revenue Code that is funded through a profit sharing agreement and
voluntary employee contributions.
The plan provides for discretionary employer matching contributions to be
determined annually by the
Board of Directors. The plan covers substantially all employees. The
Banks contributions to the plan,
included in employee benefit expense, totaled $359,914, $242,997, and
$230,971 for the years ended
December 31, 2002, 2001, and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                

Note 11. Post-Retirement Health Care Benefits



| |  | The Bank provides health care benefits to employees who retire at age 65
with five years of full time
service immediately prior to retirement and two years of participation in
the medical benefits plan. In
2001, the Bank amended the plan to include the current Board of Directors
and their spouses and the
spouses of current retirees. In the first quarter of 2002, the Bank again
amended the plan so that all post-retirement healthcare benefits currently provided by the Bank to the above
qualified participants will
terminate on December 31, 2006. This amendment to the plan resulted in a
net curtailment gain of
approximately $764,000 in the year ended December 31, 2002. The plan was
funded only by the Banks
monthly payments of insurance premiums due, which totaled $59,316,
$42,312, and $24,216 for the years
ended December 31, 2002, 2001, and 2000, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table sets forth the financial status of the plan at December 31, 2002, 2001, and 2000:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                |                                               |   |         |         |      |   |           |           |  |   |          |         | 
|----------------------------------------------- | --------------------------------------------- | - | ------- | ------- | ---- | - | --------- | --------- |  | - | -------- | ------- | 
|                                                |                                               |   | 2002    |         | 2001 |   | 2000     
|                                                |                                               |   |         |         |      |   |          
|Accumulated post-retirement benefit obligation: |                                               |   |         |         |      |   |           |           |  |   |          |        
|                                                | Retirees                                      |   | $       | 269,955 |      |   | $         | 503,823   |  |   | $        | 299,422 | 
|                                                | Other active participants, fully eligible     |   |         |        |      |   |           | 79,954    |  |   |          |        | 
|                                                | Other active participants, not fully eligible |   |         |        |      |   |           | 1,023,038 |  |   |          | 659,531 | 
|                                                |                                               |   |         |         |      |   |           |           |  |   |          |         | 
|                                                |                                               |   | 269,955 |         |      |   | 1,606,815 |           |  |   | 958,953  |        
|Unrecognized net gain                           |                                               |   | 2,857   |         |      |   | 31,712    |           |  |   | 250,074  |        
|Unrecognized transition obligation              |                                               |   |        |         |      |   | (434,186  | )         |  |   | (467,585 | )      
|Unrecognized past service (cost) savings        |                                               |   |        |         |      |   | (128,666  | )         |  |   | 102,822  |        
|                                                |                                               |   |         |         |      |   |           |           |  |   |          |         | 
|Accrued post-retirement benefit cost            |                                               | $ | 272,812 |         |      | $ | 1,075,675 |           |  | $ | 844,264  |        
|                                                |                                               |   |         |         |      |   |           |           |  |   |          |         | 

F-22



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Post-Retirement Health Care Benefits(continued)



| |  | Net post-retirement benefit expense for the years ended December 31, 2002, 2001, and 2000
includes the following:
| |  | -----------------------------------------------------------------------------------------------------------------

|                                                   |  |   |        |  |  |   |         |  |  |   |         |  
|-------------------------------------------------- |  | - | ------ |  |  | - | ------- |  |  | - | ------- | -
|Service cost                                       |  | $ |       |  |  | $ | 135,368 |  |  | $ | 73,360  |  
|Interest cost                                      |  |   | 20,096 |  |  |   | 100,651 |  |  |   | 60,006  |  
|Amortization of unrecognized transition obligation |  |   |       |  |  |   | 33,399  |  |  |   | 33,399  |  
|Amortization of net gain                           |  |   |       |  |  |   |        |  |  |   | (6,879  | )
|Amortization of past service cost (savings)        |  |   |       |  |  |   | 4,304   |  |  |   | (6,924  | )
|                                                   |  |   |        |  |  |   |         |  |  |   |         |  
|Net post-retirement benefit expense                |  | $ | 20,096 |  |  | $ | 273,722 |  |  | $ | 152,962 |  
|                                                   |  |   |        |  |  |   |         |  |  |   |         |  



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

|                            |  |      |     |      |  |      |     |   |  |  |     |  
|--------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                            |  | 2002 |     | 2001 |  | 2000
|                            |  |      |     |      |  |     
|Health care cost trend rate |  |      | 5.0 | %    |  |      | 5.0 | % |  |  | 5.0 | %
|Discount rate               |  |      | 6.5 | %    |  |      | 6.5 | % |  |  | 6.5 | %



| |  | If the assumed health care cost trend rate were increased to 6%for 2002,
2001, and 2000, the total of the
service and interest cost components of net periodic post-retirement
health care benefit cost would increase
by $369, $46,848, and $28,474 for the years ended December 31, 2002, 2001,
and 2000, respectively,
and the accumulated post-retirement benefit obligation would increase to
$20,465, $320,570, and $181,436
as of December 31, 2002, 2001, and 2000, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 12. Other Benefit Plans



| |  | During the fourth quarter of 2002, the Bank purchased life insurance
contracts on most of the officers and
is the sole owner and primary beneficiary of the policies. The Bank is in
the process of assigning a
portion of each policies benefit to the insured officer in accordance with
the Bank Owned Life Insurance
(BOLI) program. Income from these contracts will be used to offset or
recover the costs associated with
employee benefit plans. Cash value totaled $5,024,964 at December 31,
2002 and is included in other
assets.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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.                                                                                                                                                                                 
|
| |  | Subsequent to the repurchase of the Companys common stock under a
Redemption Agreement and
entering into a standstill agreement (see Note 15), and effective as of
December 31, 1998, all assets held
by this trust were returned to the Bank; however, the trust continues to
exist on an unfunded status. In
August 2001, the Board of Directors approved certain amendments and
revisions to the plan to reflect
changes at the Bank since inception of the plan.                                                                     

F-23



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Other Operating Expenses



| |  | Other operating expenses include the following:
| |  | -----------------------------------------------

|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 
|--------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                                                        |  | 2002 |           | 2001 |  | 2000
|                                                                                        |  |      |           |      |  |     
|Professional services                                                                   |  | $    | 533,194   |      |  | $    | 605,952   |  |  |   | $642,609  | 
|Stationery, printing and supplies                                                       |  |      | 226,127   |      |  |      | 260,863   |  |  |   | 224,453   | 
|Postage and delivery                                                                    |  |      | 256,080   |      |  |      | 262,759   |  |  |   | 269,710   | 
|FDIC assessment                                                                         |  |      | 38,015    |      |  |      | 37,696    |  |  |   | 67,393    | 
|Directors fees and expenses                                                             |  |      | 142,762   |      |  |      | 128,101   |  |  |   | 114,442   | 
|Marketing                                                                               |  |      | 212,470   |      |  |      | 244,838   |  |  |   | 251,113   | 
|Data processing                                                                         |  |      | 144,580   |      |  |      | 154,980   |  |  |   | 231,097   | 
|Correspondent bank services                                                             |  |      | 76,508    |      |  |      | 74,533    |  |  |   | 95,245    | 
|Telephone                                                                               |  |      | 142,703   |      |  |      | 138,220   |  |  |   | 100,026   | 
|Liability insurance                                                                     |  |      | 116,121   |      |  |      | 93,608    |  |  |   | 98,446    | 
|Losses and expenses on real estate owned (OREO)                                         |  |      | 7,157     |      |  |      | 73,455    |  |  |   | 58,334    | 
|Asset impairment losses on branch closures and
related exit expenses (see Note 5)       |  |      | 141,647   |      |  |      |          |  |  |   | 280,460   | 
|Provision for losses on unfunded credit related
commitments with off-balance sheet risk |  |      |          |      |  |      | 150,000   |  |  |   |          | 
|Other                                                                                   |  |      | 695,857   |      |  |      | 787,400   |  |  |   | 608,843   | 
|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 
|                                                                                        |  | $    | 2,733,221 |      |  | $    | 3,012,405 |  |  | $ | 3,042,171 | 
|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 

Note 14. Litigation Charges



| |  | In 2001, the Company incurred losses of $70,000 relating to the settlement
of a legal claim involving
alleged conversion of funds of a certificate of deposit. These
nonrecurring charges were included in other
expenses for 2001.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 15. Repurchase and Retirement of Company Common Stock



| |  | During 1998, the Company was pursued by another competing financial
institution (the institution) in a
hostile take-over attempt. In November 1998, the Company reached an
agreement with the institution to
repurchase 213,168 shares of its common stock, or approximately 19.5% of
its then outstanding shares, for
an aggregate purchase price of $5,580,764. In conjunction with the
redemption agreement, the Company
and the institution also entered into a standstill agreement through
November 2008. Under the standstill
agreement, the Company will make payments over five years totaling
$675,510 beginning with a payment
of $150,000 in January 1999 and four subsequent annual payments of
$131,378.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During each of the years ended December 31, 2002, 2001, and 2000, the
Company made payments
totaling $131,378relating to the standstill agreement. These payments
are included in other expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Note 16. Commitments and Contingencies



| |  | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank is a party to financial instruments in the normal course of
business to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit and standby letters of
credit, which involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts
recognized in the consolidated financial statements.

F-24



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Commitments and Contingencies(continued)



| |  | Outstanding loan commitments, unused lines of credit and letters of credit are as follows:
| |  | ------------------------------------------------------------------------------------------

|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|----------------------- | --------------------------------- | - | ---------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                        |                                   |   | 2002       |           | 2001 |   | 2000      
|                        |                                   |   |            |           |      |   |           
|Loan commitments:       |                                   |   |            |           |      |   |            |           |  |   |            |          
|                        | Construction and land development |   | $          | 357,000   |      |   | $          | 250,000   |  |   | $          | 450,000   | 
|                        | Other mortgage loans              |   |            | 3,422,912 |      |   |            | 5,456,022 |  |   |            | 79,000    | 
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|                        |                                   | $ | 3,779,912  |           |      | $ | 5,706,022  |           |  | $ | 529,000    |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|Unused lines of credit: |                                   |   |            |           |      |   |            |           |  |   |            |          
|                        | Home-equity lines                 |   | $          | 4,288,833 |      |   | $          | 3,775,941 |  |   | $          | 3,417,102 | 
|                        | Commercial lines                  |   |            | 9,272,579 |      |   |            | 7,272,045 |  |   |            | 7,615,035 | 
|                        | Unsecured consumer lines          |   |            | 841,400   |      |   |            | 862,555   |  |   |            | 908,600   | 
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|                        |                                   | $ | 14,402,812 |           |      | $ | 11,910,541 |           |  | $ | 11,940,737 |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|Letters of credit:      |                                   | $ | 891,549    |           |      | $ | 1,257,361  |           |  | $ | 1,237,878  |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 



| |  | Loan commitments and lines of credit are agreements to lend to customers
as long as there is no violation
of any conditions of the contracts. Loan commitments generally have
interest rates fixed at current market
amounts, fixed expiration dates, and may require payment of a fee. Lines
of credit generally have variable
interest rates. Many of the loan commitments and lines of credit are
expected to expire without being
drawn upon; accordingly, the total commitment amounts do not necessarily
represent future cash
requirements. The Bank evaluates each customers creditworthiness on a
case-by-case basis. The amount
of collateral or other security obtained, if deemed necessary by the Bank
upon extension of credit, is based
on managements credit evaluation. Collateral held varies but may include
deposits held in financial
institutions, U.S. Treasury securities, other marketable securities,
accounts receivable, inventory, property
and equipment, personal residences, income-producing commercial
properties, and land under
development. Personal guarantees are also obtained to provide added
security for certain commitments.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to
guarantee the installation of real
property improvements and similar transactions. The credit risk involved
in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral
and obtains personal guarantees supporting those commitments for which
collateral or other securities is
deemed necessary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Banks exposure to credit loss in the event of nonperformance by the
customer is the contractual
amount of the commitment. Loan commitments, lines of credit, and letters
of credit are made on the same
terms, including collateral, as outstanding loans. As of December 31,
2002, the Bank accrued $150,000
for unfunded commitments related to these financial instruments with off
balance sheet risk, which is
included in other liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-25



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Guaranteed Preferred Beneficial Interest in Junior Subordinated
Debentures



| |  | On September 7, 2000, Glen Burnie Statutory Trust I, a Connecticut
business trust newly formed, funded,
and wholly owned by the Company, issued $5,155,000 of capital securities
at 10.6% to institutional
investors. The proceeds were upstreamed to the Company as junior
subordinated debt under the same
terms and conditions. The Company has, through various contractual
arrangements, fully and
unconditionally guaranteed all of Statutory Trust Is obligations with
respect to the capital securities.
These capital securities qualify as Tier I capital and are presented in
the Consolidated Balance Sheets as
Guaranteed Preferred Beneficial Interests in Glen Burnie Bancorps Junior
Subordinated Debentures.
The sole asset of the Statutory Trust I is $5,155,000 of junior
subordinated debentures issued by the
Company. These junior subordinated debentures carry an interest rate of
10.6%, payable semi-annually,
with a non call provision over the first 10 year period, and a declining
10 year premium call thereafter.
Both the capital securities Statutory Trust I and the junior subordinated
debentures are scheduled to mature
on September 7, 2030, unless called by the Company not earlier than
September 7, 2010.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cost associated with the issuance of the trust preferred securities
totaling $150,000 were capitalized and
are being amortized through 2030. At December 31, 2002, 2001, and 2000,
the unamortized balance
totaled $140,000, $145,000, and $150,000, respectively, and was included
in other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Note 18. Stockholders Equity



| |  | Restrictions on dividends:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Banking regulations limit the amount of dividends that may be paid without
prior approval of the Banks
regulatory agencies. Regulatory approval is required to pay dividends
that exceed the Banks net profits
for the current year plus its retained net profits for the preceding two
years. Retained earnings from which
dividends may not be paid without prior approval totaled approximately
$3,462,000,$2,469,000, and
$2,694,000 at December 31, 2002, 2001, and 2000, respectively, based on
the earnings restrictions and
minimum capital ratio requirements noted below.                                                                                                                        
|
| |  | Stock repurchase program:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In December 2000, the Company instituted a Stock Repurchase Program.
Under the program, the
Company may spend up to $250,000 to repurchase its outstanding stock. The
repurchases may be made
from time to time at a price not to exceed $10.667 per share. During
2001, the Company repurchased
15,000 shares at an average price of $9.917 (adjusted for stock splits and
stock dividends). This program
was terminated by the Company in December 2001.                                                                                                                                                                                                                                                   
|
| |  | Employee stock purchase benefit plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company has a stock-based compensation plan, which is described below.
The Bank applies
Accounting Principles Board Opinion (APB) No. 25 and related
Interpretations in accounting for this
plan. Net compensation cost (benefit) of $38,405, $0, and ($10,889) have
been recognized in the
accompanying consolidated financial statements in 2002, 2001, and 2000,
respectively. If compensation
cost for the Companys stock-based compensation plan had been determined
based on the fair value at the
grant date for awards under this plan consistent with the methods outlined
in SFAS No. 123 Accounting for
Stock-Based Compensation, there would be no material change in reported
net income.

F-26



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)



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

|                                                  |  |        |        |       |  |       |        | 
|------------------------------------------------- |  | ------ | ------ | ----- |  | ----- | ------ | 
|                                                  |  |        |        |       |  | Grant
|                                                  |  | Shares |        | Price
|                                                  |  |        |        |      
|Outstanding December 31, 1999                     |  |        | 5,616  |       |  | $     | 10.978 | 
|Expired                                           |  |        | (5,616 | )     |  | $     | 10.978 | 
|                                                  |  |        |        |       |  |       |        | 
|Outstanding December 31, 2000                     |  |        |       |       |  |       |        | 
|Outstanding December 31, 2001                     |  |        |       |       |  |       |        | 
|Granted on May 17, 2002, expiring August 13, 2003 |  |        | 7,765  |       |  | $     | 13.77  | 
|Exercised                                         |  |        | (3,065 | )     |  |       |        | 
|Expired                                           |  |        | (145   | )     |  | $     | 13.77  | 
|                                                  |  |        |        |       |  |       |        | 
|Outstanding December 31, 2002                     |  |        | 4,555  |       |  |       |        | 
|                                                  |  |        |        |       |  |       |        | 



| |  | At December 31, 2002 shares of common stock reserved for issuance under the
plan totaled 38,497.                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Board of Directors may suspend or discontinue the plan at its discretion.                                                                                                                                                                         
|
| |  | Dividend reinvestment and stock purchase plan:                                                                                                                                                                                                        
|
| |  | The Companys dividend reinvestment and stock purchase plan allows all
participating stockholders the
opportunity to receive additional shares of common stock in lieu of cash
dividends at 95% of the fair
market value on the dividend payment date.
|
| |  | During 2002, 2001, and 2000, shares of common stock purchased under the plan
totaled 10,548, 12,314,
and 13,894, respectively. At December 31, 2002, shares of common stock
reserved for issuance under the
plan totaled 143,691.                     
|
| |  | The Board of Directors may suspend or discontinue the plan at its discretion.                                                                                                                                                                         

F-27



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)



| |  | Stockholder purchase plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys stockholder purchase plan allows participating stockholders
an option to purchase newly
issued shares of common stock. The Board of Directors shall determine the
number of shares that may be
purchased pursuant to options. Options granted will expire no later than
three months from the grant date.
Each option will entitle the stockholder to purchase one share of common
stock, and will be granted in
proportion to stockholder share holdings. At the discretion of the Board
of Directors,
stockholders may be given the opportunity to purchase unsubscribed shares.

|                                                     |  |        |         |       |  |       |        | 
|---------------------------------------------------- |  | ------ | ------- | ----- |  | ----- | ------ | 
|                                                     |  |        |         |       |  | Grant
|                                                     |  | Shares |         | Price
|                                                     |  |        |         |      
|Outstanding December 31, 1999                        |  |        |        |       |  |       |        | 
|Granted on January 24, 2000, expiring March 24, 2000 |  |        | 75,000  |       |  | $     | 12.533 | 
|Exercised                                            |  |        | (2,307  | )     |  |       |        | 
|Expired                                              |  |        | (72,693 | )     |  | $     | 12.533 | 
|                                                     |  |        |         |       |  |       |        | 
|Granted on March 21, 2000, expiring June 23, 2000    |  |        | 75,000  |       |  | $     | 12.533 | 
|Exercised                                            |  |        | (1,682  | )     |  |       |        | 
|Expired                                              |  |        | (73,318 | )     |  | $     | 12.533 | 
|                                                     |  |        |         |       |  |       |        | 
|Outstanding December 31, 2000                        |  |        |        |       |  |       |        | 
|Outstanding December 31, 2001                        |  |        |        |       |  |       |        | 
|Outstanding December 31, 2002                        |  |        |        |       |  |       |        | 
|                                                     |  |        |         |       |  |       |        | 



| |  | At December 31, 2002, shares of common stock reserved for issuance under
the plan totaled 181,666.

The Board of Directors may suspend or discontinue the plan at its
discretion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under all three plans, options granted, exercised, and expired, shares
issued and reserved, and grant prices
have been restated for the effects of any stock dividends or stock splits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Regulatory capital requirements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company and Bank are subject to various regulatory capital
requirements administered by Federal and
State banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material
effect on the Companys financial statements. The Company and Bank must
meet specific capital
guidelines that involve quantitative measures of their respective assets,
liabilities, and certain off-balance
sheet items as calculated under regulatory accounting principles. The
Companys and Banks capital
amounts and classification are also subject to qualitative judgments by
the regulators about components,
risk weightings, and other factors.
|
| |  | Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank
to maintain minimum amounts and ratios (as defined in the regulations) of
total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management
believes, as of
December 31, 2002, 2001, and 2000, that both the Company and Bank meet all
capital adequacy
requirements to which they are subject.                                                                                                                                                                                                                                                                                                                                             

F-28



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)



| |  | As of December 31, 2002, 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 have been no conditions or events since that notification that
management believes have changed the
Banks category.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A comparison of capital as of December 31, 2002, 2001, and 2000 with
minimum requirements is
approximately as follows:                                                                                                                                                                                                                                                                                                                    

|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|----------------------- | -------------- | ------------------------- |  | ------ | ---------- | ----------------- |  | ----------------- | ---- | ----- |  | ----------- | ---------- | ----------------------- |  |  | --- | - |  | ---------------------- | ----------- |  |  |  | ---- | -
|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  | To Be Well Capitalized
|                        |                |                           |  |        |            |                   |  |                   |      |       |  | For Capital |            | Under Prompt Corrective
|                        |                |                           |  | Actual |            | Adequacy Purposes |  | Action Provisions
|                        |                |                           |  | Amount |            | Ratio             |  | Amount            |      | Ratio |  | Amount      |            | Ratio                  
|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                        
|As of December 31, 2002 |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  | 
|                        | Total Capital  |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  | $      | 27,523,000 |                   |  |                   | 15.3 | %     |  | $           | 14,410,000 |                         |  |  | 8.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 26,949,000 |                   |  |                   | 15.0 | %     |  |             | 14,363,000 |                         |  |  | 8.0 | % |  | $                      | 17,954,000  |  |  |  | 10.0 | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  |        | 25,266,000 |                   |  |                   | 14.0 | %     |  |             | 7,209,000  |                         |  |  | 4.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 24,699,000 |                   |  |                   | 13.8 | %     |  |             | 7,185,000  |                         |  |  | 4.0 | % |  |                        | 10,778,000  |  |  |  | 6.0  | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Average Assets)       |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  |        | 25,266,000 |                   |  |                   | 9.1  | %     |  |             | 11,143,000 |                         |  |  | 4.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 24,699,000 |                   |  |                   | 8.9  | %     |  |             | 11,126,000 |                         |  |  | 4.0 | % |  |                        | 13,907,000  |  |  |  | 5.0  | %
|As of December 31, 2001 |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  | 
|                        | Total Capital  |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  | $      | 25,254,000 |                   |  |                   | 13.9 | %     |  | $           | 14,514,000 |                         |  |  | 8.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 24,361,000 |                   |  |                   | 13.5 | %     |  |             | 14,458,000 |                         |  |  | 8.0 | % |  |                        | $18,072,000 |  |  |  | 10.0 | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  |        | 22,976,000 |                   |  |                   | 12.7 | %     |  |             | 7,254,000  |                         |  |  | 4.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 22,092,000 |                   |  |                   | 12.2 | %     |  |             | 7,226,000  |                         |  |  | 4.0 | % |  |                        | 10,838,000  |  |  |  | 6.0  | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |     
|                        |                | (to Average Assets)       |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |             |  |  |  |      |  
|                        |                | Company                   |  |        | 22,976,000 |                   |  |                   | 8.8  | %     |  |             | 10,456,000 |                         |  |  | 4.0 | % |  |                        | N/A         |  |  |  |      |  
|                        |                | Bank                      |  |        | 22,092,000 |                   |  |                   | 8.5  | %     |  |             | 10,421,000 |                         |  |  | 4.0 | % |  |                        | 13,026,000  |  |  |  | 5.0  | %

F-29



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)

|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |      |  
|----------------------- | -------------- | ------------------------- |  | ------ | ---------- | ----------------- |  | ----------------- | ---- | ----- |  | ----------- | ---------- | ----------------------- |  |  | --- | - |  | ---------------------- | ---------- |  |  |  | ---- | -
|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  | To Be Well Capitalized
|                        |                |                           |  |        |            |                   |  |                   |      |       |  | For Capital |            | Under Prompt Corrective
|                        |                |                           |  | Actual |            | Adequacy Purposes |  | Action Provisions
|                        |                |                           |  | Amount |            | Ratio             |  | Amount            |      | Ratio |  | Amount      |            | Ratio                  
|                        |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                        
|As of December 31, 2000 |                |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  | 
|                        | Total Capital  |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |      |  
|                        |                | Company                   |  | $      | 24,092,000 |                   |  |                   | 14.0 | %     |  | $           | 13,772,000 |                         |  |  | 8.0 | % |  |                        | N/A        |  |  |  |      |  
|                        |                | Bank                      |  |        | 23,655,000 |                   |  |                   | 13.7 | %     |  |             | 13,863,000 |                         |  |  | 8.0 | % |  | $                      | 17,328,000 |  |  |  | 10.0 | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |     
|                        |                | (to Risk Weighted Assets) |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |      |  
|                        |                | Company                   |  |        | 21,925,000 |                   |  |                   | 12.7 | %     |  |             | 6,886,000  |                         |  |  | 4.0 | % |  |                        | N/A        |  |  |  |      |  
|                        |                | Bank                      |  |        | 21,474,000 |                   |  |                   | 12.4 | %     |  |             | 6,932,000  |                         |  |  | 4.0 | % |  |                        | 10,397,000 |  |  |  | 6.0  | %
|                        | Tier I Capital |                           |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |     
|                        |                | (to Average Assets)       |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |      |  
|                        |                | Company                   |  |        | 21,925,000 |                   |  |                   | 9.3  | %     |  |             | 9,424,000  |                         |  |  | 4.0 | % |  |                        | N/A        |  |  |  |      |  
|                        |                | Bank                      |  |        | 21,474,000 |                   |  |                   | 9.1  | %     |  |             | 9,424,000  |                         |  |  | 4.0 | % |  |                        | 11,780,000 |  |  |  | 5.0  | %

Note 19. Earnings Per Common Share



| |  | Earnings per common share are calculated as follows:
| |  | ----------------------------------------------------

|         |                                             |  |      |           |      |  |      |           |  |  |   |           | 
|-------- | ------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|         |                                             |  | 2002 |           | 2001 |  | 2000
|         |                                             |  |      |           |      |  |     
|Basic:   |                                             |  |      |           |      |  |      |           |  |  |   |          
|         | Net income                                  |  | $    | 2,811,083 |      |  | $    | 1,725,236 |  |  | $ | 2,274,866 | 
|         | Weighted average common shares outstanding  |  |      | 1,668,335 |      |  |      | 1,656,904 |  |  |   | 1,652,001 | 
|         | Basic net income per share                  |  | $    | 1.68      |      |  | $    | 1.04      |  |  | $ | 1.38      | 
|Diluted: |                                             |  |      |           |      |  |      |           |  |  |   |          
|         | Net income                                  |  | $    | 2,811,083 |      |  |      |           |  |  |   |           | 
|         | Weighted average common shares outstanding  |  |      | 1,668,335 |      |  |      |           |  |  |   |           | 
|         | Dilutive effect of stock options            |  |      | 2,820     |      |  |      |           |  |  |   |           | 
|         |                                             |  |      |           |      |  |      |           |  |  |   |          
|         | Average common shares outstanding - diluted |  |      | 1,671,155 |      |  |      |           |  |  |   |           | 
|         | Diluted net income per share                |  | $    | 1.68      |      |  |      |           |  |  |   |           | 



| |  | Diluted earnings per share calculations were not required for 2001 and 2000 as there were no options
outstanding at December 31, 2001 and 2000.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------

F-30



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Fair Values of Financial Instruments



| |  | In accordance with the disclosure requirements of SFAS No. 107, the estimated fair value and the related
carrying values of the Companys financial instruments are as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   |                                                                                                 |  |          |             |       |  |          |             |       |  |          |             |       |  |   |             |  |  |   |             |  |  |   |             | 
|---------------------------------- | ----------------------------------------------------------------------------------------------- |  | -------- | ----------- | ----- |  | -------- | ----------- | ----- |  | -------- | ----------- | ----- |  | - | ----------- |  |  | - | ----------- |  |  | - | ----------- | 
|                                   |                                                                                                 |  | 2002     |             | 2001  |  | 2000    
|                                   |                                                                                                 |  |          |             |      
|                                   |                                                                                                 |  | Carrying |             | Fair  |  | Carrying |             | Fair  |  | Carrying |             | Fair 
|                                   |                                                                                                 |  | Amount   |             | Value |  | Amount   |             | Value |  | Amount   |             | Value
|                                   |                                                                                                 |  |          |             |       |  |          |            
|Financial assets:                  |                                                                                                 |  |          |             |       |  |          |             |       |  |          |             |       |  |   |             |  |  |   |             |  |  |   |            
|                                   | Cash and due from banks                                                                         |  | $        | 11,297,175  |       |  | $        | 11,297,175  |       |  | $        | 10,888,085  |       |  | $ | 10,888,085  |  |  | $ | 9,559,329   |  |  | $ | 9,559,329   | 
|                                   | Interest-bearing deposits in
other financial institutions                                       |  |          | 41,335      |       |  |          | 41,335      |       |  |          | 1,879,444   |       |  |   | 1,879,444   |  |  |   | 50,947      |  |  |   | 50,947      | 
|                                   | Federal funds sold                                                                              |  |          | 4,403,578   |       |  |          | 4,403,578   |       |  |          | 5,453,299   |       |  |   | 5,453,299   |  |  |   | 5,898,863   |  |  |   | 5,898,863   | 
|                                   | Certificates of deposit in other
financial institutions                                         |  |          | 100,000     |       |  |          | 100,000     |       |  |          | 100,000     |       |  |   | 100,000     |  |  |   | 100,000     |  |  |   | 100,000     | 
|                                   | Investment securities
available for sale                                                        |  |          | 84,657,682  |       |  |          | 84,657,682  |       |  |          | 55,547,998  |       |  |   | 55,547,998  |  |  |   | 21,308,961  |  |  |   | 21,308,961  | 
|                                   | Investment securities held to
maturity                                                          |  |          | 7,202,369   |       |  |          | 7,615,702   |       |  |          | 16,516,923  |       |  |   | 16,881,451  |  |  |   | 31,285,937  |  |  |   | 31,019,121  | 
|                                   | Federal Home Loan Bank Stock                                                                    |  |          | 703,200     |       |  |          | 703,200     |       |  |          | 652,300     |       |  |   | 652,300     |  |  |   | 652,300     |  |  |   | 652,300     | 
|                                   | Common stock-Statutory Trust I                                                                  |  |          | 155,000     |       |  |          | 155,000     |       |  |          | 155,000     |       |  |   | 155,000     |  |  |   | 155,000     |  |  |   | 155,000     | 
|                                   | Ground rents                                                                                    |  |          | 249,900     |       |  |          | 249,900     |       |  |          | 249,900     |       |  |   | 249,900     |  |  |   | 249,900     |  |  |   | 249,900     | 
|                                   | Loans, less allowance for
credit losses                                                         |  |          | 158,286,746 |       |  |          | 158,290,000 |       |  |          | 164,569,252 |       |  |   | 164,570,000 |  |  |   | 162,373,731 |  |  |   | 162,525,000 | 
|                                   | Accrued interest receivable                                                                     |  |          | 1,547,511   |       |  |          | 1,547,511   |       |  |          | 1,527,018   |       |  |   | 1,527,018   |  |  |   | 1,681,219   |  |  |   | 1,681,219   | 
|Financial liabilities:             |                                                                                                 |  |          |             |       |  |          |             |       |  |          |             |       |  |   |             |  |  |   |             |  |  |   |            
|                                   | Deposits                                                                                        |  |          | 241,419,607 |       |  |          | 241,420,000 |       |  |          | 229,306,718 |       |  |   | 231,692,000 |  |  |   | 205,968,337 |  |  |   | 205,969,000 | 
|                                   | Short-term borrowings                                                                           |  |          | 837,074     |       |  |          | 837,074     |       |  |          | 882,408     |       |  |   | 882,408     |  |  |   | 487,978     |  |  |   | 487,978     | 
|                                   | Long-term borrowings                                                                            |  |          | 7,251,489   |       |  |          | 7,251,489   |       |  |          | 7,274,791   |       |  |   | 7,274,791   |  |  |   | 7,296,523   |  |  |   | 7,296,523   | 
|                                   | Dividends payable                                                                               |  |          | 236,291     |       |  |          | 236,291     |       |  |          | 195,333     |       |  |   | 195,333     |  |  |   | 213,345     |  |  |   | 213,345     | 
|                                   | Accrued interest payable                                                                        |  |          | 111,398     |       |  |          | 111,398     |       |  |          | 155,174     |       |  |   | 155,174     |  |  |   | 195,166     |  |  |   | 195,166     | 
|                                   | Accrued interest payable on
junior subordinated debentures                                      |  |          | 171,518     |       |  |          | 171,518     |       |  |          | 171,518     |       |  |   | 171,518     |  |  |   | 166,986     |  |  |   | 166,986     | 
|                                   | Guaranteed preferred beneficial
interests in Glen Burnie
Bancorp junior subordinated
debentures |  |          | 5,155,000   |       |  |          | 5,155,000   |       |  |          | 5,155,000   |       |  |   | 5,155,000   |  |  |   | 5,155,000   |  |  |   | 5,155,000   | 
|Unrecognized financial instruments |                                                                                                 |  |          |             |       |  |          |             |       |  |          |             |       |  |   |             |  |  |   |             |  |  |   |            
|                                   | Commitments to extend credit                                                                    |  |          | 18,182,724  |       |  |          | 18,182,724  |       |  |          | 17,616,563  |       |  |   | 17,466,563  |  |  |   | 12,469,737  |  |  |   | 12,364,095  | 
|                                   | Standby letters of credit                                                                       |  |          | 891,549     |       |  |          | 891,549     |       |  |          | 1,257,361   |       |  |   | 1,257,361   |  |  |   | 1,237,878   |  |  |   | 1,237,878   | 



| |  | For purposes of the disclosures of estimated fair value, the following
assumptions were used.                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Loans:                                                                                                                                                                                                                    
|
| |  | The estimated fair value for loans is determined by discounting future cash
flows using current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining
maturities.
|
| |  | Investment securities:                                                                                                                                                                                                    
|
| |  | Estimated fair values are based on quoted market prices.                                                                                                                                                                  

F-31



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Fair Values of Financial Instruments(continued)



| |  | Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand
deposits, savings, NOW accounts and money market accounts, is equal to the
amount payable on
demand at the reporting date (that is, their carrying amounts). The fair
value of certificates of deposit is
based on the rates currently offered for deposits of similar maturities.
The fair value estimates do not
include the benefit that results from the low-cost funding provided by the
deposit liabilities
compared to the cost of borrowing funds in the market.
|
| |  | Other assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The estimated fair values for cash and due from banks, interest-bearing
deposits in other financial
institutions, Federal funds sold, accrued interest receivable and payable,
and short-term borrowings are
considered to approximate cost because of their short-term nature.                                                                                                                                                                                                                                                                                          
|
| |  | Other assets and liabilities of the Bank that are not defined as financial
instruments are not included in the
above disclosures, such as property and equipment. In addition,
non-financial instruments typically not
recognized in the financial statements nevertheless may have value but are
not included in the above
disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the
trained work force, customer goodwill, and similar items.                                                                          

Note 21. Recently Issued Accounting Pronouncements



| |  | In June 2002, the FASB issued statements of Financial Accounting Standards
No. 146, Accounting for
Costs Associated with Exit or Disposal Activities,(SFAS 146). This
statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability recognition for Certain
Employee Termination Benefits and
Other Costs to Exit an Activity(including Certain Costs Incurred in a
Restructuring.) This statement
changes the current practice of accounting for these transactions by
changing the timing of the recognition
of exit or disposal costs and generally requires such costs to be
recognized when the liability is incurred
rather than on the date the entity commits to a plan of exit or disposal.
It also requires such liabilities to
be measured at fair value.                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The provisions of SFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002.
In managements opinion, the Company and the Bank are currently in
compliance with all applicable
provisions of this pronouncement (See Note 5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In October 2002, the FASB issued statements of Financial Accounting
Standards No. 147, Acquisitions of
Certain Financial Institutions,an amendment of FASB Statement No. 72 and
144 and FASB Interpretation
No. 9 (SFAS 147). This statement addresses the financial accounting and
reporting for the acquisition
of all or part of a financial institution, except for a transaction
between two or more mutual enterprises.
This statement removes acquisitions of financial institutions, other than
transactions between two or more
mutual enterprises, from the scope of FASB no. 72, Accounting for Certain
Acquisitions of Banking or
Thrift Institutions,and FASB interpretation No. 9, Applying APB Opinions
No. 16 and 17, When a Savings
and Loan Association or a Similar Institution Is Acquired in a Business
Combination Accounting for by the
Purchase Method.This statement also provides guidance on the accounting
for the impairment or disposal
of acquired long-term customer-relationship intangible assets (such as
depositor and borrower- relationship
intangible assets and credit cardholder intangible assets), including
those acquired in transactions between
two or more mutual enterprises.
|
| |  | The provisions in paragraph 5 of SFAS 147 are effective for acquisitions
on or after October 1, 2002.
The provisions in paragraph 6 shall be effective on October 1, 2002.
Transition provisions for previously
recognized identified intangible assets in paragraphs 8-14 are effective
on October 1, 2002, with earlier
application permitted. In managements opinion, the Company and Bank are
currently in compliance with
all applicable provisions of this pronouncement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-32



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. Recently Issued Accounting Pronouncements(continued)



| |  | In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure,(SFAS 148). This
statement amends FASB No.
123, Accounting for Stock-Based Compensation, to provide alternative
methods of transaction for an entity
that voluntarily changes to the fair value based method of accounting for
stock-based employee
compensation. It also amends the disclosure about the effects on reported
net income of an entitys
accounting policy decisions with respect to stock based employee
compensation. Finally, this statement
amends APB Opinion No. 28, Interim Financial Reporting,to require
disclosure about effects in interim
financial information.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The amendments to SFAS 123 in paragraph 2(a)  2 (e) of this statement
shall be effective for financial
statements for fiscal years ending after December 15, 2002. The
amendments to SFAS 123 in paragraph 2
(f) of this statement and the amendment to APB 28 in paragraph 3 shall be
effective for financial reports
continuing condensed financial statements for interim periods beginning
after December 15, 2002.
Management is currently considering the impact of the change to the fair
value based method of accounting
for stock-based employee compensation in the 2003 financial statements.
In managements opinion, the
Company and Bank are in compliance with all applicable disclosure
provisions of this pronouncement.             

F-33



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information



| |  | The Balance Sheets, Statements of Income, and Statements of Cash Flows for Glen Burnie Bancorp (Parent
Only) are presented below:
| |  | ---------------------------------------------------------------------------------------------------------------------------------

|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |            |            | 
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------ | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|Balance Sheets                                                                                 
|                                                                                               
|December 31,                                                                                    |                                                                        | 2002                                       |            | 2001       |            | 2000
|                                                                                                |                                                                        |                                            |            |            |            |     
|Assets                                                                                         
|                                                                                               
|Cash                                                                                            |                                                                        | $                                          | 397,118    |            |            | $    | 512,981    |            |            | $ | 110,768    |           
|Investment in The Bank of Glen Burnie                                                           |                                                                        |                                            | 26,376,359 |            |            |      | 22,133,607 |            |            |   | 22,013,186 |           
|Investment in GBB Properties, Inc.                                                              |                                                                        |                                            | 251,012    |            |            |      | 244,920    |            |            |   | 238,645    |           
|Investment in the Glen Burnie Statutory Trust I                                                 |                                                                        |                                            | 155,000    |            |            |      | 155,000    |            |            |   | 155,000    |           
|Due from subsidiaries                                                                           |                                                                        |                                            | 34,484     |            |            |      | 104,384    |            |            |   | 198,479    |           
|Other assets                                                                                    |                                                                        |                                            | 141,361    |            |            |      | 232,544    |            |            |   | 150,000    |           
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                                |                                                                        | Total assets                               |            | $          | 27,355,334 |      |            | $          | 23,383,436 |   |            | $          | 22,866,078 | 
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                               
|Liabilities and Stockholders Equity                                                           
|                                                                                               
|Dividends payable                                                                               |                                                                        | $                                          | 236,291    |            |            | $    | 195,333    |            |            | $ | 213,345    |           
|Accrued interest payable on
junior subordinated debentures                                      |                                                                        |                                            | 171,518    |            |            |      | 171,518    |            |            |   | 166,986    |           
|Due to subsidiary                                                                               |                                                                        |                                            |           |            |            |      |           |            |            |   | 150,000    |           
|Other liabilities                                                                               |                                                                        |                                            | 3,139      |            |            |      |           |            |            |   |           |           
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                                |                                                                        | Total liabilities                          |            |            | 410,948    |      |            |            | 366,851    |   |            |            | 530,331    | 
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|Guaranteed preferred beneficial interests in
Glen Burnie Bancorp junior
subordinated debentures |                                                                        |                                            | 5,155,000  |            |            |      | 5,155,000  |            |            |   | 5,155,000  |           
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|Stockholders equity:                                                                           |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                                | Common stock                                                           |                                            |            | 1,677,173  |            |      |            | 1,663,560  |            |   |            | 1,110,049  |           
|                                                                                                | Surplus                                                                |                                            |            | 10,637,578 |            |      |            | 10,390,511 |            |   |            | 10,373,549 |           
|                                                                                                | Retained earnings                                                      |                                            |            | 7,946,747  |            |      |            | 5,970,537  |            |   |            | 5,544,305  |           
|                                                                                                | Accumulated other comprehensive income
(loss), net of taxes (benefits) |                                            |            | 1,527,888  |            |      |            | (163,023   | )          |   |            | 152,844    |           
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                                |                                                                        | Total stockholders equity                 |            |            | 21,789,386 |      |            |            | 17,861,585 |   |            |            | 17,180,747 | 
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           
|                                                                                                |                                                                        | Total liabilities and stockholders equity |            | $          | 27,355,334 |      |            | $          | 23,383,436 |   |            | $          | 22,866,078 | 
|                                                                                                |                                                                        |                                            |            |            |            |      |            |            |            |   |            |           

F-34



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information(continued)

|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |           | 
|--------------------------------------------------------------------------------------- | ---------- | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|Statements of Income                                                                   
|                                                                                       
|Years Ended December 31,                                                                |            | 2002 |           | 2001      |  | 2000
|                                                                                        |            |      |           |           |  |     
|Dividends and distributions from subsidiaries                                           |            | $    | 720,000   |           |  | $    | 1,750,000 |           |  | $ | 475,000   |          
|Other income                                                                            |            |      | 16,430    |           |  |      | 16,430    |           |  |   |          |          
|Standstill agreement expense                                                            |            |      | (131,378  | )         |  |      | (131,378  | )         |  |   | (131,378  | )        
|Interest expense on junior subordinated debentures                                      |            |      | (546,430  | )         |  |      | (550,962  | )         |  |   | (166,986  | )        
|Other expenses                                                                          |            |      | (36,642   | )         |  |      | (42,156   | )         |  |   | (2,100    | )        
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          
|Income before income tax benefit and equity in
undistributed net income of subsidiaries |            |      | 21,980    |           |  |      | 1,041,934 |           |  |   | 174,536   |          
|Income tax benefit                                                                      |            |      | 269,575   |           |  |      | 240,739   |           |  |   | 102,158   |          
|Change in undistributed net income of subsidiaries                                      |            |      | 2,519,528 |           |  |      | 442,563   |           |  |   | 1,998,172 |          
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          
|                                                                                        | Net income |      | $         | 2,811,083 |  |      | $         | 1,725,236 |  |   | $         | 2,274,866 | 
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          

F-35



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Parent Company Financial Information(continued)

|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |            |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------- | --------- | ---------- | ---- | ------- | --------- | -------- | - | ------- | ---------- | ---------- | -
|Statements of Cash Flows             
|                                     
|Years Ended December 31,              |                                                                                                             | 2002                                               |          | 2001      |            | 2000
|                                      |                                                                                                             |                                                    |          |           |            |     
|Cash flows from operating activities: |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |           
|                                      | Net income                                                                                                  |                                                    | $        | 2,811,083 |            |      | $       | 1,725,236 |          |   | $       | 2,274,866  |           
|                                      | Adjustments to reconcile net income to net
cash provided by operating activities:                           |                                                    |          |           |            |      |         |           |          |   |         |            |           
|                                      |                                                                                                             | Decrease (increase) in other assets                |          |           | 91,183     |      |         |           | (82,544  | ) |         |            | (150,000   | )
|                                      |                                                                                                             | Decrease (increase) in due from subsidiaries       |          |           | 69,900     |      |         |           | 94,095   |   |         |            | (102,158   | )
|                                      |                                                                                                             | (Decrease) increase in due to subsidiaries         |          |           |           |      |         |           | (150,000 | ) |         |            | 150,000    |  
|                                      |                                                                                                             | Increase in accrued interest payable               |          |           |           |      |         |           | 4,532    |   |         |            | 166,986    |  
|                                      |                                                                                                             | Increase in other liabilities                      |          |           | 3,139      |      |         |           |         |   |         |            |           |  
|                                      |                                                                                                             | Change in undistributed net income of
subsidiaries |          |           | (2,519,528 | )    |         |           | (442,563 | ) |         |            | (1,998,172 | )
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|                                      | Net cash provided by operating activities                                                                   |                                                    |          | 455,777   |            |      |         | 1,148,756 |          |   |         | 341,522    |           
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|Cash flows from investing activities: |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |           
|                                      | Purchase of common stock in the Glen Burnie
Statutory Trust I                                               |                                                    |          |          |            |      |         |          |          |   |         | (155,000   | )         
|                                      | Capital contributed to subsidiary                                                                           |                                                    |          |          |            |      |         |          |          |   |         | (5,000,000 | )         
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|                                      | Net cash used by investing activities                                                                       |                                                    |          |          |            |      |         |          |          |   |         | (5,155,000 | )         
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|Cash flows from financing activities: |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |           
|                                      | Proceeds from dividend reinvestment plan                                                                    |                                                    |          | 180,070   |            |      |         | 168,026   |          |   |         | 201,755    |           
|                                      | Issuance of guaranteed preferred beneficial
interests in Glen Burnie Bancorp junior
subordinated debentures |                                                    |          |          |            |      |         |          |          |   |         | 5,155,000  |           
|                                      | Proceeds from sales of common stock                                                                         |                                                    |          | 42,205    |            |      |         |          |          |   |         | 49,989     |           
|                                      | Repurchase and retirement of common stock                                                                   |                                                    |          |          |            |      |         | (148,750  | )        |   |         |           |           
|                                      | Dividends paid                                                                                              |                                                    |          | (793,915  | )          |      |         | (765,819  | )        |   |         | (667,053   | )         
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|                                      | Net cash (used) provided in financing activities                                                            |                                                    |          | (571,640  | )          |      |         | (746,543  | )        |   |         | 4,739,691  |           
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|(Decrease) increase in cash           |                                                                                                             |                                                    | (115,863 | )         |            |      | 402,213 |           |          |   | (73,787 | )         
|Cash, beginning of year               |                                                                                                             |                                                    | 512,981  |           |            |      | 110,768 |           |          |   | 184,555 |           
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           
|Cash, end of year                     |                                                                                                             | $                                                  | 397,118  |           |            | $    | 512,981 |           |          | $ | 110,768 |           
|                                      |                                                                                                             |                                                    |          |           |            |      |         |           |          |   |         |            |           

F-36



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Quarterly Results of Operations(Unaudited)



| |  | The following is a summary of the Consolidated unaudited quarterly results of operations:
| |  | -----------------------------------------------------------------------------------------

|                                         |  |                     |       |              |  |         |       |          |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|2002                                    
|                                        
|(Dollars in thousands,                   |  | Three months ended,
|except per share amounts)                |  | December 31         |       | September 30 |  | June 30 |       | March 31
|                                         |  |                     |       |              |  |         |       |         
|Interest income                          |  | $                   | 4,021 |              |  | $       | 4,250 |          |  | $ | 4,178 |  |  | $ | 4,121 | 
|Interest expense                         |  |                     | 1,248 |              |  |         | 1,302 |          |  |   | 1,284 |  |  |   | 1,368 | 
|Net interest income                      |  |                     | 2,773 |              |  |         | 2,948 |          |  |   | 2,894 |  |  |   | 2,753 | 
|Provision for credit losses              |  |                     |      |              |  |         |      |          |  |   |      |  |  |   |      | 
|Net securities gains                     |  |                     | 5     |              |  |         | 42    |          |  |   | 2     |  |  |   | 4     | 
|Income before income taxes               |  |                     | 775   |              |  |         | 918   |          |  |   | 762   |  |  |   | 1,441 | 
|Net income                               |  |                     | 545   |              |  |         | 691   |          |  |   | 587   |  |  |   | 988   | 
|Net income per share (basic and diluted) |  | $                   | 0.33  |              |  | $       | 0.41  |          |  | $ | 0.35  |  |  | $ | 0.59  | 

|                                             |  |                     |       |              |  |         |       |          |  |   |       |  |  |   |       | 
|-------------------------------------------- |  | ------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|2001                                        
|                                            
|(Dollars in thousands,                       |  | Three months ended,
|except per share amounts)                    |  | December 31         |       | September 30 |  | June 30 |       | March 31
|                                             |  |                     |       |              |  |         |       |         
|Interest income                              |  | $                   | 4,316 |              |  | $       | 4,297 |          |  | $ | 4,303 |  |  | $ | 4,291 | 
|Interest expense                             |  |                     | 1,564 |              |  |         | 1,627 |          |  |   | 1,598 |  |  |   | 1,744 | 
|Net interest income                          |  |                     | 2,752 |              |  |         | 2,670 |          |  |   | 2,705 |  |  |   | 2,547 | 
|Provision for credit losses                  |  |                     | (150  | )            |  |         |      |          |  |   |      |  |  |   |      | 
|Net securities gains                         |  |                     | 89    |              |  |         | 137   |          |  |   | 29    |  |  |   | 18    | 
|Income
before income taxes (1)               |  |                     | 404   |              |  |         | 825   |          |  |   | 485   |  |  |   | 599   | 
|Net
income (1)                               |  |                     | 330   |              |  |         | 586   |          |  |   | 377   |  |  |   | 432   | 
|Net
income per share (basic and diluted) (1) |  | $                   | 0.20  |              |  | $       | 0.35  |          |  | $ | 0.23  |  |  | $ | 0.27  | 

|                                         |  |                     |       |              |  |         |       |          |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|2000                                    
|                                        
|(Dollars in thousands,                   |  | Three months ended,
|except per share amounts)                |  | December 31         |       | September 30 |  | June 30 |       | March 31
|                                         |  |                     |       |              |  |         |       |         
|Interest income                          |  | $                   | 4,415 |              |  | $       | 4,141 |          |  | $ | 4,318 |  |  | $ | 3,829 | 
|Interest expense                         |  |                     | 1,688 |              |  |         | 1,478 |          |  |   | 1,392 |  |  |   | 1,344 | 
|Net interest income                      |  |                     | 2,727 |              |  |         | 2,663 |          |  |   | 2,926 |  |  |   | 2,485 | 
|Net securities losses                    |  |                     |      |              |  |         | (26   | )        |  |   |      |  |  |   |      | 
|Income before income taxes               |  |                     | 1,159 |              |  |         | 685   |          |  |   | 1,330 |  |  |   | 539   | 
|Net income                               |  |                     | 612   |              |  |         | 466   |          |  |   | 830   |  |  |   | 367   | 
|Net income per share (basic and diluted) |  | $                   | 0.70  |              |  | $       | 0.42  |          |  | $ | 0.66  |  |  | $ | 0.29  | 



| |  | The sum of the quarters for each fiscal year presented may not equal the annual total amounts due to
rounding.                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (1) Results have been restated
to reflect a positive amendment to the post-retirement benefit plan,
made during the first quarter 2001. Income before income taxes and
net income for each quarter have been decreased by $58 and $35,
respectively, as a result of this amendment. Net income per share
(basic and diluted) has also been changed to reflect these
restatements. Due to these restatements the first, second and third
quarters of 2001 do not match the amounts reported in the Form 10-Q
filed with the SEC.

F-37