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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

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|checkbox |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2001 or      
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|box      |  | 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)


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|MARYLAND                                           |  | 52-1782444         
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|(State or other jurisdiction                       |  | (I.R.S. Employer   
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|of incorporation or organization)                  |  | Identification No.)
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|101 Crain Highway, S.E., Glen Burnie, Maryland     |  | 21061              
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|(Address of principal executive offices)           |  | (Zip Code)         
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|Registrants telephone number, including area code |  | (410) 766-3300     

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

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|-------------- |  | ----------------------------------------- | ----
|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. Yes checkbox   No box

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. checkbox

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 19, 2002 was $23,542,494.

The number of shares of common stock outstanding as of March 13, 2002 was
1,663,560.

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 2002 Annual
Meeting of Shareholders (to be filed).





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GLEN BURNIE BANCORP
2002 ANNUAL REPORT ON FORM 10-K

Table of Contents

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|         |  |                                                                                        |  | PART I                               |    |  |    | 
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|Item 1.  |  | Business                                                                               |  |                                      | 3  | 
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|Item 2.  |  | Properties                                                                             |  |                                      | 16 | 
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|Item 3.  |  | Legal Proceedings                                                                      |  |                                      | 16 | 
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|Item 4.  |  | Submission of Matters to a Vote of Security-Holders                                    |  |                                      | 17 | 
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|         |  |                                                                                        |  | Executive Officers of the Registrant |    |  | 17 | 
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|         |  |                                                                                        |  | PART II                              |    |  |    | 
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|Item 5.  |  | Market for Registrants Common Equity and Related
Stockholder Matters                  |  |                                      | 18 | 
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|Item 6.  |  | Selected Financial Data                                                                |  |                                      | 19 | 
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|Item 7.  |  | Managements Discussion and Analysis of Financial
Conditions and Results of Operations |  |                                      | 20 | 
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|Item 7A. |  | Quantitative And Qualitative Disclosures About Market Risk                             |  |                                      | 26 | 
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|Item 8.  |  | Financial Statements and Supplementary Data                                            |  |                                      | 26 | 
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|Item 9.  |  | Changes in and Disagreements with Accountant
on Accounting and Financial Disclosures   |  |                                      | 26 | 
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|         |  |                                                                                        |  | PART III                             |    |  |    | 
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|Item 10. |  | Directors and Executive Officers of the Registrant                                     |  |                                      | 27 | 
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|Item 11. |  | Executive Compensation                                                                 |  |                                      | 27 | 
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|Item 12. |  | Security Ownership of Certain Beneficial Owners
and Management                         |  |                                      | 27 | 
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|Item 13. |  | Certain Relationships and Related Transactions                                         |  |                                      | 27 | 
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|         |  |                                                                                        |  | PART IV                              |    |  |    | 
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|Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                        |  |                                      | 28 | 
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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, steeply declined in 2001
as a result of softening loan demand. In contrast, the residential mortgage
portfolio achieved a large increase as a result of stronger than expected
demand due to refinancings.

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

|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |  
|--------------------------- | --------------------------------- | ---------------------------------- | ------- | --------------- | ------- | ---- | ---- | ----- | ------ | ---- | ------- | ------ | ------- | - | ---- | ----- | ------ | - | ------- | ------ | ------- |  | ---- | ----- | ------ | - | ------- | ------ | ------- |  | ---- | ----- | ------ | - | ------- | ------ | ------- |  | ---- | ----- | ------ | -
|                            |                                   |                                    |         | At December 31,
|                            |                                   |                                    |         |                
|                            |                                   |                                    |         | 2001            |         | 2000 |      | 1999  |        | 1998 |         | 1997  
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |       
|(Dollars in Thousands)      |                                   | $                                  |         | %               |         | $    |      | %     |        | $    |         | %      |         | $ |      | %     |        | $ |         | %     
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |       
|Mortgage:                   |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                           
|                           
|                           
|                           
|                            | Residential                       |                                    | $       | 44,293          |         |      |      | 26.32 | %      |      | $       | 36,187 |         |   |      | 21.74 | %      |   | $       | 34,099 |         |  |      | 22.03 | %      |   | $       | 33,931 |         |  |      | 26.28 | %      |   | $       | 38,048 |         |  |      | 32.68 | %     
|                           
|                           
|                           
|                           
|                            | Commercial                        |                                    |         | 36,920          |         |      |      | 21.94 |        |      |         | 40,169 |         |   |      | 24.13 |        |   |         | 42,342 |         |  |      | 27.36 |        |   |         | 43,915 |         |  |      | 34.02 |        |   |         | 43,276 |         |  |      | 37.17 |       
|                           
|                           
|                           
|                           
|                            | Construction and land
development |                                    |         | 2,355           |         |      |      | 1.40  |        |      |         | 5,257  |         |   |      | 3.16  |        |   |         | 6,095  |         |  |      | 3.94  |        |   |         | 2,383  |         |  |      | 1.85  |        |   |         | 4,888  |         |  |      | 4.20  |       
|                           
|                           
|                           
|                           
|Consumer:                   |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                           
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|                            | Installment                       |                                    |         | 20,063          |         |      |      | 11.92 |        |      |         | 19,119 |         |   |      | 11.49 |        |   |         | 16,203 |         |  |      | 10.47 |        |   |         | 17,119 |         |  |      | 13.26 |        |   |         | 18,862 |         |  |      | 16.20 |       
|                           
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|                            | Credit card                       |                                    |         | 272             |         |      |      | 0.16  |        |      |         | 281    |         |   |      | 0.16  |        |   |         | 1,348  |         |  |      | 0.88  |        |   |         | 1,398  |         |  |      | 1.08  |        |   |         | 1,397  |         |  |      | 1.20  |       
|                           
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|                            | Indirect automobile               |                                    |         | 59,308          |         |      |      | 35.24 |        |      |         | 61,725 |         |   |      | 37.08 |        |   |         | 50,967 |         |  |      | 32.93 |        |   |         | 24,630 |         |  |      | 19.08 |        |   |         |       |         |  |      |      |       
|                           
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|Commercial                  |                                   |                                    | 5,083   |                 |         |      | 3.02 |       |        |      | 3,726   |        |         |   | 2.24 |       |        |   | 3,701   |        |         |  | 2.39 |       |        |   | 5,714   |        |         |  | 4.43 |       |        |   | 9,964   |        |         |  | 8.56 |      
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            |                                   | Gross loans                        |         |                 | 168,294 |      |      |       | 100.00 | %    |         |        | 166,464 |   |      |       | 100.00 | % |         |        | 154,755 |  |      |       | 100.00 | % |         |        | 129,090 |  |      |       | 100.00 | % |         |        | 116,435 |  |      |       | 100.00 | %
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|Unearned income on loans    |                                   |                                    | (786    | )               |         |      |      |       |        |      | (705    | )      |         |   |      |       |        |   | (727    | )      |         |  |      |       |        |   | (748    | )      |         |  |      |       |        |   | (751    | )      |         |  |      |      
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|                            |                                   | Gross loans net of
unearned income |         |                 | 167,508 |      |      |       |        |      |         |        | 165,759 |   |      |       |        |   |         |        | 154,028 |  |      |       |        |   |         |        | 128,342 |  |      |       |        |   |         |        | 115,684 |  |      |       |        |  
|                           
|                           
|                           
|                           
|Allowance for credit
losses |                                   |                                    | (2,939  | )               |         |      |      |       |        |      | (3,385  | )      |         |   |      |       |        |   | (2,922  | )      |         |  |      |       |        |   | (2,841  | )      |         |  |      |       |        |   | (4,139  | )      |         |  |      |      
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      
|Loans, net                  |                                   | $                                  | 164,569 |                 |         |      |      |       |        | $    | 162,374 |        |         |   |      |       |        | $ | 151,106 |        |         |  |      |       |        | $ | 125,501 |        |         |  |      |       |        | $ | 111,545 |        |         |  |      |      
|                            |                                   |                                    |         |                 |         |      |      |       |        |      |         |        |         |   |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |       |        |   |         |        |         |  |      |      

The following table sets forth the maturities for various categories of
the loan portfolio at December 31, 2001. Demand loans and loans, which have no
stated maturity, are treated as due in one year or less. At December 31, 2001,
the Bank had $10,469,877 in loans due after one year with variable rates and
$143,609,922 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 |   | $              | 3,804 |                 |   | $          | 1,390  |       |   | $      | 39,099 |  |   | $       | 44,293 | 
|                          
|                          
|                          
|                          
|                           | Commercial  |   |                | 1,854 |                 |   |            | 10,921 |       |   |        | 24,145 |  |   |         | 36,920 | 
|                          
|                          
|                          
|                          
|Real Estate  construction |             |   | 769            |       |                 |   | 741        |        |       |   | 845    |        |  |   | 2,355   |       
|                          
|                          
|                          
|                          
|Installment                |             |   | 1,299          |       |                 |   | 13,780     |        |       |   | 4,984  |        |  |   | 20,063  |       
|                          
|                          
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|Credit Card                |             |   | 224            |       |                 |   |           |        |       |   | 48     |        |  |   | 272     |       
|                          
|                          
|                          
|                          
|Indirect automobile        |             |   | 352            |       |                 |   | 57,323     |        |       |   | 1,633  |        |  |   | 59,308  |       
|                          
|                          
|                          
|                          
|Commercial                 |             |   | 4,894          |       |                 |   | 133        |        |       |   | 56     |        |  |   | 5,083   |       
|                           |             |   |                |       |                 |   |            |        |       |   |        |        |  |   |         |       
|                           |             | $ | 13,196         |       |                 | $ | 84,288     |        |       | $ | 70,810 |        |  | $ | 168,294 |       
|                           |             |   |                |       |                 |   |            |        |       |   |        |        |  |   |         |       

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, 2001, approximately 65.4% of the installment
loans in the Banks portfolio (other than indirect automobile lending) had been
originated for commercial purposes and 34.6% 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

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Officer to identify potential
underperforming credits, estimate loss exposure and to ascertain compliance
with the Banks policies. On a quarterly basis, the internal auditor performs
an independent loan review 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 $2.37 million to any one borrower at December 31, 2001. 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 $3.78 million to any one borrower
at December 31, 2001. It is currently the Banks policy to limit its exposure
to any one borrower to no more than $2.37 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, 2001, the largest amount outstanding to any one
borrower and their related interests was $2,432,000 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.

-6-



---



##### 



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,       
|                                        |                            |                                                               |   |                       
|                                        |                            |                                                               |   | 2001                   |        | 2000 |     | 1999 |        | 1998 |     | 1997
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |     
|                                        |                            |                                                               |   | (Dollars In Thousands)
|Restructured Loans                      |                            | $                                                             |  |                        |        | $    | 370 |      |        | $    | 243 |      |        | $ | 137 |     |        | $ | 344 |      
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|Non-accrual loans:                      |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                       
|                                       
|                                       
|                                       
|                                        | Real estate  mortgage:    |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |       |       
|                                       
|                                       
|                                       
|                                       
|                                        | Residential                |                                                               | $ | 284                    |        |      | $   | 120  |        |      | $   | 237  |        |   | $   | 336 |        |   | $   | 1,078 |       
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                 |                                                               |   | 189                    |        |      |     | 77   |        |      |     | 135  |        |   |     | 505 |        |   |     | 761   |       
|                                       
|                                       
|                                       
|                                       
|                                        | Real estate  construction |                                                               |   |                       |        |      |     |     |        |      |     | 280  |        |   |     | 316 |        |   |     | 608   |       
|                                       
|                                       
|                                       
|                                       
|                                        | Installment                |                                                               |   | 88                     |        |      |     | 72   |        |      |     | 315  |        |   |     | 463 |        |   |     | 665   |       
|                                       
|                                       
|                                       
|                                       
|                                        | Credit card & related      |                                                               |   |                       |        |      |     |     |        |      |     |     |        |   |     |    |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                 |                                                               |   | 40                     |        |      |     | 101  |        |      |     | 45   |        |   |     | 105 |        |   |     | 369   |       
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                        |                            | Total non-accrual loans                                       |   |                        | 601    |      |     |      | 370    |      |     |      | 1,012  |   |     |     | 1,725  |   |     |       | 3,481  |  
|                                       
|                                       
|                                       
|                                       
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                       
|                                       
|                                       
|                                       
|Accruing loans past due 90 days or more |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                       
|                                       
|                                       
|                                       
|                                        | Real estate  mortgage:    |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |       |       
|                                       
|                                       
|                                       
|                                       
|                                        | Residential                |                                                               |   | 45                     |        |      |     | 34   |        |      |     | 43   |        |   |     |    |        |   |     | 5     |       
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                 |                                                               |   |                       |        |      |     |     |        |      |     |     |        |   |     |    |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        | Real estate  construction |                                                               |   |                       |        |      |     |     |        |      |     |     |        |   |     |    |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        | Installment                |                                                               |   | 13                     |        |      |     |     |        |      |     |     |        |   |     |    |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        | Credit card & related      |                                                               |   | 1                      |        |      |     |     |        |      |     |     |        |   |     | 18  |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                 |                                                               |   |                       |        |      |     |     |        |      |     |     |        |   |     |    |        |   |     |      |       
|                                       
|                                       
|                                       
|                                       
|                                        |                            | Total accruing loans past due
90 days or more                 |   |                        | 59     |      |     |      | 34     |      |     |      | 43     |   |     |     | 18     |   |     |       | 5      |  
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                        |                            | Total non-accrual and past due loans                          |   | $                      | 660    |      |     | $    | 404    |      |     | $    | 1,055  |   |     | $   | 1,743  |   |     | $     | 3,486  |  
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                        |                            | Non-accrual and past due loans to
gross loans                 |   |                        | 0.39   | %    |     |      | 0.24   | %    |     |      | 0.68   | % |     |     | 1.36   | % |     |       | 2.99   | %
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      
|                                        |                            | Allowance for credit losses to
non-accrual and past due loans |   |                        | 445.30 | %    |     |      | 837.87 | %    |     |      | 276.97 | % |     |     | 162.99 | % |     |       | 118.73 | %
|                                        |                            |                                                               |   |                        |        |      |     |      |        |      |     |      |        |   |     |     |        |   |     |      

For the year ended December 31, 2001, interest of approximately $14,877,
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 $561,494 or 93.4%, of the
Banks non-accrual loans at December 31, 2001 were attributable to 11
borrowers. No charge-offs have previously been taken on these loans. Six of
these borrowers with loans totaling $482,029 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, 2001, 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.

-7-



---



##### 



At December 31, 2001, the Company had $420,162 in real estate acquired in
partial or total satisfaction of debt compared to $484,148 and $558,827 in such
properties at December 31, 2000 and 1999, 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, 2001, see
Item 2.  Properties.

Allowance For Credit Losses

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

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

|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |     |     |       | 
|-------------------------------- | -------------------------- | ----------- | ------- | --- | ----------------------- | --- | ------- | --- | ---- | ----- | ------- | --- | ---- | --- | ------- | --- | -- | ----- | ------- | --- | --- | ----- | 
|                                 |                            |             |         |     | Year Ended December 31,
|                                 |                            |             |         |     |                        
|                                 |                            |             |         |     | 2001                    |     | 2000    |     | 1999 |       | 1998    |     | 1997
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |     
|                                 |                            |             |         |     | (Dollars In Thousands) 
|Beginning Balance                |                            | $           | 3,385   |     |                         | $   | 2,922   |     |      | $     | 2,841   |     |      | $   | 4,139   |     |    | $     | 5,061   |    
|                                
|                                
|                                
|                                
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                
|                                
|                                
|                                
|Loans charged off                |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                
|                                
|                                
|                                
|                                 | Real estate  mortgage:    |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |     |    
|                                
|                                
|                                
|                                
|                                 |                            | Residential |         |     |                        |     |         |     | 19   |       |         |     |     |     |         |     | 51 |       |         |     | 270 |      
|                                
|                                
|                                
|                                
|                                 |                            | Commercial  |         |     | 4                       |     |         |     | 4    |       |         |     | 50   |     |         |     |   |       |         |     |    |      
|                                
|                                
|                                
|                                
|                                 | Real estate  construction |             |         |    |                         |     |         |    |      |       |         | (27 | )    |     |         | 189 |    |       |         | 435 |    
|                                
|                                
|                                
|                                
|                                 | Installment                |             |         | 498 |                         |     |         | 470 |      |       |         | 477 |      |     |         | 473 |    |       |         | 171 |    
|                                
|                                
|                                
|                                
|                                 | Credit card & related      |             |         | 89  |                         |     |         | 101 |      |       |         | 92  |      |     |         |    |    |       |         | 45  |    
|                                
|                                
|                                
|                                
|                                 | Commercial                 |             |         | 96  |                         |     |         | 167 |      |       |         | 81  |      |     |         | 382 |    |       |         | 697 |    
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                 |                            |             | Total   |     |                         | 687 |         |     |      | 761   |         |     |      | 673 |         |     |    | 1,095 |         |     |     | 1,618 | 
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                
|                                
|                                
|                                
|Recoveries                       |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                
|                                
|                                
|                                
|                                 | Real estate  mortgage:    |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |     |    
|                                
|                                
|                                
|                                
|                                 |                            | Residential |         |     |                        |     |         |     | 52   |       |         |     | 32   |     |         |     | 51 |       |         |     | 25  |      
|                                
|                                
|                                
|                                
|                                 |                            | Commercial  |         |     |                        |     |         |     |     |       |         |     | 16   |     |         |     | 26 |       |         |     | 17  |      
|                                
|                                
|                                
|                                
|                                 | Real estate  construction |             |         |    |                         |     |         | 470 |      |       |         | 36  |      |     |         | 1   |    |       |         |    |    
|                                
|                                
|                                
|                                
|                                 | Installment                |             |         | 310 |                         |     |         | 111 |      |       |         | 259 |      |     |         | 116 |    |       |         | 89  |    
|                                
|                                
|                                
|                                
|                                 | Credit card & related      |             |         | 53  |                         |     |         | 41  |      |       |         | 4   |      |     |         | 4   |    |       |         | 5   |    
|                                
|                                
|                                
|                                
|                                 | Commercial                 |             |         | 28  |                         |     |         | 550 |      |       |         | 107 |      |     |         | 99  |    |       |         | 290 |    
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|                                 |                            |             | Total   |     |                         | 391 |         |     |      | 1,224 |         |     |      | 454 |         |     |    | 297   |         |     |     | 426   | 
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|Net charge offs/(recoveries)     |                            |             | 296     |     |                         |     | (463    | )   |      |       | 219     |     |      |     | 798     |     |    |       | 1,192   |    
|                                
|                                
|                                
|                                
|Provisions charged to operations |                            |             | (150    | )   |                         |     |        |     |      |       | 300     |     |      |     | (500    | )   |    |       | 270     |    
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|Ending balance                   |                            | $           | 2,939   |     |                         | $   | 3,385   |     |      | $     | 2,922   |     |      | $   | 2,841   |     |    | $     | 4,139   |    
|                                 |                            |             |         |     |                         |     |         |     |      |       |         |     |      |     |         |     |    |       |         |    
|Average loans                    |                            | $           | 163,695 |     |                         | $   | 159,810 |     |      | $     | 142,077 |     |      | $   | 118,372 |     |    | $     | 119,161 |    
|                                
|                                
|                                
|                                
|Net charge-offs to average loans |                            |             | 0.18    | %   |                         |     | (0.28   | )%  |      |       | 0.15    | %   |      |     | 0.67    | %   |    |       | 1.00    | %  

-8-



---



##### 



The following table shows the allowance for credit losses broken down by loan
category as of December 31, 2001, 2000, 1999, 1998 and 1997:

|                           |             |               |       |                        |       |                  |       |                        |        |                  |       |     |       |                        |       |       |        |  
|-------------------------- | ----------- | ------------- | ----- | ---------------------- | ----- | ---------------- | ----- | ---------------------- | ------ | ---------------- | ----- | --- | ----- | ---------------------- | ----- | ----- | ------ | -
|                           |             |               |       | At December 31,       
|                           |             |               |       |                       
|                           |             |               |       | 2001                   |       | 2000            
|                           |             |               |       |                        |       |                 
|                           |             |               |       |                        |       |                  |       | Percentage Of Loans In |        |                  |       |     |       | Percentage Of Loans In
|                           |             |               |       | Allowance For          |       | Each Category To |       | Allowance For          |        | Each Category To
|Portfolio                  |             | Each Category |       | Total Loans            |       | Each Category    |       | Total Loans           
|                           |             |               |       |                        |       |                  |       |                       
|                           |             |               |       | (Dollars In Thousands)
|Real Estate  mortgage:    |             |               |       |                        |       |                  |       |                        |        |                  |       |     |       |                        |       |      
|                          
|                          
|                          
|                          
|                           | Residential |               | $     | 164                    |       |                  |       | 26.32                  | %      |                  | $     | 199 |       |                        |       | 21.74 | %     
|                          
|                          
|                          
|                          
|                           | Commercial  |               |       | 456                    |       |                  |       | 21.94                  |        |                  |       | 506 |       |                        |       | 24.13 |       
|                          
|                          
|                          
|                          
|Real Estate  construction |             |               | 71    |                        |       |                  | 1.40  |                        |        |                  | 292   |     |       |                        | 3.16  |      
|                          
|                          
|                          
|                          
|Installment                |             |               | 237   |                        |       |                  | 11.92 |                        |        |                  | 221   |     |       |                        | 11.49 |      
|                          
|                          
|                          
|                          
|Credit Card                |             |               |      |                        |       |                  | 0.16  |                        |        |                  |      |     |       |                        | 0.16  |      
|                          
|                          
|                          
|                          
|Indirect automobile        |             |               | 1,390 |                        |       |                  | 35.24 |                        |        |                  | 1,486 |     |       |                        | 37.08 |      
|                          
|                          
|                          
|                          
|Commercial                 |             |               | 300   |                        |       |                  | 3.02  |                        |        |                  | 288   |     |       |                        | 2.24  |      
|                          
|                          
|                          
|                          
|Unallocated                |             |               | 321   |                        |       |                  |      |                        |        |                  | 393   |     |       |                        |      |      
|                           |             |               |       |                        |       |                  |       |                        |        |                  |       |     |       |                        |       |      
|                           |             | Total         |       | $                      | 2,939 |                  |       |                        | 100.00 | %                |       | $   | 3,385 |                        |       |       | 100.00 | %
|                           |             |               |       |                        |       |                  |       |                        |        |                  |       |     |       |                        |       |      

|                           |             |               |     |                 |       |                        |       |               |        |               |     |               |       |               |       |       |        |   |       |               |       |  |       |       |        |  
|-------------------------- | ----------- | ------------- | --- | --------------- | ----- | ---------------------- | ----- | ------------- | ------ | ------------- | --- | ------------- | ----- | ------------- | ----- | ----- | ------ | - | ----- | ------------- | ----- |  | ----- | ----- | ------ | -
|                           |             |               |     | At December 31,
|                           |             |               |     |                
|                           |             |               |     | 1999            |       | 1998                   |       | 1997         
|                           |             |               |     |                 |       |                        |       |              
|                           |             |               |     |                 |       |                        |       | Percentage Of |        |               |     |               |       | Percentage Of |       |       |        |   |       | Percentage Of
|                           |             |               |     |                 |       |                        |       | Loans In Each |        |               |     |               |       | Loans In Each |       |       |        |   |       | Loans In Each
|                           |             |               |     | Allowance For   |       | Category To            |       | Allowance For |        | Category To   |     | Allowance For |       | Category To  
|Portfolio                  |             | Each Category |     | Total Loans     |       | Each Category          |       | Total Loans   |        | Each Category |     | Total Loans  
|                           |             |               |     |                 |       |                        |       |               |        |               |     |              
|                           |             |               |     |                 |       | (Dollars In Thousands)
|Real Estate  mortgage:    |             |               |     |                 |       |                        |       |               |        |               |     |               |       |               |       |       |        |   |       |               |       |  |       |      
|                          
|                          
|                          
|                          
|                           | Residential |               | $   | 200             |       |                        |       | 22.03         | %      |               | $   | 273           |       |               |       | 26.28 | %      |   | $     | 389           |       |  |       | 32.68 | %     
|                          
|                          
|                          
|                          
|                           | Commercial  |               |     | 613             |       |                        |       | 27.36         |        |               |     | 311           |       |               |       | 34.02 |        |   |       | 987           |       |  |       | 37.17 |       
|                          
|                          
|                          
|                          
|Real Estate  construction |             |               | 296 |                 |       |                        | 3.94  |               |        |               | 335 |               |       |               | 1.85  |       |        |   | 390   |               |       |  | 4.20  |      
|                          
|                          
|                          
|                          
|Installment                |             |               | 177 |                 |       |                        | 10.47 |               |        |               | 143 |               |       |               | 13.26 |       |        |   | 159   |               |       |  | 16.20 |      
|                          
|                          
|                          
|                          
|Credit Card                |             |               | 92  |                 |       |                        | 0.88  |               |        |               | 60  |               |       |               | 1.08  |       |        |   | 47    |               |       |  | 1.20  |      
|                          
|                          
|                          
|                          
|Indirect automobile        |             |               | 793 |                 |       |                        | 32.93 |               |        |               | 312 |               |       |               | 19.08 |       |        |   |      |               |       |  |      |      
|                          
|                          
|                          
|                          
|Commercial                 |             |               | 526 |                 |       |                        | 2.39  |               |        |               | 966 |               |       |               | 4.43  |       |        |   | 1,186 |               |       |  | 8.56  |      
|                          
|                          
|                          
|                          
|Unallocated                |             |               | 225 |                 |       |                        |      |               |        |               | 441 |               |       |               |      |       |        |   | 981   |               |       |  |      |      
|                           |             |               |     |                 |       |                        |       |               |        |               |     |               |       |               |       |       |        |   |       |               |       |  |       |      
|                           |             | Total         |     | $               | 2,922 |                        |       |               | 100.00 | %             |     | $             | 2,841 |               |       |       | 100.00 | % |       | $             | 4,139 |  |       |       | 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,
|                                                        |                             |   |                
|                                                        |                             |   | 2001            |        | 2000 |   | 1999  
|                                                        |                             |   |                 |        |      |   |       
|                                                        |                             |   | (In Thousands) 
|U.S. Treasury securities                                |                             | $ | 1,248           |        |      | $ | 1,746  |        |  | $ | 2,739  |       
|                                                       
|                                                       
|                                                       
|                                                       
|U.S. Government agencies and mortgage backed
securities |                             |   | 45,603          |        |      |   | 39,057 |        |  |   | 40,833 |       
|                                                       
|                                                       
|                                                       
|                                                       
|Obligations of states and political subdivisions        |                             |   | 20,659          |        |      |   | 8,721  |        |  |   |       |       
|                                                       
|                                                       
|                                                       
|                                                       
|Corporate trust preferred                               |                             |   | 4,820           |        |      |   | 2,821  |        |  |   |       |       
|                                                        |                             |   |                 |        |      |   |        |        |  |   |        |       
|                                                        | Total investment securities |   | $               | 72,330 |      |   | $      | 52,345 |  |   | $      | 43,572 | 
|                                                        |                             |   |                 |        |      |   |        |        |  |   |        |       

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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, 2001:

|                                                        |  |                  |       |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  
|------------------------------------------------------- |  | ---------------- | ----- | ----------------- |  | ----------------- | ---- | ------------------- |  | ----- | ------ | -------- |  | ----- | ---- | ------- |  | -------- | ------ | ------- |  |  | ---- | -------- |  | - | ------ |  |  | -------- | ---- | - |  | - | ------ |  |  |  | ---- | -
|                                                        |  | 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                                |  | $                | 749   |                   |  |                   | 6.38 | %                   |  | $     | 499    |          |  |       | 5.75 | %       |  | $        |       |         |  |  |     | %        |  | $ |       |  |  |          |     | % |  | $ | 1,248  |  |  |  | 6.12 | %
|                                                       
|                                                       
|                                                       
|                                                       
|U.S. Government agencies
and mortgage backed
securities |  |                  | 920   |                   |  |                   | 5.50 | %                   |  |       | 11,484 |          |  |       | 5.43 | %       |  |          | 8,067  |         |  |  | 5.98 | %        |  |   | 25,132 |  |  |          | 6.36 | % |  |   | 45,603 |  |  |  | 6.04 | %
|                                                       
|                                                       
|                                                       
|                                                       
|Obligations of states
and political
subdivisions        |  |                  |      |                   |  |                   |     |                     |  |       | 2,806  |          |  |       | 3.10 | %       |  |          | 2,265  |         |  |  | 3.89 | %        |  |   | 15,588 |  |  |          | 5.22 | % |  |   | 20,659 |  |  |  | 4.79 | %
|                                                       
|                                                       
|                                                       
|                                                       
|Corporate trust preferred                               |  |                  |      |                   |  |                   |     |                     |  |       |       |          |  |       | 1.85 | %       |  |          |       |         |  |  |     |          |  |   | 4,820  |  |  |          | 7.61 | % |  |   | 4,820  |  |  |  | 7.61 | %
|                                                        |  |                  |       |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  
|Total investment
securities                             |  | $                | 1,669 |                   |  |                   | 5.89 | %                   |  | $     | 14,789 |          |  |       | 5.00 | %       |  | $        | 10,332 |         |  |  | 5.52 | %        |  | $ | 45,540 |  |  |          | 6.11 | % |  | $ | 72,330 |  |  |  | 5.79 | %
|                                                        |  |                  |       |                   |  |                   |      |                     |  |       |        |          |  |       |      |         |  |          |        |         |  |  |      |          |  |   |        |  |  |          |      |   |  |   |        |  |  |  |      |  

At December 31, 2001, 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, and a $2 million
investment in Floating Rate Mezzanine Notes issued by Preferred Term Securities
III) 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
$229,306,718 as of December 31, 2001. 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 $31.6 million under a line of credit from
the FHLB of Atlanta as of December 31, 2001.

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, 2001, the
Bank had approximately $21 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, 2001:

|                              |  |                |        | 
|----------------------------- |  | -------------- | ------ | 
|                              |  | Amount        
|                              |  | (In Thousands)
|                              |  |               
|Three months or less          |  | $              | 7,601  | 
|                             
|                             
|                             
|                             
|Over three through six months |  |                | 2,207  | 
|                             
|                             
|                             
|                             
|Over six through 12 months    |  |                | 2,684  | 
|                             
|                             
|                             
|                             
|Over 12 months                |  |                | 8,876  | 
|                              |  |                |        | 
|Total                         |  | $              | 21,368 | 
|                              |  |                |        | 

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 $31.6 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, 2001. The
advance matures in September 2010 and bears a 5.84%

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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. 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. The Bank also has a secured line of
credit in the amount of $5.0 million from another commercial bank but has not
drawn on this line. The Bank has a mortgage note on the 103 Crain Highway
address of $274,791, as of December 31, 2001. 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 eighth largest
deposit holder in Anne Arundel County, Maryland, with an estimated 4.68% market
share as of June 30, 2000 (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, 2001, the Bank had 124 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

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adequately managed bank holding company to acquire control of, or acquire all
or substantially all of the assets of, a bank located in a state other than
such holding companys home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not
approve the acquisition of a bank that has not 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

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##### 



control of 25% or more of the voting stock of the bank or
bank holding company or will affect the power to direct or to cause the
direction of the policy or management of the bank or bank holding company. Any
doubt whether the stock acquisition will affect the power to direct or cause
the direction of policy or management shall be resolved in
favor of reporting to the Commissioner. The Commissioner may deny approval
of the acquisition if the Commissioner determines it to be anti-competitive or
to threaten the safety or soundness of a banking institution. Voting stock
acquired in violation of this statute may not be voted for five years.

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

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

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##### 



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

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,
2001, 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

-14-



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##### 



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 which specifically allow for such branching. The
Riegle-Neal Act also requires the appropriate federal banking agencies to
prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from
using the interstate branching authority primarily for the purpose of
deposit production. These regulations must include guidelines to ensure
that interstate branches operated by an out-of-state bank in a host state are
reasonably helping to meet the credit needs of the communities which they
serve.

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

-15-



---



##### 



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
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:

|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|------------------------------------------- |  | ----------- | ---- | ------ |  | ---------- |  | -------------- | --------- | -------- |  | ----------- | ------ |  |  | - | ---------- |  |  | 
|                                            |  |             |      |        |  | Owned/     |  |                |           |          |  | Approximate |        |  |  |  
|                                            |  | Year Opened |      | Leased |  | Book Value |  | Square Footage |           | Deposits
|                                            |  |             |      |        |  |            |  |                |           |         
|Main Office:                                |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|101 Crain Highway, S.E                      |  |             | 1953 |        |  | Owned      |  | $              | 1,111,591 |          |  |             | 10,000 |  |  | $ | 84,894,341 | 
|Glen Burnie, MD 21061                       |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Branches:                                   |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Odenton                                     |  |             | 1969 |        |  | Owned      |  |                | 124,167   |          |  |             | 6,000  |  |  |   | 33,351,298 | 
|1405 Annapolis Road
Odenton, MD 21113       |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Riviera Beach                               |  |             | 1973 |        |  | Owned      |  |                | 154,086   |          |  |             | 2,500  |  |  |   | 27,856,401 | 
|8707 Ft. Smallwood Road
Pasadena, MD 21122  |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Crownsville                                 |  |             | 1979 |        |  | Owned      |  |                | 372,548   |          |  |             | 3,000  |  |  |   | 37,319,999 | 
|1221 Generals Highway
Crownsville, MD 21032 |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Severn                                      |  |             | 1984 |        |  | Owned      |  |                | 289,899   |          |  |             | 2,500  |  |  |   | 22,174,022 | 
|811 Reece Road
Severn, MD 21144             |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|South Crain                                 |  |             | 1995 |        |  | Leased     |  |                | 91,834    |          |  |             | 2,600  |  |  |   | 17,277,949 | 
|7984 Crain Highway
Glen Burnie, MD 21061    |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Severna Park                                |  |             | 1999 |        |  | Leased     |  |                | 124,194   |          |  |             | 1,250  |  |  |   | 6,432,708  | 
|790 Ritchie Highway
Severna Park, MD 21146  |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|Operations Centers:                         |  |             | 1991 |        |  | Owned      |  |                | 1,189,292 |          |  |             | 16,200 |  |  |   | N/A        | 
|106 Padfield Blvd
Glen Burnie, MD 21061     |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|                                            |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 
|                                           
|                                           
|                                           
|                                           
|103 Crain Highway, S.E                      |  |             | 2000 |        |  | Owned      |  |                | 308,590   |          |  |             | 3,727  |  |  |   | N/A        | 
|Glen Burnie, MD 21061                       |  |             |      |        |  |            |  |                |           |          |  |             |        |  |  |   |            |  |  | 

At December 31, 2001, the Bank owned one foreclosed real estate property
with a book value of $285,000. The Bank is holding this commercial property
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, 2001, there were
no actions to which the Company or the Bank was a party

-16-



---



##### 



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.

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, 2001.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

|                       |  |     |    |           |  |                                                     
|---------------------- |  | --- | -- | --------- |  | ----------------------------------------------------
|NAME                   |  | AGE |    | POSITIONS
|                       |  |     |    |          
|F. William Kuethe, Jr. |  |     | 69 |           |  | President and Chief Executive Officer               
|                      
|                      
|                      
|                      
|John I. Young          |  |     | 64 |           |  | Executive Vice President and Chief Operating
Officer
|                      
|                      
|                      
|                      
|Michael G. Livingston  |  |     | 48 |           |  | Senior Vice President and Chief Lending Officer     
|                      
|                      
|                      
|                      
|John E. Porter         |  |     | 48 |           |  | 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-



---



##### 



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 March 19, 2002, there were 468 record holders of the Common Stock. The
closing price for the Common Stock on that date was $19.75.

The following table sets forth the high and low sales prices for the
Common Stock for each full quarterly period during 2001 and 2000 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 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.

|              |  |      |       |      |  |           |       |      |  |     |      |           |  |   |       |  |  |   |       |  |  |   |       | 
|------------- |  | ---- | ----- | ---- |  | --------- | ----- | ---- |  | --- | ---- | --------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|              |  | 2001 |       | 2000
|              |  |      |       |     
|Quarter Ended |  | High |       | Low  |  | Dividends |       | High |  | Low |      | Dividends
|              |  |      |       |      |  |           |       |      |  |     |      |          
|March 31,     |  | $    | 10.50 |      |  | $         | 8.25  |      |  | $   | 0.10 |           |  | $ | 12.83 |  |  | $ | 8.33  |  |  | $ | 0.083 | 
|             
|             
|             
|             
|June 30,      |  |      | 14.00 |      |  |           | 10.00 |      |  |     | 0.10 |           |  |   | 10.67 |  |  |   | 8.83  |  |  |   | 0.10  | 
|             
|             
|             
|             
|September 30  |  |      | 17.20 |      |  |           | 12.25 |      |  |     | 0.10 |           |  |   | 11.25 |  |  |   | 10.00 |  |  |   | 0.10  | 
|             
|             
|             
|             
|December 31   |  |      | 15.00 |      |  |           | 13.15 |      |  |     | 0.15 |           |  |   | 10.17 |  |  |   | 8.00  |  |  |   | 0.166 | 

A regular dividend of $0.10 and a bonus dividend of $.05 were declared for
stockholders of record on December 24, 2001, payable on January 8, 2002.

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,                    
|                                                               |         |   |                                            
|                                                               |         |   | 2001                                        |           | 2000 |   | 1999    |           | 1998 |   | 1997   
|                                                               |         |   |                                             |           |      |   |         |           |      |   |        
|                                                               |         |   | (Dollars In Thousand Except Per Share Data)
|Operations Data:                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Net Interest Income                                            |         | $ | 10,674                                      |           |      | $ | 10,801  |           |      | $ | 9,925   |           |  | $ | 9,794   |           |  | $ | 10,567  |          
|                                                              
|                                                              
|                                                              
|                                                              
|Provision for Credit Losses                                    |         |   | (150                                        | )         |      |   |        |           |      |   | 300     |           |  |   | (500    | )         |  |   | 270     |          
|                                                              
|                                                              
|                                                              
|                                                              
|Other Income                                                   |         |   | 1,821                                       |           |      |   | 3,658   |           |      |   | 2,828   |           |  |   | 3,122   |           |  |   | 1,728   |          
|                                                              
|                                                              
|                                                              
|                                                              
|Other Expense                                                  |         |   | 10,332                                      |           |      |   | 10,746  |           |      |   | 9,822   |           |  |   | 11,776  |           |  |   | 11,593  |          
|                                                              
|                                                              
|                                                              
|                                                              
|Net Income                                                     |         |   | 1,725                                       |           |      |   | 2,275   |           |      |   | 1,455   |           |  |   | 833     |           |  |   | 747     |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Share Data:                                                    |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Basic Net Income (Loss) Per Share                              |         | $ | 1.04                                        |           |      | $ | 1.38    |           |      | $ | 0.88    |           |  | $ | 0.46    |           |  | $ | 0.41    |          
|                                                              
|                                                              
|                                                              
|                                                              
|Diluted Net Income (Loss) Per Share                            |         |   | 1.04                                        |           |      |   | 1.38    |           |      |   | 0.88    |           |  |   | 0.46    |           |  |   | 0.41    |          
|                                                              
|                                                              
|                                                              
|                                                              
|Cash Dividends Declared Per Common Share                       |         |   | 0.45                                        |           |      |   | 0.449   |           |      |   | 0.28    |           |  |   | 0.28    |           |  |   | 0.167   |          
|                                                              
|                                                              
|                                                              
|                                                              
|Weighted Average Common Shares
Outstanding:                    |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Basic   |   |                                             | 1,656,904 |      |   |         | 1,652,001 |      |   |         | 1,636,275 |  |   |         | 1,804,472 |  |   |         | 1,826,214 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Diluted |   |                                             | 1,656,904 |      |   |         | 1,652,001 |      |   |         | 1,636,275 |  |   |         | 1,804,834 |  |   |         | 1,826,214 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Financial Condition Data:                                      |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Total Assets                                                   |         | $ | 263,362                                     |           |      | $ | 239,211 |           |      | $ | 213,439 |           |  | $ | 217,571 |           |  | $ | 231,900 |          
|                                                              
|                                                              
|                                                              
|                                                              
|Loans Receivable, Net                                          |         |   | 164,569                                     |           |      |   | 162,373 |           |      |   | 151,107 |           |  |   | 125,501 |           |  |   | 111,545 |          
|                                                              
|                                                              
|                                                              
|                                                              
|Total Deposits                                                 |         |   | 229,307                                     |           |      |   | 205,968 |           |      |   | 194,090 |           |  |   | 199,611 |           |  |   | 207,110 |          
|                                                              
|                                                              
|                                                              
|                                                              
|Long Term Borrowings                                           |         |   | 7,275                                       |           |      |   | 7,297   |           |      |   |        |           |  |   |        |           |  |   |        |          
|                                                              
|                                                              
|                                                              
|                                                              
|Junior Subordinated Debentures                                 |         |   | 5,155                                       |           |      |   | 5,155   |           |      |   |        |           |  |   |        |           |  |   |        |          
|                                                              
|                                                              
|                                                              
|                                                              
|Total Stockholders Equity                                     |         |   | 17,862                                      |           |      |   | 17,181  |           |      |   | 15,102  |           |  |   | 14,169  |           |  |   | 18,965  |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Performance Ratios:                                            |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Return on Average Assets                                       |         |   | 0.69                                        | %         |      |   | 1.02    | %         |      |   | 0.66    | %         |  |   | 0.38    | %         |  |   | 0.32    | %        
|                                                              
|                                                              
|                                                              
|                                                              
|Return on Average Equity                                       |         |   | 9.77                                        |           |      |   | 12.94   |           |      |   | 9.97    |           |  |   | 4.54    |           |  |   | 3.95    |          
|                                                              
|                                                              
|                                                              
|                                                              
|Net Interest Margin (1)                                        |         |   | 4.80                                        |           |      |   | 5.27    |           |      |   | 4.96    |           |  |   | 4.94    |           |  |   | 5.09    |          
|                                                              
|                                                              
|                                                              
|                                                              
|Dividend Payout Ratio                                          |         |   | 43.27                                       |           |      |   | 32.61   |           |      |   | 43.48   |           |  |   | 75.75   |           |  |   | 50.85   |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Capital Ratios:                                                |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Average Equity to Average Assets                               |         |   | 9.08                                        | %         |      |   | 8.59    | %         |      |   | 6.67    | %         |  |   | 8.40    | %         |  |   | 8.01    | %        
|                                                              
|                                                              
|                                                              
|                                                              
|Leverage Ratio                                                 |         |   | 8.79                                        |           |      |   | 9.30    |           |      |   | 6.87    |           |  |   | 5.96    |           |  |   | 7.60    |          
|                                                              
|                                                              
|                                                              
|                                                              
|Total Risk-Based Capital Ratio                                 |         |   | 13.92                                       |           |      |   | 13.99   |           |      |   | 10.80   |           |  |   | 10.50   |           |  |   | 16.00   |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Asset Quality Ratios:                                          |         |   |                                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         |          
|                                                              
|                                                              
|                                                              
|                                                              
|Allowance for Credit Losses to
Gross Loans                     |         |   | 1.75                                        | %         |      |   | 2.04    | %         |      |   | 1.89    | %         |  |   | 2.21    | %         |  |   | 3.55    | %        
|                                                              
|                                                              
|                                                              
|                                                              
|Non-accrual and Past Due Loans to
Gross Loans                  |         |   | 0.39                                        | %         |      |   | 0.24    | %         |      |   | 0.68    | %         |  |   | 1.36    | %         |  |   | 2.99    | %        
|                                                              
|                                                              
|                                                              
|                                                              
|Allowance for Credit Losses to Non-
Accrual and Past Due Loans |         |   | 445.30                                      | %         |      |   | 837.87  | %         |      |   | 276.97  | %         |  |   | 162.99  | %         |  |   | 118.73  | %        
|                                                              
|                                                              
|                                                              
|                                                              
|Net Loan Charge-offs (Recoveries) to
Average Loans             |         |   | 0.18                                        | %         |      |   | (0.28   | )%        |      |   | 0.15    | %         |  |   | 0.67    | %         |  |   | 1.00    | %        



---

|*   |  | Not Meaningful                     
|--- |  | -----------------------------------
|   
|   
|   
|   
|(1) |  | Presented on a tax-equivalent basis

-19-



---



##### 



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

Overview

During 2001, the Company continued many favorable operating trends. Most
notably, 2001 saw significant growth in both the Banks deposits and investment
portfolio. Deposit growth in 2001 was strong with increases of $20,616,000 in
interest bearing deposits and $2,723,000 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 $20,659,000
by the end of 2001. The Banks net interest income on a tax equivalent basis
improved due to a combination of growth in the securities portfolio and a
continued moderation in deposit costs.

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, 2001, 2000 and 1999

General.For the year ended December 31, 2001, the Company reported
consolidated net income of $1,725,236 ($1.04 basic and diluted earnings per
share) compared to a consolidated net income of $2,274,866 ($1.38 basic and
diluted earnings per share) for the year ended December 31, 2000 and a
consolidated net income of $1,445,350 ($.88 basic and diluted earnings per
share) for the year ended December 31, 1999. (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.) Net income for 2000 and 1999 included certain non-recurring items
($2,090,126 for 2000 and $1,311,997 for 1999). Net income adjusted to remove
the effects of these non-recurring items was $1,725,236 for 2001, $991,947 for
2000, and $640,045 for 1999.

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, 2001 was
$10,673,730 compared to $10,801,098 for the year ended December 31, 2000 and
$9,925,203 for the year ended December 31, 1999. The $127,368 decrease for the
most recent year 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, which are tax advantaged, 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%. The $875,895 increase in net interest income for 2000 over 1999 was
due to an increase in loan income,

-20-



---



##### 



federal funds sold and other interest
income, partially offset by an increase in other interest expense for long-term
borrowing and junior subordinated debt interest expense. The after tax net
interest income for 2000 was $10,885,000, a $950,000 increase (or 9.6%) over
the $9,935,000 after tax net interest income for 1999.

Interest expense increased from $5,901,617 in 2000 to $6,533,274 in 2001,
a $631,657 or 10.7% increase, and increased from $5,623,174 in 1999 to
$5,901,617 in 2000, a $278,443, or 4.95% 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, 2001 was 4.80% compared to
5.27% and 4.96% for the years ended December 31, 2000 and 1999, 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,
|                                                    |                                                                                                  |                                 |     |                        
|                                                    |                                                                                                  |                                 |     | 2001                    |      | VS.  |      | 2000           |      | 2000     |       | VS.  |     | 1999          
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |               
|                                                    |                                                                                                  |                                 |     |                         |      |      |      | Change Due To: |      |          |       |      |     | Change Due To:
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |               
|                                                    |                                                                                                  |                                 |     | Increase/               |      |      |      |                |      |          |       |      |     | Increase/      |       |       |       |   |     |      |      |  
|                                                    |                                                                                                  |                                 |     | Decrease                |      | Rate |      | Volume         |      | Decrease |       | Rate |     | Volume        
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |               
|                                                    |                                                                                                  |                                 |     | (In Thousands)         
|ASSETS                                              |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|Interest-earning assets:                            |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Federal funds sold                                                                               |                                 | $   | 85                      |      |      | $    | (139           | )    |          | $     | 224  |     |                | $     | 85    |       |   | $   | 43   |      |   | $     | 42    |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    | Interest-bearing deposits                                                                        |                                 |     | 185                     |      |      |      | (34            | )    |          |       | 219  |     |                |       | (28   | )     |   |     | (28  | )    |   |       |      |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|Investment securities:                              |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities |                                 |     | (296                    | )    |      |      | (126           | )    |          |       | (170 | )   |                |       | (797  | )     |   |     | (135 | )    |   |       | (662  | )    
|                                                   
|                                                   
|                                                   
|                                                   
|Obligations of states and
political subdivisions(1) |                                                                                                  |                                 | 579 |                         |      |      | (52  | )              |      |          | 631   |      |     |                | 159   |       |       |   |    |      |      |   | 159   |      
|                                                   
|                                                   
|                                                   
|                                                   
|All other investment securities                     |                                                                                                  |                                 | 242 |                         |      |      | 43   |                |      |          | 199   |      |     |                | 86    |       |       |   | 3   |      |      |   | 83    |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  | Total investment securities     |     |                         | 525  |      |      |                | (135 | )        |       |      | 660 |                |       |       | (552  | ) |     |      | (132 | ) |       |       | (420  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|Loans, net of unearned income:                      |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Demand, time and lease                                                                           |                                 |     | (39                     | )    |      |      | (116           | )    |          |       | 77   |     |                |       | 24    |       |   |     | 115  |      |   |       | (91   | )    
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Mortgage and construction                                                                        |                                 |     | (745                    | )    |      |      | (607           | )    |          |       | (138 | )   |                |       | 133   |       |   |     | 65   |      |   |       | 68    |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Installment and credit card                                                                      |                                 |     | 493                     |      |      |      | 114            |      |          |       | 379  |     |                |       | 1,491 |       |   |     | 89   |      |   |       | 1,402 |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  | Total gross loans(2)            |     |                         | (291 | )    |      |                | (609 | )        |       |      | 318 |                |       |       | 1,648 |   |     |      | 269  |   |       |       | 1,379 |  
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    | Allowance for credit losses                                                                      |                                 |     |                        |      |      |      |               |      |          |       |     |     |                |       |      |       |   |     |     |      |   |       |      |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  | Total net loans                 |     |                         | (291 | )    |      |                | (609 | )        |       |      | 318 |                |       |       | 1,648 |   |     |      | 269  |   |       |       | 1,379 |  
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|Total interest-earning assets                       |                                                                                                  | $                               | 504 |                         |      | $    | (917 | )              |      | $        | 1,421 |      |     | $              | 1,153 |       |       | $ | 152 |      |      | $ | 1,001 |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|LIABILITIES:                                        |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|Interest-bearing deposits:                          |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Savings and NOW                                                                                  |                                 | $   | (430                    | )    |      | $    | (438           | )    |          | $     | 8    |     |                | $     | 10    |       |   | $   | 6    |      |   | $     | 4     |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Money market                                                                                     |                                 |     | (93                     | )    |      |      | (140           | )    |          |       | 47   |     |                |       | (78   | )     |   |     | (7   | )    |   |       | (71   | )    
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other time deposits                                                                              |                                 |     | 488                     |      |      |      | (36            | )    |          |       | 524  |     |                |       | 127   |       |   |     | 66   |      |   |       | 61    |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|                                                    |                                                                                                  | Total interest-bearing deposits |     |                         | (35  | )    |      |                | (614 | )        |       |      | 579 |                |       |       | 59    |   |     |      | 65   |   |       |       | (6    | )
|                                                   
|                                                   
|                                                   
|                                                   
|Non-interest-bearing deposits                       |                                                                                                  |                                 |    |                         |      |      |     |                |      |          |      |      |     |                |      |       |       |   |    |      |      |   |      |      
|                                                   
|                                                   
|                                                   
|                                                   
|Borrowed funds                                      |                                                                                                  |                                 | 666 |                         |      |      | 382  |                |      |          | 284   |      |     |                | 220   |       |       |   | (19 | )    |      |   | 239   |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      
|Total interest-bearing liabilities                  |                                                                                                  | $                               | 631 |                         |      | $    | (232 | )              |      | $        | 863   |      |     | $              | 279   |       |       | $ | 46  |      |      | $ | 233   |      
|                                                    |                                                                                                  |                                 |     |                         |      |      |      |                |      |          |       |      |     |                |       |       |       |   |     |      |      |   |       |      



---

|(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,
|                                                    |                                                                                                  |                                    |              |        |                        
|                                                    |                                                                                                  |                                    |              |        | 2001                    |         | 2000     |       | 1999  
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |       
|                                                    |                                                                                                  |                                    |              |        | 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                                                                               |                                    | $            | 6,733  |                         |         | $        | 286   |        |  |         | 4.25 | %        |   | $       | 3,185  |         |         | $        | 201   |         |  |      | 6.31  | %    |   | $       | 2,330  |         |         | $      | 116   |        |  |      | 4.97 | %   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest-bearing deposits                                                                        |                                    |              | 5,878  |                         |         |          | 240   |        |  |         | 4.08 |          |   |         | 472    |         |         |          | 22    |         |  |      | 4.66  |      |   |         | 440    |         |         |        | 26    |        |  |      | 5.91 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Investment securities:                              |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | U.S. Treasury securities,
obligations of U.S. government
agencies and mortgage-backed
securities |                                    |              | 39,491 |                         |         |          | 2,442 |        |  |         | 6.18 |          |   |         | 42,098 |         |         |          | 2,738 |         |  |      | 6.50  |      |   |         | 57,347 |         |         |        | 3,542 |        |  |      | 6.18 |     
|                                                   
|                                                   
|                                                   
|                                                   
|Obligations of states and political
subdivisions(1) |                                                                                                  |                                    | 13,761       |        |                         |         | 1,125    |       |        |  | 8.18    |      |          |   | 2,766   |        |         |         | 243      |       |         |  | 8.79 |       |      |   |        |        |         |         |       |       |        |  |     |     
|                                                   
|                                                   
|                                                   
|                                                   
|All other investment securities                     |                                                                                                  |                                    | 3,833        |        |                         |         | 327      |       |        |  | 8.56    |      |          |   | 1,587   |        |         |         | 118      |       |         |  | 7.43 |       |      |   | 737     |        |         |         | 56     |       |        |  | 7.60 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  | Total investment securities        |              |        | 57,085                  |         |          |       | 3,894  |  |         |      | 6.82     |   |         |        | 46,451  |         |          |       | 3,099   |  |      |       | 6.67 |   |         |        | 58,084  |         |        |       | 3,598  |  |      |      | 6.19 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Loans, net of unearned income:                      |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Demand, time and lease                                                                           |                                    |              | 4,542  |                         |         |          | 426   |        |  |         | 9.38 |          |   |         | 3,894  |         |         |          | 465   |         |  |      | 11.94 |      |   |         | 4,353  |         |         |        | 391   |        |  |      | 8.98 |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Mortgage and construction                                                                        |                                    |              | 79,873 |                         |         |          | 6,416 |        |  |         | 8.03 |          |   |         | 81,427 |         |         |          | 7,161 |         |  |      | 8.79  |      |   |         | 80,814 |         |         |        | 7,041 |        |  |      | 8.71 |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Installment and credit card                                                                      |                                    |              | 79,416 |                         |         |          | 6,332 |        |  |         | 7.97 |          |   |         | 74,489 |         |         |          | 5,839 |         |  |      | 7.83  |      |   |         | 56,910 |         |         |        | 4,385 |        |  |      | 7.71 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  | Total gross loans(2)               |              |        | 163,831                 |         |          |       | 13,174 |  |         |      | 8.04     |   |         |        | 159,810 |         |          |       | 13,465  |  |      |       | 8.42 |   |         |        | 142,077 |         |        |       | 11,817 |  |      |      | 8.32 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                  | Allowance for credit losses        |              |        | 3,242                   |         |          |       |        |  |         |      |          |   |         |        | 3,260   |         |          |       |         |  |      |       |      |   |         |        | 2,800   |         |        |       |        |  |      |      |      | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  | Total net loans                    |              |        | 160,589                 |         |          |       | 13,174 |  |         |      | 8.20     |   |         |        | 156,550 |         |          |       | 13,465  |  |      |       | 8.60 |   |         |        | 139,277 |         |        |       | 11,817 |  |      |      | 8.48 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Total interest-earning assets                       |                                                                                                  |                                    | 230,285      |        |                         |         | 17,594   |       |        |  | 7.64    |      |          |   | 206,658 |        |         |         | 16,787   |       |         |  | 8.12 |       |      |   | 200,131 |        |         |         | 15,557 |       |        |  | 7.77 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Cash and due from banks                             |                                                                                                  |                                    | 9,963        |        |                         |         |          |       |        |  |         |      |          |   | 6,734   |        |         |         |          |       |         |  |      |       |      |   | 7,288   |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Other assets                                        |                                                                                                  |                                    | 9,124        |        |                         |         |          |       |        |  |         |      |          |   | 9,962   |        |         |         |          |       |         |  |      |       |      |   | 9,890   |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    | Total assets |        | $                       | 249,372 |          |       |        |  |         |      |          |   |         |        | $       | 223,354 |          |       |         |  |      |       |      |   |         |        | $       | 217,309 |        |       |        |  |      |      |      |  | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY:               |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Interest-bearing deposits:                          |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Savings and NOW                                                                                  |                                    | $            | 61,992 |                         |         | $        | 740   |        |  |         | 1.19 | %        |   | $       | 62,257 |         |         | $        | 1,188 |         |  |      | 1.90  | %    |   | $       | 61,902 |         |         | $      | 1,169 |        |  |      | 1.89 | %   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Money market                                                                                     |                                    |              | 18,756 |                         |         |          | 357   |        |  |         | 1.90 |          |   |         | 16,919 |         |         |          | 450   |         |  |      | 2.65  |      |   |         | 19,581 |         |         |        | 527   |        |  |      | 2.69 |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other time deposits                                                                              |                                    |              | 83,498 |                         |         |          | 4,431 |        |  |         | 5.31 |          |   |         | 73,292 |         |         |          | 3,924 |         |  |      | 5.35  |      |   |         | 72,320 |         |         |        | 3,807 |        |  |      | 5.26 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  | Total interest-bearing deposits    |              |        | 164,246                 |         |          |       | 5,528  |  |         |      | 3.37     |   |         |        | 152,468 |         |          |       | 5,562   |  |      |       | 3.64 |   |         |        | 153,803 |         |        |       | 5,503  |  |      |      | 3.58 | 
|                                                   
|                                                   
|                                                   
|                                                   
|Borrowed funds                                      |                                                                                                  |                                    | 12,981       |        |                         |         | 1,006    |       |        |  | 7.75    |      |          |   | 1,880   |        |         |         | 339      |       |         |  | 4.81 |       |      |   | 2,043   |        |         |         | 119    |       |        |  | 5.82 |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  | Total interest-bearing liabilities |              |        | 177,227                 |         |          |       | 6,534  |  |         |      | 3.69     |   |         |        | 154,348 |         |          |       | 5,902   |  |      |       | 3.82 |   |         |        | 155,846 |         |        |       | 5,622  |  |      |      | 3.61 | 
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Non-interest-bearing deposits                       |                                                                                                  |                                    | 52,252       |        |                         |         |          |       |        |  |         |      |          |   | 48,071  |        |         |         |          |       |         |  |      |       |      |   | 44,270  |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Other liabilities                                   |                                                                                                  |                                    | 2,240        |        |                         |         |          |       |        |  |         |      |          |   | 3,348   |        |         |         |          |       |         |  |      |       |      |   | 2,695   |        |         |         |        |       |        |  |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|Stockholders equity                                |                                                                                                  |                                    | 17,653       |        |                         |         |          |       |        |  |         |      |          |   | 17,587  |        |         |         |          |       |         |  |      |       |      |   | 14,498  |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Total liabilities and equity                        |                                                                                                  | $                                  | 249,372      |        |                         |         |          |       |        |  |         |      |          | $ | 223,354 |        |         |         |          |       |         |  |      |       |      | $ | 217,309 |        |         |         |        |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Net interest income                                 |                                                                                                  |                                    |              |        |                         | $       | 11,060   |       |        |  |         |      |          |   |         |        |         | $       | 10,885   |       |         |  |      |       |      |   |         |        |         | $       | 9,935  |       |        |  |      |     
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Net interest spread                                 |                                                                                                  |                                    |              |        |                         |         |          |       |        |  | 3.95    | %    |          |   |         |        |         |         |          |       |         |  | 4.30 | %     |      |   |         |        |         |         |        |       |        |  | 4.16 | %   
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     
|Net interest margin                                 |                                                                                                  |                                    |              |        |                         |         |          |       |        |  | 4.80    | %    |          |   |         |        |         |         |          |       |         |  | 5.27 | %     |      |   |         |        |         |         |        |       |        |  | 4.96 | %   
|                                                    |                                                                                                  |                                    |              |        |                         |         |          |       |        |  |         |      |          |   |         |        |         |         |          |       |         |  |      |       |      |   |         |        |         |         |        |       |        |  |      |     



---

|1 |  | Tax equivalent basis. The incremental tax rate applied was 34.38% for 2001 and 34.60% for 2000.
|- |  | -----------------------------------------------------------------------------------------------
| 
| 
| 
| 
|2 |  | Non-accrual loans included in average balance.                                                 

Provision For Credit Losses.During the year ended December 31, 2001, the
Company made a negative $150,000 provision for credit losses compared to no
provision during the year ended December 31, 2000 and $300,000 during the year
ended December 31, 1999. The negative $150,000 provision for credit losses was
used to create a $150,000 reserve for unfunded commitments. The level of the
provision for 1999 reflects the loan growth during the year. At December 31,
2001, the allowance for loan losses equaled 445.30% of non-accrual and past due
loans compared to 837.87% and 276.97% at December 31, 2000 and 1999,
respectively. During the year ended

-22-



---



##### 



December 31, 2001, the Company recorded net charge-offs of $296,360
compared to $463,184 in net recoveries and $219,429 in net charge-offs during
the years ended December 31, 2000 and 1999, respectively.

Other Income.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
gain on foreclosed real estate and a settlement gain 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 income increased
from $2,827,881 in 1999 to $3,657,878 in 2000, a $829,997, or 29.35% increase.
The increase was due to a $490,000 gain on the sale of a foreclosed property.
In addition, other income for 2000 included the settlement gain of $1,600,126
on the pension plan termination, compared to a non-recurring curtailment gain
in 1999 of $1,311,997 upon termination of the pension plan.

Other Expenses.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. Other expenses increased from
$9,821,690 in 1999 to $10,746,049 in 2000, a $924,359 or 9.41% increase, due to
an increase in employee benefits and the closing of the Banks Ferndale branch.

Income Taxes.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. During the year ended December 31, 1999, the Company recorded
income tax expense of $1,186,044. The increased income tax expense for 2000 as
compared to 1999 was due to taxes paid as a result of the pension plan
termination and the gain on foreclosed real estate.

Comparison of Financial Condition at December 31, 2001, 2000 and 1999

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 total assets increased to $239,211,180 at December
31, 2000 from $213,439,456 at December 31, 1999. The increase in assets during
the year ended December 31, 2000 is a result primarily of an increase in loans
and investment securities.

The Companys loan portfolio grew to $164,569,252 at December 31, 2001
compared to $162,373,731 at December 31, 2000 and $151,106,560 at December 31,
1999. The growth in the loan portfolio during the 2000 period is attributable
almost entirely to the Banks indirect automobile lending program, which was
introduced in January 1998 and grew to $61,725,204 at December 31, 2000. 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 2001, the Companys total investment securities portfolio
(including both investment securities available for sale and investment
securities held to maturity) totaled $72,064,921, a $19,470,023 or 37%,
increase from $52,594,898 at December 31, 2000. This increase is primarily
attributable to 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. The
Companys total investment securities portfolio total of $52,594,898 at
December 31, 2000, is a $9,272,703 or 21.41% increase from $43,322,195 at
December 31, 1999. The funds for this increase are attributable to the FHLB of
Atlanta borrowing and the Junior Subordinated Deferrable Interest Debenture
issuance discussed in Liquidity and Capital Resources, below.

Deposits as of December 31, 2001 totaled $229,306,717, an increase of
$23,338,380, or 11.3%, from the $205,968,337 total as of December 31, 2000.
The $205,968,337 total deposits as of December 31, 2000 is a $11,878,342 or
6.12% increase from the $194,089,995 total deposits as of December 31, 1999.
Demand deposits as of December 31, 2001 totaled $55,685,108, a $2,722,617 or
5.1% increase from $52,962,491 at December 31, 2000. NOW and Super NOW
accounts as of December 31, 2001 increased by $2,750,818 or 14.0% from their
2000 level

-23-



---



##### 



to $22,395,703 Money market accounts increased by $3,859,859 or
23.0%, from their 2000 level to total
$20,626,249 December 31, 2001. Savings deposits increased by $2,779,912
or 6.8% from their 2000 level, to $42,483,730 at December 31, 2001. Time
deposits over $100,000 totaled $21,368,319 on December 31, 2001, an increase of
$6,264,032 from December 31, 2000. Other time deposits (made up of
certificates of deposit less than $100,000 and individual retirement accounts)
totaled $66,747,609 on December 31, 2001, a $6,066,253 or a 10.0%, increase
from December 31, 2000.

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. The Company experienced a
$2,078,298, or 13.76% increase in total stockholders equity for the year ended
December 31, 2000 over total stockholders equity as of December 31, 1999. The
increase was attributed to an increase of $306,309 in the unrealized gain in
securities available for sale and an increase of $1,531,134 in retained
earnings.

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-



---



##### 



The following table sets forth the Banks interest-rate sensitivity at December
31, 2001.

|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |         |         | 
|------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ---------------------- | ------- | --------- | -------- | --------------- | ------ | ------ | ------- | ------ | ------ | - | ------- | ------ | ------- |  | - | ------- | ------- | 
|                                      |                                      |                                            |         |                        |         |           |          | Over 3 To       |        | Over 1 |         | Over 5 |        |   |         |       
|                                      |                                      |                                            |         | 0-3 Months             |         | 12 Months |          | Through 5 Years |        | Years  |         | Total 
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |       
|                                      |                                      |                                            |         | (Dollars In Thousands)
|Assets:                               |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and due from banks              |                                            | $       |                       |         |           | $        |                |        |        | $       |       |        |   | $       |       |         |  | $ | 10,888  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Federal funds and overnight deposits |                                            |         | 7,333                  |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 7,333   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Securities                           |                                            |         |                       |         |           |          | 2,322           |        |        |         | 14,793 |        |   |         | 55,702 |         |  |   | 72,817  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Loans                                |                                            |         | 9,959                  |         |           |          | 2,349           |        |        |         | 84,821 |        |   |         | 70,379 |         |  |   | 167,508 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Fixed Assets                         |                                            |         |                       |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 3,887   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Other Assets                         |                                            |         |                       |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 929     |        
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                      |                                      | Total assets                               |         | $                      | 17,292  |           |          | $               | 4,671  |        |         | $      | 99,614 |   |         | $      | 126,081 |  |   | $       | 263,362 | 
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|Liabilities:                          |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Demand deposit accounts              |                                            | $       |                       |         |           | $        |                |        |        | $       |       |        |   | $       |       |         |  | $ | 55,685  |        
|                                     
|                                     
|                                     
|                                     
|                                      | NOW accounts                         |                                            |         | 22,395                 |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 22,395  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Money market deposit accounts        |                                            |         | 20,626                 |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 20,626  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Savings accounts                     |                                            |         | 42,484                 |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 442,484 |        
|                                     
|                                     
|                                     
|                                     
|                                      | IRA accounts                         |                                            |         | 1,925                  |         |           |          | 4,246           |        |        |         | 11,089 |        |   |         | 2,196  |         |  |   | 19,456  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Certificates of deposit              |                                            |         | 21,690                 |         |           |          | 26,781          |        |        |         | 17,652 |        |   |         | 2,537  |         |  |   | 68,660  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Other liabilities                    |                                            |         |                       |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 10,944  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Junior Subordinated Debenture        |                                            |         |                       |         |           |          |                |        |        |         |       |        |   |         |       |         |  |   | 5,155   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                      | Stockholders equity                       |         |                        |        |           |          |                 |       |        |         |        |       |   |         |        |        |  |   |         | 17,862  | 
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                      | Total liabilities and
Stockholders equity |         | $                      | 109,120 |           |          | $               | 31,027 |        |         | $      | 28,741 |   |         | $      | 4,733   |  |   | $       | 263,362 | 
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                      |                                      |                                            |         |                        |         |           |          |                 |        |        |         |        |        |   |         |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|GAP                                   |                                      | $                                          | (91,829 | )                      |         | $         | (26,356  | )               |        | $      | (70,873 | )      |        | $ | 121,348 |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|Cumulative GAP                        |                                      |                                            | (91,829 | )                      |         |           | (118,185 | )               |        |        | (47,312 | )      |        |   | 74,036  |        |         |  |   |        
|                                     
|                                     
|                                     
|                                     
|Cumulative GAP as a % of
total assets |                                      |                                            | (34.9   | %)                     |         |           | (44.9    | %)              |        |        | 18.0    | %      |        |   | 28.1    | %      |         |  |   |        

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,
2001, totaled $18,220,828, an increase of $2,711,689 or 17.5%, from

-25-



---



##### 



the
December 31, 2000 total of $15,509,139. Most of this increase was due to an
increase in deposits in other financial institutions.

As of December 31, 2001, the Bank was permitted to draw on a $31.6 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, 2001, 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 $5.0 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, 2001, 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, 2001, the Company was in
compliance with these requirements with a leverage ratio of 8.79%, a Tier 1
risk-based capital ratio of 12.67% and total risk-based capital ratio of
13.92%. At December 31, 2001, 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.

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 14(a) of this Annual Report.

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

Not applicable.

-26-



---



##### 



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 2002 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.

-27-



---



##### 



PART IV

ITEM 14. 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, 2001, 2000 and 1999                                              |  |      | F-2 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and1999                           |  |      | F-3 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2001,
2000 and 1999            |  |      | F-4 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2001, 2000 and 1999 |  |      | F-5 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2001 2000 and 1999                       |  |      | 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                                                                                                                                                                                                                                                          
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                
|           
|           
|           
|           
|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                                                                                                                                                                                                                                                                                 
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                
|           
|           
|           
|           
|23          |  | Consent of Trice Geary & Myers LLC                                                                                                                                                                                                                                                                             



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

None.

-28-



---



##### 



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 21, 2002 |  | 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 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  John I. YoungJohn I. Young                       |  | Executive Vice President, Chief
Operating Officer and Director |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  John E. PorterJohn E. Porter                     |  | Senior Vice President and Chief
Financial Officer              |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  John E. DemyanJohn E. Demyan                     |  | Chairman of the Board and Director                             |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  Theodore L. Bertier, Jr.Theodore L. Bertier, Jr. |  | Director                                                       |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  Shirley E. BoyerShirley E. Boyer                 |  | Director                                                       |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  Thomas ClockerThomas Clocker                     |  | Director                                                       |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  Alan E. HahnAlan E. Hahn                         |  | Director                                                       |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  Charles L. HeinCharles L. Hein                   |  | Director                                                       |  | March 21, 2002
|                                                     
|                                                      |  |                                                                |  |               
|                                                     
|-s-  F. W. Kuethe, IIIF. W. Kuethe, III               |  | Director                                                       |  | March 21, 2002

-29-



---



##### 



|                                                    |  |          |  |               
|--------------------------------------------------- |  | -------- |  | --------------
|Signature                                           |  | Title    |  | Date          
|                                                    |  |          |  |               
|                                                   
|-s-  William N. Scherer, Sr.William N. Scherer, Sr. |  | Director |  | March 21, 2002
|                                                   
|                                                    |  |          |  |               
|                                                   
|-s-  Karen B. ThorwarthKaren B. Thorwarth           |  | Director |  | March 21, 2002
|                                                   
|                                                    |  |          |  |               
|                                                   
|-s-  Mary Lou WilcoxMary Lou Wilcox                 |  | Director |  | March 21, 2002

-30-



---



##### 



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, 2001, 2000, and 1999, 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, 2001, 2000, and 1999, 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.

TRICE GEARY & MYERS LLC
Salisbury, Maryland
February 4, 2002
(except for Note 22, as to
which the date is March 14, 2002)

F-1



---



##### 



Glen Burnie Bancorp and Subsidiaries

Consolidated Balance Sheets

|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |             |  |   |             | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------ | ----------- | ------------------------------------------ |  | ---- | ----------- | ----------- |  | - | ----------- | ----------- |  | - | ----------- | 
|                                                                                                                                             
|                                                                                                                                             
|December 31,                                                                                                                                  |                                        | 2001                                 |             | 2000                                       |  | 1999
|                                                                                                                                             
|                                                                                                                                              |                                        |                                      | Assets      |                                            |  |      |             |             |  |   |             |             |  |   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Cash and due from banks                                                                                                                       |                                        | $                                    | 10,888,085  |                                            |  | $    | 9,559,329   |             |  | $ | 8,317,450   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Interest-bearing deposits in other financial institutions                                                                                     |                                        |                                      | 1,879,444   |                                            |  |      | 50,947      |             |  |   | 10,245      |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Federal funds sold                                                                                                                            |                                        |                                      | 5,453,299   |                                            |  |      | 5,898,863   |             |  |   | 555,627     |            
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              | Cash and cash equivalents              |                                      |             | 18,220,828                                 |  |      |             | 15,509,139  |  |   |             | 8,883,322   | 
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Certificates of deposit in other financial institutions                                                                                       |                                        |                                      | 100,000     |                                            |  |      | 100,000     |             |  |   |            |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Investment securities available
for sale, at fair value                                                                                       |                                        |                                      | 55,547,998  |                                            |  |      | 21,308,961  |             |  |   | 14,664,953  |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Investment securities held to maturity (fair value
2001 $16,881,451; 2000 $31,019,121; 1999 $27,041,751)                                      |                                        |                                      | 16,516,923  |                                            |  |      | 31,285,937  |             |  |   | 28,657,242  |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Federal Home Loan Bank stock, at cost                                                                                                         |                                        |                                      | 652,300     |                                            |  |      | 652,300     |             |  |   | 652,300     |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Common stock in the Glen Burnie Statutory Trust I                                                                                             |                                        |                                      | 155,000     |                                            |  |      | 155,000     |             |  |   |            |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Ground rents, at cost                                                                                                                         |                                        |                                      | 249,900     |                                            |  |      | 249,900     |             |  |   | 254,025     |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Loans, less allowance for credit losses
2001 $2,938,455; 2000 $3,384,815; 1999 $2,921,631                                                     |                                        |                                      | 164,569,252 |                                            |  |      | 162,373,731 |             |  |   | 151,106,560 |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Premises and equipment, at cost, less accumulated depreciation                                                                                |                                        |                                      | 3,886,631   |                                            |  |      | 4,268,403   |             |  |   | 4,253,324   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Accrued interest receivable on loans and investment securities                                                                                |                                        |                                      | 1,527,018   |                                            |  |      | 1,681,219   |             |  |   | 1,279,067   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Deferred income tax benefits                                                                                                                  |                                        |                                      | 427,367     |                                            |  |      | 126,933     |             |  |   | 49,137      |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Other real estate owned                                                                                                                       |                                        |                                      | 420,162     |                                            |  |      | 484,148     |             |  |   | 558,827     |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Other assets                                                                                                                                  |                                        |                                      | 1,088,347   |                                            |  |      | 1,015,509   |             |  |   | 3,080,699   |            
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        |                                      |             | Total assets                               |  | $    | 263,361,726 |             |  | $ | 239,211,180 |             |  | $ | 213,439,456 | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        | Liabilities and Stockholders Equity |             |                                            |  |      |             |             |  |   |             |             |  |  
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Liabilities:                                                                                                                                  |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Deposits:                                                                                                                                     |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Noninterest-bearing demand             |                                      | $           | 55,685,108                                 |  |      | $           | 52,962,491  |  |   | $           | 45,144,293  | 
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Interest-bearing                       |                                      |             | 173,621,610                                |  |      |             | 153,005,846 |  |   |             | 148,945,702 | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        |                                      |             | Total deposits                             |  |      | 229,306,718 |             |  |   | 205,968,337 |             |  |   | 194,089,995 | 
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Short-term borrowings                                                                                                                         |                                        |                                      | 882,408     |                                            |  |      | 487,978     |             |  |   | 2,464,936   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Long-term borrowings                                                                                                                          |                                        |                                      | 7,274,791   |                                            |  |      | 7,296,523   |             |  |   |            |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Dividends payable                                                                                                                             |                                        |                                      | 195,333     |                                            |  |      | 213,345     |             |  |   | 136,666     |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Accrued interest payable on deposits                                                                                                          |                                        |                                      | 155,174     |                                            |  |      | 195,166     |             |  |   | 152,555     |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Accrued interest payable on junior subordinated debentures                                                                                    |                                        |                                      | 171,518     |                                            |  |      | 166,986     |             |  |   |            |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Other liabilities                                                                                                                             |                                        |                                      | 2,359,199   |                                            |  |      | 2,547,098   |             |  |   | 1,492,855   |            
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        |                                      |             | Total liabilities                          |  |      | 240,345,141 |             |  |   | 216,875,433 |             |  |   | 198,337,007 | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|Commitments, contingencies and subsequent event                                                                                               |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Guaranteed preferred beneficial interests in Glen Burnie                                                                                      |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Bancorp junior subordinated debentures |                                      |             | 5,155,000                                  |  |      |             | 5,155,000   |  |   |             |            | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|Stockholders equity:                                                                                                                         |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Common stock, par value $1, authorized 15,000,000 shares;
issued and outstanding 2001 1,663,560;
2000 1,110,049 shares; 1999 1,093,496 shares |                                        |                                      | 1,663,560   |                                            |  |      | 1,110,049   |             |  |   | 1,093,496   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Surplus                                                                                                                                       |                                        |                                      | 10,390,511  |                                            |  |      | 10,373,549  |             |  |   | 10,149,247  |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Retained earnings                                                                                                                             |                                        |                                      | 5,970,537   |                                            |  |      | 5,544,305   |             |  |   | 4,013,171   |            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Accumulated other comprehensive
(loss) income, net of tax                                                                                     |                                        |                                      | (163,023    | )                                          |  |      | 152,844     |             |  |   | (153,465    | )          
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        |                                      |             | Total stockholders equity                 |  |      | 17,861,585  |             |  |   | 17,180,747  |             |  |   | 15,102,449  | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            
|                                                                                                                                              |                                        |                                      |             | Total liabilities and stockholders equity |  | $    | 263,361,726 |             |  | $ | 239,211,180 |             |  | $ | 213,439,456 | 
|                                                                                                                                              |                                        |                                      |             |                                            |  |      |             |             |  |   |             |            

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

F-2



---



##### 



Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Income

|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |            |            | 
|---------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- | --------- | ---------- | ---------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | 
|                                                    
|                                                    
|Years Ended December 31,                             |                                              | 2001                                                  |           | 2000       |            | 1999
|                                                    
|Interest income on:                                  |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loans, including fees                        |                                                       | $         | 13,173,325 |            |      | $         | 13,464,699 |            |   | $         | 11,816,570 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | U.S. Treasury securities                     |                                                       |           | 94,336     |            |      |           | 129,283    |            |   |           | 279,412    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | U.S. Government agency securities            |                                                       |           | 2,347,049  |            |      |           | 2,608,332  |            |   |           | 3,254,811  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | State and municipal securities               |                                                       |           | 738,330    |            |      |           | 159,053    |            |   |           |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Corporate trust preferred securities         |                                                       |           | 310,484    |            |      |           | 80,897     |            |   |           |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Federal funds sold                           |                                                       |           | 286,176    |            |      |           | 200,978    |            |   |           | 115,613    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                        |                                                       |           | 257,304    |            |      |           | 59,473     |            |   |           | 81,971     |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Total interest income                                 |           |            | 17,207,004 |      |           |            | 16,702,715 |   |           |            | 15,548,377 | 
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Interest expense on:                                 |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deposits                                     |                                                       |           | 5,527,610  |            |      |           | 5,562,428  |            |   |           | 5,503,628  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Short-term borrowings                        |                                                       |           | 17,885     |            |      |           | 66,513     |            |   |           | 119,546    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term borrowings                         |                                                       |           | 436,817    |            |      |           | 105,690    |            |   |           |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Junior subordinated debentures               |                                                       |           | 550,962    |            |      |           | 166,986    |            |   |           |           |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Total interest expense                                |           |            | 6,533,274  |      |           |            | 5,901,617  |   |           |            | 5,623,174  | 
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Net interest income                                   |           |            | 10,673,730 |      |           |            | 10,801,098 |   |           |            | 9,925,203  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Provision for credit losses                          |                                              |                                                       | (150,000  | )          |            |      |          |            |            |   | 300,000   |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Net interest income after provision for credit losses |           |            | 10,823,730 |      |           |            | 10,801,098 |   |           |            | 9,625,203  | 
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Other income:                                        |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Service charges on deposit accounts          |                                                       |           | 860,681    |            |      |           | 859,734    |            |   |           | 891,913    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other fees and commissions                   |                                                       |           | 687,454    |            |      |           | 734,255    |            |   |           | 687,939    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gains (losses) on investment securities      |                                                       |           | 273,003    |            |      |           | (26,237    | )          |   |           | (63,968    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gain on sale of other real estate owned      |                                                       |           |           |            |      |           | 490,000    |            |   |           |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Curtailment gain on pension plan termination |                                                       |           |           |            |      |           |           |            |   |           | 1,311,997  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Settlement gain on pension plan termination  |                                                       |           |           |            |      |           | 1,600,126  |            |   |           |           |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Total other income                                    |           |            | 1,821,138  |      |           |            | 3,657,878  |   |           |            | 2,827,881  | 
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Other expenses:                                      |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Salaries and wages                           |                                                       |           | 4,083,115  |            |      |           | 4,085,541  |            |   |           | 3,925,075  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Employee benefits                            |                                                       |           | 1,769,209  |            |      |           | 2,131,481  |            |   |           | 1,596,044  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Occupancy                                    |                                                       |           | 577,440    |            |      |           | 615,201    |            |   |           | 573,052    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Furniture and equipment                      |                                                       |           | 889,924    |            |      |           | 871,655    |            |   |           | 876,774    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other expenses                               |                                                       |           | 3,012,405  |            |      |           | 3,042,171  |            |   |           | 2,850,745  |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|                                                     |                                              | Total other expenses                                  |           |            | 10,332,093 |      |           |            | 10,746,049 |   |           |            | 9,821,690  | 
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Income before income taxes                           |                                              |                                                       | 2,312,775 |            |            |      | 3,712,927 |            |            |   | 2,631,394 |           
|                                                    
|                                                    
|                                                    
|                                                    
|Federal and state income tax expense                 |                                              |                                                       | 587,539   |            |            |      | 1,438,061 |            |            |   | 1,186,044 |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Net income                                           |                                              | $                                                     | 1,725,236 |            |            | $    | 2,274,866 |            |            | $ | 1,445,350 |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           
|Basic and diluted earnings per share of common stock |                                              | $                                                     | 1.04      |            |            | $    | 1.38      |            |            | $ | 0.88      |           
|                                                     |                                              |                                                       |           |            |            |      |           |            |            |   |           |           

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

F-3



---



##### 



Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

|                                              |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |          |          |  
|--------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | --------- | -------- | -------- | ---- | --------- | ------- | ------- | - | --------- | -------- | -------- | -
|                                             
|                                             
|Years Ended December 31,                      |                                                                                                                                                       | 2001                                    |           | 2000     |          | 1999
|                                             
|Net income                                    |                                                                                                                                                       | $                                       | 1,725,236 |          |          | $    | 2,274,866 |         |         | $ | 1,445,350 |         
|                                              |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |         
|Other comprehensive income (loss), net of tax |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Unrealized holding gains (losses) arising during the
period (net of deferred taxes (benefits) 2001 ($98,834);
2000 $182,437; 1999 ($296,905))         |                                         |           | (157,081 | )        |      |           | 290,199 |         |   |           | (472,279 | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Reclassification adjustment for (gains) losses included in net
income (net of deferred taxes (benefits) 2001 $99,907;
2000 ($10,128); 1999 ($22,919)) |                                         |           | (158,786 | )        |      |           | 16,110  |         |   |           | 36,456   |         
|                                              |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |         
|                                              |                                                                                                                                                       | Total other comprehensive income (loss) |           |          | (315,867 | )    |           |         | 306,309 |   |           |          | (435,823 | )
|                                              |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |         
|Comprehensive income                          |                                                                                                                                                       | $                                       | 1,409,369 |          |          | $    | 2,581,175 |         |         | $ | 1,009,527 |         
|                                              |                                                                                                                                                       |                                         |           |          |          |      |           |         |         |   |           |         

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

F-4



---



##### 



Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Changes in Stockholders Equity

Years Ended December 31, 2001, 2000, and 1999

|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  
|----------------------------------------------------- |  | ------------ | --------- | --------- |  | ------- | --------- | -------- |  | ------------- | ---------- | ------------- |  | - | --------- | - |  | ----------- | -------- | ----- |  | - | ---------- | -
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  | Accumulated |          |       |  |  
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  | Other       |          | Total
|                                                      |  | Common Stock |           |           |  |         |           | Retained |  | Comprehensive |            | Stockholders'
|                                                      |  | Shares       |           | Par Value |  | Surplus |           | Earnings |  | Income (Loss) |            | Equity       
|                                                      |  |              |           |           |  |         |           |          |  |               |            |              
|Balances, December 31, 1998                           |  |              | 894,938   |           |  | $       | 894,938   |          |  | $             | 9,788,889  |               |  | $ | 3,202,488 |   |  | $           | 282,358  |       |  | $ | 14,168,673 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Net income                                            |  |              |          |           |  |         |          |          |  |               |           |               |  |   | 1,445,350 |   |  |             |         |       |  |   | 1,445,350  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Shares issued under employee
stock purchase plan      |  |              | 2,015     |           |  |         | 2,015     |          |  |               | 39,351     |               |  |   |          |   |  |             |         |       |  |   | 41,366     |  
|                                                     
|                                                     
|                                                     
|                                                     
|Shares issued under stockholder
stock purchase plan   |  |              | 9,470     |           |  |         | 9,470     |          |  |               | 219,730    |               |  |   |          |   |  |             |         |       |  |   | 229,200    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Shares repurchased and retired                        |  |              | (8        | )         |  |         | (8        | )        |  |               | (130       | )             |  |   |          |   |  |             |         |       |  |   | (138       | )
|                                                     
|                                                     
|                                                     
|                                                     
|Cash dividends, $.28 per share                        |  |              |          |           |  |         |          |          |  |               |           |               |  |   | (452,418  | ) |  |             |         |       |  |   | (452,418   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Dividends reinvested under dividend
reinvestment plan |  |              | 4,832     |           |  |         | 4,832     |          |  |               | 101,317    |               |  |   |          |   |  |             |         |       |  |   | 106,149    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Stock split effected in form of 20%
stock dividend    |  |              | 182,249   |           |  |         | 182,249   |          |  |               |           |               |  |   | (182,249  | ) |  |             |         |       |  |   |           |  
|                                                     
|                                                     
|                                                     
|                                                     
|Expired stock options                                 |  |              |          |           |  |         |          |          |  |               | (14,201    | )             |  |   |          |   |  |             |         |       |  |   | (14,201    | )
|                                                     
|                                                     
|                                                     
|                                                     
|Vested stock options                                  |  |              |          |           |  |         |          |          |  |               | 14,291     |               |  |   |          |   |  |             |         |       |  |   | 14,291     |  
|                                                     
|                                                     
|                                                     
|                                                     
|Other comprehensive loss, net
of tax                  |  |              |          |           |  |         |          |          |  |               |           |               |  |   |          |   |  |             | (435,823 | )     |  |   | (435,823   | )
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  
|Balances, December 31, 1999                           |  |              | 1,093,496 |           |  |         | 1,093,496 |          |  |               | 10,149,247 |               |  |   | 4,013,171 |   |  |             | (153,465 | )     |  |   | 15,102,449 |  
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  
|Net income                                            |  |              |          |           |  |         |          |          |  |               |           |               |  |   | 2,274,866 |   |  |             |         |       |  |   | 2,274,866  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Shares issued under stockholder
stock purchase plan   |  |              | 2,659     |           |  |         | 2,659     |          |  |               | 47,330     |               |  |   |          |   |  |             |         |       |  |   | 49,989     |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cash dividends, $.449 per share                       |  |              |          |           |  |         |          |          |  |               |           |               |  |   | (743,732  | ) |  |             |         |       |  |   | (743,732   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Dividends reinvested under dividend
reinvestment plan |  |              | 13,894    |           |  |         | 13,894    |          |  |               | 187,861    |               |  |   |          |   |  |             |         |       |  |   | 201,755    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Expired stock options                                 |  |              |          |           |  |         |          |          |  |               | (10,889    | )             |  |   |          |   |  |             |         |       |  |   | (10,889    | )
|                                                     
|                                                     
|                                                     
|                                                     
|Other comprehensive income, net
of tax                |  |              |          |           |  |         |          |          |  |               |           |               |  |   |          |   |  |             | 306,309  |       |  |   | 306,309    |  
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  
|Balances, December 31, 2000                           |  |              | 1,110,049 |           |  |         | 1,110,049 |          |  |               | 10,373,549 |               |  |   | 5,544,305 |   |  |             | 152,844  |       |  |   | 17,180,747 |  
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  
|Net income                                            |  |              |          |           |  |         |          |          |  |               |           |               |  |   | 1,725,236 |   |  |             |         |       |  |   | 1,725,236  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Shares 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    |               |  |   |          |   |  |             |         |       |  |   | 168,026    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Stock 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 | )     |  | $ | 17,861,585 |  
|                                                      |  |              |           |           |  |         |           |          |  |               |            |               |  |   |           |   |  |             |          |       |  |   |            |  

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

F-5



---



##### 



Glen Burnie Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |             |         |          |            |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------ | -------- | -------- | ----------- | ----------- | -------- | --------- | ----------- | ----------- | ------- | -------- | ---------- | -
|                                                
|                                                
|Years Ended December 31,                         |                                                                                                                            | 2001                                                          |                                                    | 2000                                             |          | 1999    
|                                                
|Cash flows from operating activities:            |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income                                                                                                                 |                                                               | $                                                  | 1,725,236                                        |          |          | $           | 2,274,866   |          |           | $           | 1,445,350   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization, and accretion |                                                               |                                                    | 805,988                                          |          |          |             | 744,678     |          |           |             | 831,034     |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | Compensation (benefit) expense from vested stock options, net |                                                    |                                                  |         |          |             |             | (10,889  | )         |             |             | 90      |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | Provision for credit losses                                   |                                                    |                                                  | (150,000 | )        |             |             |         |           |             |             | 300,000 |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | Losses on other real estate owned                             |                                                    |                                                  | 63,986   |          |             |             | 27,679   |           |             |             |        |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | Deferred income taxes (benefits)                              |                                                    |                                                  | (101,691 | )        |             |             | (73,725  | )         |             |             | 921,194 |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | (Gains) losses on disposals of assets, net                    |                                                    |                                                  | (259,135 | )        |             |             | (255,803 | )         |             |             | 43,273  |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            | Changes in assets and liabilities:                            |                                                    |                                                  |          |          |             |             |          |           |             |             |         |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            |                                                               | (Increase) decrease in accrued interest receivable |                                                  |          | 154,201  |             |             |          | (402,152  | )           |             |         | 122,593  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            |                                                               | (Increase) decrease in other assets                |                                                  |          | (59,006  | )           |             |          | 2,020,004 |             |             |         | (741,174 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            |                                                               | Increase (decrease) in accrued interest payable    |                                                  |          | (35,460  | )           |             |          | 209,597   |             |             |         | (8,042   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                            |                                                               | Increase (decrease) in other liabilities           |                                                  |          | (167,514 | )           |             |          | 834,018   |             |             |         | (674,080 | )         
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                 |                                                                                                                            |                                                               |                                                    | Net cash provided by operating activities        |          |          | 1,976,605   |             |          |           | 5,368,273   |             |         |          | 2,240,238  |  
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|Cash flows from investing activities:            |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of held to maturity mortgage-backed securities                                                                  |                                                               |                                                    | 3,303,672                                        |          |          |             | 1,521,930   |          |           |             | 2,490,926   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of other held to maturity investment securities                                                                 |                                                               |                                                    | 10,961,629                                       |          |          |             | 500,000     |          |           |             | 7,754,438   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of available for sale mortgage-backed securities                                                                |                                                               |                                                    | 2,271,148                                        |          |          |             | 1,621,643   |          |           |             | 5,018,593   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Maturities of other available for sale investment securities                                                               |                                                               |                                                    | 5,237,023                                        |          |          |             | 500,000     |          |           |             | 1,991,087   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Sales of debt securities                                                                                                   |                                                               |                                                    | 7,067,274                                        |          |          |             | 4,540,643   |          |           |             | 14,985,136  |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of held to maturity mortgage-backed securities                                                                   |                                                               |                                                    |                                                 |          |          |             | (2,990,625  | )        |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of held to maturity investment securities                                                                        |                                                               |                                                    |                                                 |          |          |             | (1,652,173  | )        |           |             | (6,357,408  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of available for sale mortgage-backed securities                                                                 |                                                               |                                                    | (25,158,011                                      | )        |          |             |            |          |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of other available for sale investment securities                                                                |                                                               |                                                    | (23,434,008                                      | )        |          |             | (12,836,928 | )        |           |             | (5,498,437  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Redemption of FHLB stock                                                                                                   |                                                               |                                                    |                                                 |          |          |             |            |          |           |             | 284,100     |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of certificate of deposit                                                                                         |                                                               |                                                    |                                                 |          |          |             | (100,000    | )        |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of common stock in the Glen Burnie Statutory Trust I                                                              |                                                               |                                                    |                                                 |          |          |             | (155,000    | )        |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase in loans, net                                                                                                     |                                                               |                                                    | (2,045,521                                       | )        |          |             | (11,267,171 | )        |           |             | (25,729,005 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of other real estate                                                                                   |                                                               |                                                    |                                                 |          |          |             | 537,000     |          |           |             | 402,693     |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of other real estate                                                                                             |                                                               |                                                    |                                                 |          |          |             |            |          |           |             | (59,523     | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of premises and equipment                                                                              |                                                               |                                                    |                                                 |          |          |             |            |          |           |             | 42,920      |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of premises and equipment                                                                                        |                                                               |                                                    | (432,658                                         | )        |          |             | (599,373    | )        |           |             | (439,450    | )      
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                 |                                                                                                                            |                                                               |                                                    | Net cash used by investing activities            |          |          | (22,229,452 | )           |          |           | (20,380,054 | )           |         |          | (5,113,930 | )
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|Cash flows from financing activities:            |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase (decrease) in noninterest-bearing deposits, NOW
accounts, money market accounts, and savings accounts, net        |                                                               |                                                    | 10,990,615                                       |          |          |             | 7,608,893   |          |           |             | (4,524,635  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase (decrease) in time deposits, net                                                                                  |                                                               |                                                    | 12,347,766                                       |          |          |             | 4,269,449   |          |           |             | (996,485    | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase (decrease) in short-term borrowings                                                                               |                                                               |                                                    | 394,430                                          |          |          |             | (1,976,958  | )        |           |             | 1,321,032   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term borrowings                                                                                         |                                                               |                                                    |                                                 |          |          |             | 7,000,000   |          |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments of long-term borrowings                                                                                         |                                                               |                                                    | (21,732                                          | )        |          |             | (3,477      | )        |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash dividends paid                                                                                                        |                                                               |                                                    | (765,819                                         | )        |          |             | (667,053    | )        |           |             | (438,791    | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Common stock dividends reinvested                                                                                          |                                                               |                                                    | 168,026                                          |          |          |             | 201,755     |          |           |             | 106,149     |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Repurchase and retirement of common stock                                                                                  |                                                               |                                                    | (148,750                                         | )        |          |             |            |          |           |             | (138        | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of guaranteed preferred beneficial interests in
Glen Burnie Bancorp junior subordinated debentures                |                                                               |                                                    |                                                 |          |          |             | 5,155,000   |          |           |             |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of common stock                                                                                                   |                                                               |                                                    |                                                 |          |          |             | 49,989      |          |           |             | 270,566     |        
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|                                                 |                                                                                                                            |                                                               |                                                    | Net cash provided (used) by financing activities |          |          | 22,964,536  |             |          |           | 21,637,598  |             |         |          | (4,262,302 | )
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|Increase (decrease) in cash and cash equivalents |                                                                                                                            |                                                               | 2,711,689                                          |                                                  |          |          | 6,625,817   |             |          |           | (7,135,994  | )          
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents, beginning of year     |                                                                                                                            |                                                               | 15,509,139                                         |                                                  |          |          | 8,883,322   |             |          |           | 16,019,316  |            
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            
|Cash and cash equivalents, end of year           |                                                                                                                            | $                                                             | 18,220,828                                         |                                                  |          | $        | 15,509,139  |             |          | $         | 8,883,322   |            
|                                                 |                                                                                                                            |                                                               |                                                    |                                                  |          |          |             |             |          |           |             |            

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,             |                                                                                                      | 2001 |   | 2000      |   | 1999
|                                    
|Supplementary Cash Flow Information: |                                                                                                      |      |   |           |   |      |   |           |  |  |   |          
|                                    
|                                    
|                                    
|                                    
|                                     | Interest paid                                                                                        |      | $ | 6,568,734 |   |      | $ | 5,692,020 |  |  | $ | 5,631,216 |  
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes paid                                                                                    |      |   | 693,000   |   |      |   | 205,000   |  |  |   |          |  
|                                    
|                                    
|                                    
|                                    
|                                     | Total increase (decrease) in unrealized appreciation
(depreciation) on securities available for sale |      |   | (514,610  | ) |      |   | 499,038   |  |  |   | (710,042  | )

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 23)
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 generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Securities Held to Maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Bonds, notes, and debentures for which the Bank has the positive intent
and ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income using the
effective interest rate method over the period to maturity. Securities
transferred into held to maturity from the available for sale portfolio
are recorded at fair value at time of transfer with unrealized gains or
losses reflected in equity and amortized over the remaining life of the
security.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Securities Available for Sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Marketable debt 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 generally accepted accounting principles and
has taken into account the views of its regulators and the current
economic environment, there can be no assurance that in the future the
Banks regulators or its economic environment will not require further
increases in the allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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.
There were no loans converted to OREO in 2001 or 2000. Loans converted
to OREO through foreclosure proceedings totaled $59,523 for the year
ended December 31, 1999. No sales of OREO were financed by the Bank for
2001, 2000, or 1999. 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 was $340,407, $285,942, and $231,477 at
December 31, 2001, 2000, and 1999, respectively. Amortization expense
totaled $54,465for each of the years ended December 2001, 2000, and
1999.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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 Assets(See Note 21). As of
December 31, 2001 and 1999, no long-lived assets existed in which
management considered impaired, however, in 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 other real estate owned, deferred compensation and
pension benefits, tax credit carryovers, and unfunded commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Temporary differences which give rise to deferred tax liabilities relate
principally to accumulated depreciation, allowance for credit losses,
accretion of discount on investment securities, and prepaid pension
expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Credit Risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Bank has deposits in other financial institutions in excess of
amounts insured by the Federal Deposit Insurance Corporation (FDIC).
At December 31, 2001, the Bank had deposits and Federal funds sold with
three separate financial institutions of approximately $736,000,
$813,000, and $11,047,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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)



| |  | 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 $2,923,000, $3,039,000, and
$2,477,000 during the years ended December 31, 2001, 2000, and 1999,
respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 3. Investment Securities



| |  | Investment securities are summarized as follows:
| |  | ------------------------------------------------

|                    |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |            | 
|------------------- | ------------------------- | -------------- | ---------- | ---------- |  | ------ | ---------- | ------- | ---------- | - | ------- | ------- |  | - | ---------- | ---------- | 
|                    |                           |                |            |            |  |        | Gross      |         | Gross      |   |         |         | 
|                    |                           |                |            |            |  |        | Unrealized |         | Unrealized |   | Fair   
|December 31, 2001   |                           | Amortized Cost |            | Gains      |  | Losses |            | Value  
|                    |                           |                |            |            |  |        |            |        
|Available for sale: |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury             |                | $          | 498,684    |  |        | $          | 25,066  |            |   | $       |        |  |   | $          | 523,750    | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency    |                |            | 7,504,660  |  |        |            | 13,859  |            |   |         | 9,688   |  |   |            | 7,508,831  | 
|                   
|                   
|                   
|                   
|                    | State and municipal       |                |            | 19,976,500 |  |        |            | 137,505 |            |   |         | 313,434 |  |   |            | 19,800,571 | 
|                   
|                   
|                   
|                   
|                    | Corporate trust preferred |                |            | 4,819,930  |  |        |            | 126,842 |            |   |         | 9,958   |  |   |            | 4,936,814  | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed           |                |            | 23,013,820 |  |        |            | 33,127  |            |   |         | 268,915 |  |   |            | 22,778,032 | 
|                    |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           
|                    |                           | $              | 55,813,594 |            |  | $      | 336,399    |         |            | $ | 601,995 |         |  | $ | 55,547,998 |           
|                    |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           
|Held to maturity:   |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury             |                | $          | 749,498    |  |        | $          | 21,830  |            |   | $       |        |  |   | $          | 771,328    | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency    |                |            | 6,881,993  |  |        |            | 161,650 |            |   |         | 14,375  |  |   |            | 7,029,268  | 
|                   
|                   
|                   
|                   
|                    | State and municipal       |                |            | 682,560    |  |        |            | 19,197  |            |   |         |        |  |   |            | 701,757    | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed           |                |            | 8,202,872  |  |        |            | 183,604 |            |   |         | 7,378   |  |   |            | 8,379,098  | 
|                    |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           
|                    |                           | $              | 16,516,923 |            |  | $      | 386,281    |         |            | $ | 21,753  |         |  | $ | 16,881,451 |           
|                    |                           |                |            |            |  |        |            |         |            |   |         |         |  |   |            |           

F-11



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities(continued)

|                    |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |            | 
|------------------- | ------------------------- | ---- | ---------- | ---------- | ---------- | ------ | ---------- | ------- | ----- | - | ------- | ------- |  | - | ---------- | ---------- | 
|                    |                           |      |            |            |            |        | Gross      |         | Gross |   |         |         | 
|                    |                           |      | Amortized  |            | Unrealized |        | Unrealized |         | Fair 
|December 21, 2000   |                           | cost |            | Gains      |            | Losses |            | Value  
|                    |                           |      |            |            |            |        |            |        
|Available for sale: |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury             |      | $          | 497,871    |            |        | $          | 9,638   |       |   | $       |        |  |   | $          | 507,509    | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency    |      |            | 6,975,277  |            |        |            | 45,107  |       |   |         | 38,008  |  |   |            | 6,982,376  | 
|                   
|                   
|                   
|                   
|                    | State and municipal       |      |            | 8,038,349  |            |        |            | 254,201 |       |   |         |        |  |   |            | 8,292,550  | 
|                   
|                   
|                   
|                   
|                    | Corporate trust preferred |      |            | 2,821,428  |            |        |            |        |       |   |         | 1,481   |  |   |            | 2,819,947  | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed           |      |            | 2,727,023  |            |        |            |        |       |   |         | 20,444  |  |   |            | 2,706,579  | 
|                    |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |            | 
|                    |                           | $    | 21,059,948 |            |            | $      | 308,946    |         |       | $ | 59,933  |         |  | $ | 21,308,961 |           
|                    |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |            | 
|Held to maturity:   |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury             |      | $          | 1,248,529  |            |        | $          | 14,446  |       |   | $       | 620     |  |   | $          | 1,262,355  | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency    |      |            | 17,834,666 |            |        |            | 83,636  |       |   |         | 311,617 |  |   |            | 17,606,685 | 
|                   
|                   
|                   
|                   
|                    | State and municipal       |      |            | 682,431    |            |        |            | 27,437  |       |   |         |        |  |   |            | 709,868    | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed           |      |            | 11,520,311 |            |        |            | 51,804  |       |   |         | 131,902 |  |   |            | 11,440,213 | 
|                    |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |            | 
|                    |                           | $    | 31,285,937 |            |            | $      | 177,323    |         |       | $ | 444,139 |         |  | $ | 31,019,121 |           
|                    |                           |      |            |            |            |        |            |         |       |   |         |         |  |   |            |            | 

|                    |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |            | 
|------------------- | ---------------------- | ---- | ---------- | ---------- | ---------- | ------ | ---------- | ------ | ----- | - | --------- | --------- |  | - | ---------- | ---------- | 
|                    |                        |      |            |            |            |        | Gross      |        | Gross |   |           |           | 
|                    |                        |      | Amortized  |            | Unrealized |        | Unrealized |        | Fair 
|December 31, 1999   |                        | cost |            | G&S        |            | Losses |            | Value 
|                    |                        |      |            |            |            |        |            |       
|Available for sale: |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury          |      | $          | 991,895    |            |        | $          |       |       |   | $         | 9,378     |  |   | $          | 982,517    | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency |      |            | 5,491,665  |            |        |            |       |       |   |           | 209,145   |  |   |            | 5,282,520  | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed        |      |            | 8,431,417  |            |        |            | 24,870 |       |   |           | 56,371    |  |   |            | 8,399,916  | 
|                    |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |            | 
|                    |                        | $    | 14,914,977 |            |            | $      | 24,870     |        |       | $ | 274,894   |           |  | $ | 14,664,953 |           
|                    |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |            | 
|Held to maturity:   |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |           
|                   
|                   
|                   
|                   
|                    | U.S. Treasury          |      | $          | 1,747,488  |            |        | $          | 4,241  |       |   | $         | 5,081     |  |   | $          | 1,746,648  | 
|                   
|                   
|                   
|                   
|                    | U.S. Government agency |      |            | 16,851,527 |            |        |            |       |       |   |           | 1,139,994 |  |   |            | 15,711,533 | 
|                   
|                   
|                   
|                   
|                    | Mortgage-backed        |      |            | 10,058,227 |            |        |            |       |       |   |           | 474,657   |  |   |            | 9,583,570  | 
|                    |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |            | 
|                    |                        | $    | 28,657,242 |            |            | $      | 4,241      |        |       | $ | 1,619,732 |           |  | $ | 27,041,751 |           
|                    |                        |      |            |            |            |        |            |        |       |   |           |           |  |   |            |            | 

F-12



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities(continued)



| |  | Contractual maturities of investment securities at December 31, 2001,
2000, and 1999 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 21, 2000                            |  | cost               |            | Value            |  | cost      |            | Value
|                                             |  |                    |            |                  |  |           |            |      
|Due within one year                          |  | $                  |           |                  |  | $         |           |       |  | $ | 1,669,481  |  |  | $ | 1,715,190  | 
|                                            
|                                            
|                                            
|                                            
|Due over one to five years                   |  |                    | 7,277,130  |                  |  |           | 7,274,011  |       |  |   | 1,000,000  |  |  |   | 1,066,579  | 
|                                            
|                                            
|                                            
|                                            
|Due over five to ten years                   |  |                    | 4,195,187  |                  |  |           | 4,126,922  |       |  |   | 499,625    |  |  |   | 534,375    | 
|                                            
|                                            
|                                            
|                                            
|Due over ten years                           |  |                    | 21,327,457 |                  |  |           | 21,369,033 |       |  |   | 5,144,945  |  |  |   | 5,186,209  | 
|                                            
|                                            
|                                            
|                                            
|Mortgage-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 |            | Fair 
|December 21, 2000                            |  | cost               |            | Value            |  | cost      |            | Value
|                                             |  |                    |            |                  |  |           |            |      
|Due within one year                          |  | $                  |           |                  |  | $         |           |       |  | $ | 499,841    |  |  | $ | 499,478    | 
|                                            
|                                            
|                                            
|                                            
|Due over one to five years                   |  |                    | 6,973,148  |                  |  |           | 6,976,182  |       |  |   | 3,634,136  |  |  |   | 3,684,832  | 
|                                            
|                                            
|                                            
|                                            
|Due over five to ten years                   |  |                    | 679,801    |                  |  |           | 696,287    |       |  |   | 7,490,924  |  |  |   | 7,449,653  | 
|                                            
|                                            
|                                            
|                                            
|Due over ten years                           |  |                    | 1,679,976  |                  |  |           | 10,929,913 |       |  |   | 8,140,725  |  |  |   | 7,944,945  | 
|                                            
|                                            
|                                            
|                                            
|Mortgage-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 | 
|                                             |  |                    |            |                  |  |           |            |       |  |   |            |  |  |   |            | 

|                                             |  |                    |            |                  |  |           |            |       |  |   |            |  |  |   |            | 
|-------------------------------------------- |  | ------------------ | ---------- | ---------------- |  | --------- | ---------- | ----- |  | - | ---------- |  |  | - | ---------- | 
|                                             |  | Available for Sale |            | Held to Maturity
|                                             |  |                    |            |                 
|                                             |  | Amortized          |            | Fair             |  | Amortized |            | Fair 
|December 21, 2000                            |  | cost               |            | Value            |  | cost      |            | Value
|                                             |  |                    |            |                  |  |           |            |      
|Due within one year                          |  | $                  |           |                  |  | $         |           |       |  | $ | 500,047    |  |  | $ | 500,134    | 
|                                            
|                                            
|                                            
|                                            
|Due
over one to five years                   |  |                    | 5,483,560  |                  |  |           | 5,310,974  |       |  |   | 3,653,770  |  |  |   | 3,577,422  | 
|                                            
|                                            
|                                            
|                                            
|Due over five to ten years                   |  |                    | 1,000,000  |                  |  |           | 954,063    |       |  |   | 6,990,185  |  |  |   | 6,635,625  | 
|                                            
|                                            
|                                            
|                                            
|Due over ten years                           |  |                    |           |                  |  |           |           |       |  |   | 7,455,013  |  |  |   | 6,745,000  | 
|                                            
|                                            
|                                            
|                                            
|Mortgage-backed, due in
monthly installments |  |                    | 8,431,417  |                  |  |           | 8,399,916  |       |  |   | 10,058,227 |  |  |   | 9,583,570  | 
|                                             |  |                    |            |                  |  |           |            |       |  |   |            |  |  |   |            | 
|                                             |  | $                  | 14,914,977 |                  |  | $         | 14,664,953 |       |  | $ | 28,657,242 |  |  | $ | 27,041,751 | 
|                                             |  |                    |            |                  |  |           |            |       |  |   |            |  |  |   |            | 

F-13



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Investment Securities(continued)



| |  | Proceeds from sales of securities prior to maturity were $7,067,274,
$4,540,643, and $14,985,138 for the years ended December 31, 2001, 2000,
and 1999, respectively. Gains of $276,392and losses of $3,389were
realized on those sales for 2001. Losses of $26,237 were realized on
those sales for 2000. Gains of $59,647 and losses of $123,614 were
realized on those sales for 1999. 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 was ($105,434), $10,133, and $24,704, for
the years ended December 31, 2001, 2000, and 1999, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Securities with amortized costs of approximately $1,248,000,$1,247,000,
and $1,742,000 were pledged as collateral for short-term borrowings and
financial instruments with off-balance sheet risk at December 31, 2001,
2000, and 1999, 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:
| |  | -----------------------------------------

|                            |                                   |   |             |            |      |   |             |            |  |   |             |            | 
|--------------------------- | --------------------------------- | - | ----------- | ---------- | ---- | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                            |                                   |   | 2001        |            | 2000 |   | 1999       
|                            |                                   |   |             |            |      |   |            
|Mortgage:                   |                                   |   |             |            |      |   |             |            |  |   |             |           
|                           
|                           
|                           
|                           
|                            | Residential                       |   | $           | 44,293,130 |      |   | $           | 36,187,294 |  |   | $           | 34,098,848 | 
|                           
|                           
|                           
|                           
|                            | Commercial                        |   |             | 36,920,258 |      |   |             | 40,168,603 |  |   |             | 42,342,103 | 
|                           
|                           
|                           
|                           
|                            | Construction and land development |   |             | 2,355,395  |      |   |             | 5,256,921  |  |   |             | 6,094,894  | 
|                           
|                           
|                           
|                           
|Lease financing             |                                   |   |            |            |      |   | 70,675      |            |  |   | 341,277     |           
|                           
|                           
|                           
|                           
|Demand and time             |                                   |   | 5,082,790   |            |      |   | 3,655,180   |            |  |   | 3,359,785   |           
|                           
|                           
|                           
|                           
|Installment                 |                                   |   | 79,642,436  |            |      |   | 81,124,897  |            |  |   | 68,518,095  |           
|                            |                                   |   |             |            |      |   |             |            |  |   |             |           
|                            |                                   |   | 168,294,009 |            |      |   | 166,463,570 |            |  |   | 154,755,002 |           
|                           
|                           
|                           
|                           
|Unearned income on loans    |                                   |   | (786,302    | )          |      |   | (705,024    | )          |  |   | (726,811    | )         
|                            |                                   |   |             |            |      |   |             |            |  |   |             |           
|                            |                                   |   | 167,507,707 |            |      |   | 165,758,546 |            |  |   | 154,028,191 |           
|                           
|                           
|                           
|                           
|Allowance for credit losses |                                   |   | (2,938,455  | )          |      |   | (3,384,815  | )          |  |   | (2,921,631  | )         
|                            |                                   |   |             |            |      |   |             |            |  |   |             |           
|                            |                                   | $ | 164,569,252 |            |      | $ | 162,373,731 |            |  | $ | 151,106,560 |           
|                            |                                   |   |             |            |      |   |             |            |  |   |             |           



| |  | 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
$59,308,000, $61,725,000, and $50,967,000 of such loans at December 31,
2001, 2000, and 1999, 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, 2001,
2000, and 1999, the amounts of such loans outstanding were $1,194,860,
$1,319,700, and $1,417,716, respectively. During 2001, loan additions
and repayments were $81,598 and $206,438, respectively.

F-14



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Loans(continued)



| |  | The allowance for credit losses is as follows:
| |  | ----------------------------------------------

|                            |  |      |           |      |  |      |           |   |  |   |           |  
|--------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                            |  | 2001 |           | 2000 |  | 1999
|                            |  |      |           |      |  |     
|Balance, beginning of year  |  | $    | 3,384,815 |      |  | $    | 2,921,631 |   |  | $ | 2,841,060 |  
|                           
|                           
|                           
|                           
|Provision for credit losses |  |      | (150,000  | )    |  |      |          |   |  |   | 300,000   |  
|                           
|                           
|                           
|                           
|Recoveries                  |  |      | 390,792   |      |  |      | 1,223,618 |   |  |   | 454,277   |  
|                           
|                           
|                           
|                           
|Loans charged off           |  |      | (687,152  | )    |  |      | (760,434  | ) |  |   | (673,706  | )
|                            |  |      |           |      |  |      |           |   |  |   |           |  
|Balance, end of year        |  | $    | 2,938,455 |      |  | $    | 3,384,815 |   |  | $ | 2,921,631 |  
|                            |  |      |           |      |  |      |           |   |  |   |           |  



| |  | Loans on which the accrual of interest has been discontinued amounted to
$601,120, $370,053, and $1,011,826 at December 31, 2001, 2000, and 1999,
respectively. Interest that would have been accrued under the terms of
these loans totaled $14,877, $48,484, and $168,644 for the years ended
December 31, 2001, 2000, and 1999, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Information regarding loans classified by the Bank as impaired is
summarized as follows:                                                                                                                                                                                                                                                        

|                                              |  |      |         |      |  |      |         |  |  |   |           | 
|--------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                                              |  | 2001 |         | 2000 |  | 1999
|                                              |  |      |         |      |  |     
|Loans classified as impaired                  |  | $    | 443,874 |      |  | $    | 207,579 |  |  | $ | 1,043,944 | 
|                                             
|                                             
|                                             
|                                             
|Allowance for credit losses on
impaired loans |  |      | 117,271 |      |  |      | 77,633  |  |  |   | 217,907   | 
|                                             
|                                             
|                                             
|                                             
|Average balance of impaired loans             |  |      | 211,294 |      |  |      | 63,105  |  |  |   | 1,842,757 | 



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

|                                                  |                     |   |        |        |  |  |  |  |  |   |       |       |  |   |        |        | 
|------------------------------------------------- | ------------------- | - | ------ | ------ |  |  |  |  |  | - | ----- | ----- |  | - | ------ | ------ | 
|Cash receipts applied to reduce principal balance |                     | $ | 71,057 |        |  |  |  |  |  | $ | 6,389 |       |  | $ | 83,828 |       
|                                                 
|                                                 
|                                                 
|                                                 
|Cash receipts recognized as interest income       |                     |   | 10,878 |        |  |  |  |  |  |   | 581   |       |  |   |       |       
|                                                  |                     |   |        |        |  |  |  |  |  |   |       |       |  |   |        |       
|                                                  | Total cash receipts |   | $      | 81,935 |  |  |  |  |  |   | $     | 6,970 |  |   | $      | 83,828 | 
|                                                  |                     |   |        |        |  |  |  |  |  |   |       |       |  |   |        |       



| |  | According to management, there were no troubled debt restructurings in
2001. All previous restructurings appear to be performing under the
terms of the modified agreements.                                                                                                                                                                                                                                                                                 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At December 31, 2000, the total recorded investment in troubled debt
restructurings amounted to $369,594. The average recorded investment in
troubled debt restructurings amounted to $383,642 for the year ended
December 31, 2000. The allowance for credit losses relating to troubled
debt restructurings was $66,479 at December 31, 2000. Interest income on
troubled debt restructurings of $93,653 was recognized for cash payments
received in 2000.
|
| |  | At December 31, 1999, the total recorded investment in troubled debt
restructurings amounted to $243,137. The average recorded investment in
troubled debt restructurings amounted to $252,477 for the year ended
December 31, 1999. The allowance for credit losses relating to troubled
debt restructurings was $73,635 at December 31, 1999. Interest income on
troubled debt restructurings of $17,660 was recognized for cash payments
received in 1999.
|
| |  | 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:
| |  | --------------------------------------------------

|                         |  |            |  |      |           |      |            |      |           |   |            |   |           |   |            |  
|------------------------ |  | ---------- |  | ---- | --------- | ---- | ---------- | ---- | --------- | - | ---------- | - | --------- | - | ---------- | -
|                         |  | Useful     |  |      |           |      |            |      |           |   |            |   |           |  
|                         |  | lives      |  | 2001 |           | 2000 |            | 1999
|                         |  |            |  |      |           |      |            |     
|Land                     |  | 5-50 years |  | $    | 684,977   |      |            | $    | 684,977   |   |            | $ | 591,377   |  
|                        
|                        
|                        
|                        
|Buildings                |  | 5-30 years |  |      | 4,157,641 |      |            |      | 4,112,520 |   |            |   | 4,004,737 |  
|                        
|                        
|                        
|                        
|Equipment                |  |            |  |      |           |      | 4,768,901  |      |           |   | 4,479,403  |   |           |   | 4,385,699  |  
|                        
|                        
|                        
|                        
|Construction in progress |  |            |  |      |           |      | 17,954     |      |           |   | 246,461    |   |           |   | 10,333     |  
|                         |  |            |  |      |           |      |            |      |           |   |            |   |           |   |            |  
|                         |  |            |  |      |           |      | 9,629,473  |      |           |   | 9,523,361  |   |           |   | 8,992,146  |  
|                        
|                        
|                        
|                        
|Accumulated depreciation |  |            |  |      |           |      | (5,742,842 | )    |           |   | (5,254,958 | ) |           |   | (4,738,822 | )
|                         |  |            |  |      |           |      |            |      |           |   |            |   |           |   |            |  
|                         |  |            |  |      |           | $    | 3,886,631  |      |           | $ | 4,268,403  |   |           | $ | 4,253,324  |  
|                         |  |            |  |      |           |      |            |      |           |   |            |   |           |   |            |  

|                              |  |      |         |      |  |      |         |  |  |   |           | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                              |  | 2001 |         | 2000 |  | 1999
|                              |  |      |         |      |  |     
|Notes payable  U.S. Treasury |  | $    | 882,408 |      |  | $    | 487,978 |  |  | $ | 464,936   | 
|                             
|                             
|                             
|                             
|FHLB advances                 |  |      |        |      |  |      |        |  |  |   | 2,000,000 | 
|                              |  |      |         |      |  |      |         |  |  |   |           | 
|                              |  | $    | 882,408 |      |  | $    | 487,978 |  |  | $ | 2,464,936 | 
|                              |  |      |         |      |  |      |         |  |  |   |           | 



| |  | Depreciation expense was $573,674, $551,784, and $575,100 for the years
ended December 31, 2001, 2000, and 1999, respectively.
Amortization of software and intangible assets totaled $192,670,
$197,286, and $187,046 for the years ended December 31, 2001, 2000, and
1999, respectively.                                                                                                                                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank leases its South Crain Highway and 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 $36,560 per
year through September 2004, adjusted annually by the CPI. The Bank is
also required to pay all maintenance costs under all these leasing
arrangements. Rent expense totaled $110,612, $122,060, and $85,980 for
the years ended December 31, 2001, 2000, and 1999, respectively.                             
|
| |  | 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).

Note 6. Short-term borrowings



| |  | Short-term borrowings are as follows:
| |  | -------------------------------------

|                              |  |      |         |      |  |      |         |  |  |   |           | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                              |  | 2001 |         | 1999 |  | 2001
|                              |  |      |         |      |  |     
|Notes payable  U.S. Treasury |  | $    | 882,408 |      |  | $    | 487,978 |  |  | $ | 464,936   | 
|                             
|                             
|                             
|                             
|FHLB advances                 |  |      |        |      |  |      |        |  |  |   | 2,000,000 | 
|                              |  |      |         |      |  |      |         |  |  |   |           | 
|                              |  | $    | 882,408 |      |  | $    | 487,978 |  |  | $ | 2,464,936 | 
|                              |  |      |         |      |  |      |         |  |  |   |           | 

F-16



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Short-term borrowings(continued)



| |  | The Bank owned 6,523 shares of common stock of the FHLB at December 31,
2001. 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 $31,600,000 at December 31, 2001. There was $7,000,000 in
long-term advances under this credit arrangement at December 31, 2001
(see Note 7). Also, at December 31, 1999, the Bank had short-term
advances of $2,000,000 under these arrangements, bearing interest at
4.55%, and maturing within the next year. 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 $250,000, $250,000, and $750,000 at December 31, 2001,
2000, and 1999, respectively. Average short-term borrowings under this
facility were approximately $640,000 and $1,506,000 during 2000 and 1999,
respectively, with no short-term borrowings in 2001.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Notes payable to the U.S. Treasury are Federal treasury tax and loan
deposits accepted by the Bank from its customers to be remitted on demand
to the Federal Reserve Bank. The Bank pays interest on these balances at
a slight discount to the Federal funds rate. The note payable is secured
by investment securities with an amortized cost of approximately
$998,000, $997,000, and $995,000 at December 31, 2001, 2000, and 1999,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | 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. There were no borrowings outstanding under this
credit arrangement at December 31, 2001, 2000, and 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Note 7. Long-term Borrowings



| |  | Long-term borrowings are as follows:
| |  | ------------------------------------

|                                                                                                                                                            |  |      |           |      |  |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                                                                                                                                            |  | 2001 |           | 2000
|                                                                                                                                                            |  |      |           |     
|Federal Home Loan Bank of Atlanta, corrvertible advance                                                                                                     |  | $    | 7,000,000 |      |  | $ | 7,000,000 | 
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Mortgage payable-individual, interest at 7%, payments
of $3,483, including principal and interest, due
monthly through October 2010, secured by real estate |  |      | 274,791   |      |  |   | 296,523   | 
|                                                                                                                                                            |  |      |           |      |  |   |           | 
|                                                                                                                                                            |  | $    | 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 2002. 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At December 31, 2001, the scheduled maturities of long-term borrowings are
approximately as follows:                                                                                                                                                                                                                                                                                                                                                                                

|                    |      |   |           |        | 
|------------------- | ---- | - | --------- | ------ | 
|                    |      |   | 2001     
|                    |      |   |          
|                    | 2002 |   | $         | 23,300 | 
|                   
|                   
|                   
|                   
|                    | 2003 |   |           | 25,000 | 
|                   
|                   
|                   
|                   
|                    | 2004 |   |           | 26,800 | 
|                   
|                   
|                   
|                   
|                    | 2005 |   |           | 28,700 | 
|                   
|                   
|                   
|                   
|                    | 2006 |   |           | 30,800 | 
|                   
|                   
|                   
|                   
|2007 and thereafter |      |   | 7,140,191 |       
|                    |      |   |           |        | 
|                    |      | $ | 7,274,791 |       
|                    |      |   |           |        | 

F-17



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Deposits



| |  | Major classifications of interest-bearing deposits are as follows:
| |  | ------------------------------------------------------------------

|                                           |  |      |             |      |  |      |             |  |  |   |             | 
|------------------------------------------ |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                           |  | 2001 |             | 2000 |  | 1999
|                                           |  |      |             |      |  |     
|NOW and SuperNOW                           |  | $    | 22,395,703  |      |  | $    | 19,644,885  |  |  | $ | 18,562,778  | 
|                                          
|                                          
|                                          
|                                          
|Money Market                               |  |      | 20,626,249  |      |  |      | 16,766,390  |  |  |   | 17,628,665  | 
|                                          
|                                          
|                                          
|                                          
|Savings                                    |  |      | 42,344,960  |      |  |      | 40,687,639  |  |  |   | 41,116,776  | 
|                                          
|                                          
|                                          
|                                          
|Certificates of Deposit, $100, 000 or more |  |      | 17,635,466  |      |  |      | 11,995,756  |  |  |   | 6,345,179   | 
|                                          
|                                          
|                                          
|                                          
|Other time deposits                        |  |      | 70,619,232  |      |  |      | 63,911,176  |  |  |   | 65,292,304  | 
|                                           |  |      |             |      |  |      |             |  |  |   |             | 
|                                           |  | $    | 173,621,610 |      |  | $    | 153,005,846 |  |  | $ | 148,945,702 | 
|                                           |  |      |             |      |  |      |             |  |  |   |             | 



| |  | Interest expense on deposits is as follows:
| |  | -------------------------------------------

|                                          |  |      |           |      |  |      |           |  |  |   |           | 
|----------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                          |  | 2001 |           | 2000 |  | 1999
|                                          |  |      |           |      |  |     
|NOW and SuperNOW                          |  | $    | 136,590   |      |  | $    | 217,558   |  |  | $ | 230,708   | 
|                                         
|                                         
|                                         
|                                         
|Money Market                              |  |      | 356,798   |      |  |      | 449,850   |  |  |   | 527,466   | 
|                                         
|                                         
|                                         
|                                         
|Savings                                   |  |      | 613,088   |      |  |      | 961,028   |  |  |   | 938,117   | 
|                                         
|                                         
|                                         
|                                         
|Certificates of Deposit, $l00,000 or more |  |      | 750,434   |      |  |      | 557,693   |  |  |   | 435,885   | 
|                                         
|                                         
|                                         
|                                         
|Other time deposits                       |  |      | 3,670,700 |      |  |      | 3,376,299 |  |  |   | 3,371,452 | 
|                                          |  |      |           |      |  |      |           |  |  |   |           | 
|                                          |  | $    | 5,527,610 |      |  | $    | 5,562,428 |  |  | $ | 5,503,628 | 
|                                          |  |      |           |      |  |      |           |  |  |   |           | 



| |  | At December 31, 2001, the scheduled maturities of time deposits are
approximately as follows:
| |  | ---------------------------------------------------------------------------------------------

|                    |      |   |            |            | 
|------------------- | ---- | - | ---------- | ---------- | 
|                    |      |   | 2001      
|                    |      |   |           
|                    | 2002 |   | $          | 53,258,000 | 
|                   
|                   
|                   
|                   
|                    | 2003 |   |            | 17,779,000 | 
|                   
|                   
|                   
|                   
|                    | 2004 |   |            | 5,665,000  | 
|                   
|                   
|                   
|                   
|                    | 2005 |   |            | 2,490,000  | 
|                   
|                   
|                   
|                   
|                    | 2006 |   |            | 4,329,000  | 
|                   
|                   
|                   
|                   
|2007 and thereafter |      |   | 4,734,000  |           
|                    |      |   |            |            | 
|                    |      | $ | 88,255,000 |           
|                    |      |   |            |            | 



| |  | Deposit balances of executive officers and directors and their affiliated
interests totaled approximately
$526,000, $734,000, and $369,000 at December 31, 2001, 2000, and 1999,
respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank had no brokered deposits at December 31, 2001, 2000, and 1999.                                                                                                                       

F-18



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Income Taxes



| |  | The components of income tax expense for the years ended December 31,
2001, 2000, and 1999 are as follows:
| |  | ----------------------------------------------------------------------------------------------------------

|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |         |           | 
|--------------------------------- | ------- | -------------- | ------------------ | ------- | -------- | ------- | ---- | --------- | --------- | --------- | - | ------- | ------- | --------- | 
|                                  |         |                |                    |         | 2001     |         | 2000 |           | 1999     
|                                  |         |                |                    |         |          |         |      |           |          
|Current:                          |         |                |                    |         |          |         |      |           |           |           |   |        
|                                 
|                                 
|                                 
|                                 
|                                  | Federal |                | $                  | 594,160 |          |         | $    | 1,271,219 |           |           | $ | 264,850 |        
|                                 
|                                 
|                                 
|                                 
|                                  | State   |                |                    | 95,070  |          |         |      | 240,567   |           |           |   |        |        
|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |        
|                                  |         | Total current  |                    |         | 689,230  |         |      |           | 1,511,786 |           |   |         | 264,850 |          
|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |        
|Deferred income taxes (benefits): |         |                |                    |         |          |         |      |           |           |           |   |        
|                                 
|                                 
|                                 
|                                 
|                                  | Federal |                |                    | (70,871 | )        |         |      | 51,660    |           |           |   | 793,015 |        
|                                 
|                                 
|                                 
|                                 
|                                  | State   |                |                    | (30,820 | )        |         |      | (125,385  | )         |           |   | 128,179 |        
|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |        
|                                  |         | Total deferred |                    |         | (101,691 | )       |      |           | (73,725   | )         |   |         | 921,194 |          
|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |        
|                                  |         |                | Income tax expense |         | $        | 587,539 |      |           | $         | 1,438,061 |   |         | $       | 1,186,044 | 
|                                  |         |                |                    |         |          |         |      |           |           |           |   |         |        



| |  | 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,
2001, 2000, and 1999 is as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                              |                                                       |                    |           |          |         |      |           |         |           |   |           |        |           | 
|------------------------------------------------------------- | ----------------------------------------------------- | ------------------ | --------- | -------- | ------- | ---- | --------- | ------- | --------- | - | --------- | ------ | --------- | 
|                                                              |                                                       |                    |           | 2001     |         | 2000 |           | 1999   
|                                                              |                                                       |                    |           |          |         |      |           |        
|Income before income taxes                                    |                                                       | $                  | 2,312,775 |          |         | $    | 3,712,927 |         |           | $ | 2,631,394 |       
|                                                              |                                                       |                    |           |          |         |      |           |         |           |   |           |       
|Taxes computed at Federal income tax rate                     |                                                       | $                  | 786,344   |          |         | $    | 1,262,395 |         |           | $ | 894,674   |       
|                                                             
|                                                             
|                                                             
|                                                             
|Federal excise tax on pension plan
termination and settlement |                                                       |                    |          |          |         |      | 238,636   |         |           |   | 196,800   |       
|                                                             
|                                                             
|                                                             
|                                                             
|Increase (decrease) resulting from:                           |                                                       |                    |           |          |         |      |           |         |           |   |           |       
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Tax-exempt income                                     |                    |           | (248,386 | )       |      |           | (49,261 | )         |   |           |       |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | State income taxes, net of Federal income
tax benefit |                    |           | 42,405   |         |      |           | 76,021  |           |   |           | 84,598 |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | AMT credits                                           |                    |           |         |         |      |           | (87,421 | )         |   |           |       |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Other                                                 |                    |           | 7,176    |         |      |           | (2,309  | )         |   |           | 9,972  |          
|                                                              |                                                       |                    |           |          |         |      |           |         |           |   |           |       
|                                                              |                                                       | Income tax expense |           | $        | 587,539 |      |           | $       | 1,438,061 |   |           | $      | 1,186,044 | 
|                                                              |                                                       |                    |           |          |         |      |           |         |           |   |           |       



| |  | Sources of deferred income taxes and the tax effects of each for the years
ended December 31, 2001,
2000, and 1999 are as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------

|                                                |                                       |   |         |          |      |   |          |         |   |   |         |         | 
|----------------------------------------------- | ------------------------------------- | - | ------- | -------- | ---- | - | -------- | ------- | - | - | ------- | ------- | 
|                                                |                                       |   | 2001    |          | 2000 |   | 1999    
|                                                |                                       |   |         |          |      |   |         
|Depreciation                                    |                                       | $ | (52,012 | )        |      | $ | (46,174  | )       |   | $ | (11,998 | )      
|                                               
|                                               
|                                               
|                                               
|Securities discount accretion                   |                                       |   | 8,109   |          |      |   | 7,066    |         |   |   | 2,858   |        
|                                               
|                                               
|                                               
|                                               
|Provision for credit losses                     |                                       |   | 52,185  |          |      |   | (18,725  | )       |   |   | 139,705 |        
|                                               
|                                               
|                                               
|                                               
|Deferred compensation and pension benefit plans |                                       |   | (89,370 | )        |      |   | (646,776 | )       |   |   | 542,275 |        
|                                               
|                                               
|                                               
|                                               
|Charitable contributions                        |                                       |   |        |          |      |   | 29,372   |         |   |   | 32,430  |        
|                                               
|                                               
|                                               
|                                               
|Write-downs on other real estate owned          |                                       |   | (22,912 | )        |      |   | (9,462   | )       |   |   | 4,773   |        
|                                               
|                                               
|                                               
|                                               
|Alternative minimum tax credits                 |                                       |   | 60,239  |          |      |   | 610,974  |         |   |   | 126,090 |        
|                                               
|                                               
|                                               
|                                               
|Net operating loss carryover                    |                                       |   |        |          |      |   |         |         |   |   | 85,061  |        
|                                               
|                                               
|                                               
|                                               
|Reserve for unfunded commitments                |                                       |   | (57,930 | )        |      |   |         |         |   |   |        |        
|                                                |                                       |   |         |          |      |   |          |         |   |   |         |        
|                                                | Deferred income tax expense (benefit) |   | $       | (101,691 | )    |   | $        | (73,725 | ) |   | $       | 921,194 | 
|                                                |                                       |   |         |          |      |   |          |         |   |   |         |        

F-19



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Income Taxes(continued)



| |  | The components of the net deferred income tax benefits as of December 31,
2001, 2000, and 1999 are as follows:
| |  | --------------------------------------------------------------------------------------------------------------

|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |           | 
|-------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | --------- | 
|                                 |                                                                         |                                                            |   | 2001    |         | 2000 |   | 1999   
|                                 |                                                                         |                                                            |   |         |         |      |   |        
|Deferred income tax benefits:    |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |        
|                                
|                                
|                                
|                                
|                                 | Allowance for credit losses                                             |                                                            | $ |        |         |      | $ | 2,986   |         |  | $ |        |          
|                                
|                                
|                                
|                                
|                                 | Deferred compensation and benefit plans                                 |                                                            |   | 415,425 |         |      |   | 326,055 |         |  |   | 276,334 |          
|                                
|                                
|                                
|                                
|                                 | Other real estate owned                                                 |                                                            |   | 32,375  |         |      |   | 9,462   |         |  |   |        |          
|                                
|                                
|                                
|                                
|                                 | Charitable contributions                                                |                                                            |   |        |         |      |   |        |         |  |   | 29,372  |          
|                                
|                                
|                                
|                                
|                                 | Alternative minimum tax credits                                         |                                                            |   |        |         |      |   | 60,239  |         |  |   | 671,213 |          
|                                
|                                
|                                
|                                
|                                 | Net unrealized depreciation on investment
securities available for sale |                                                            |   | 102,573 |         |      |   |        |         |  |   | 96,560  |          
|                                
|                                
|                                
|                                
|                                 | Reserve for unfunded commitments                                        |                                                            |   | 57,930  |         |      |   |        |         |  |   |        |          
|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |          
|                                 |                                                                         | Total deferred income tax benefits                         |   |         | 608,303 |      |   |         | 398,742 |  |   |         | 1,073,479 | 
|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |          
|Deferred income tax liabilities: |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |        
|                                
|                                
|                                
|                                
|                                 | Accumulated depreciation                                                |                                                            |   | 94,144  |         |      |   | 146,156 |         |  |   | 192,330 |          
|                                
|                                
|                                
|                                
|                                 | Allowance for credit losses                                             |                                                            |   | 49,199  |         |      |   |        |         |  |   | 15,739  |          
|                                
|                                
|                                
|                                
|                                 | Securities discount accretion                                           |                                                            |   | 37,593  |         |      |   | 29,483  |         |  |   | 22,417  |          
|                                
|                                
|                                
|                                
|                                 | Prepaid pension plan contributions                                      |                                                            |   |        |         |      |   |        |         |  |   | 597,056 |          
|                                
|                                
|                                
|                                
|                                 | Net unrealized appreciation on investment
securities available for sale |                                                            |   |        |         |      |   | 96,170  |         |  |   |        |          
|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |          
|                                 |                                                                         | Total deferred income tax liabilities                      |   |         | 180,936 |      |   |         | 271,809 |  |   |         | 827,542   | 
|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |          
|                                 |                                                                         | Net deferred income tax benefits, included
in other assets |   | $       | 427,367 |      |   | $       | 126,933 |  |   | $       | 245,937   | 
|                                 |                                                                         |                                                            |   |         |         |      |   |         |         |  |   |         |          



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

Note 10. Pension and Profit Sharing Plans



| |  | Through 1998, 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 on December 27, 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 has 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.                                                                                                                                                                                                                                                                        

F-20



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans(continued)



| |  | 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 and 1999:                                                                                                                                                                                                                                                                                   

|                                                      |                                       |   |           |            |      |   |            |            |  
|----------------------------------------------------- | ------------------------------------- | - | --------- | ---------- | ---- | - | ---------- | ---------- | -
|                                                      |                                       |   | 2000      |            | 1999
|                                                      |                                       |   |           |            |     
|Projected benefit obligation at January 1,            |                                       | $ | 4,791,364 |            |      | $ | 4,423,566  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest                              |   |           |           |      |   |            | 261,367    |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Actual benefit payments               |   |           | (4710,262  | )    |   |            | (144,739   | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest on distributions             |   |           |           |      |   |            | (7,223     | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Decrease from curtailment             |   |           |           |      |   |            | (1,435,130 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Increase from change in discount rate |   |           |           |      |   |            | 1,607,050  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other adjustments                     |   |           | (81,102    | )    |   |            | 86,473     |  
|                                                      |                                       |   |           |            |      |   |            |           
|Projected benefit obligation at December 31,          |                                       | $ |          |            |      | $ | 4,791,364  |           
|                                                      |                                       |   |           |            |      |   |            |           
|Accumulated benefit obligation:                       |                                       |   |           |            |      |   |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vested                                |   | $         |           |      |   | $          | 4,791,364  |  
|                                                      |                                       |   |           |            |      |   |            |           
|Plan assets at January 1,                             |                                       | $ | 7,045,921 |            |      | $ | 5,699,073  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Actual distributions                  |   |           | (7,622,385 | )    |   |            | (144,739   | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Actual returns                        |   |           | 576,464    |      |   |            | 1,491,587  |  
|                                                      |                                       |   |           |            |      |   |            |           
|Plan assets at December 31,                           |                                       | $ |          |            |      | $ | 7,045,921  |           
|                                                      |                                       |   |           |            |      |   |            |           
|Plan assets at fair value                             |                                       | $ |          |            |      | $ | 7,045,921  |           
|                                                     
|                                                     
|                                                     
|                                                     
|Projected benefit obligation                          |                                       |   |          |            |      |   | (4,791,364 | )         
|                                                      |                                       |   |           |            |      |   |            |           
|Plan assets in excess of
projected benefit obligation |                                       |   |          |            |      |   | 2,254,557  |           
|                                                     
|                                                     
|                                                     
|                                                     
|Unrecognized net gain                                 |                                       |   |          |            |      |   | (684,244   | )         
|                                                     
|                                                     
|                                                     
|                                                     
|Unrecognized net asset from transition                |                                       |   |          |            |      |   | (24,336    | )         
|                                                      |                                       |   |           |            |      |   |            |           
|Prepaid pension expense included in other assets      |                                       | $ |          |            |      | $ | 1,545,977  |           
|                                                      |                                       |   |           |            |      |   |            |           
|Net pension expense includes the following:           |                                       |   |           |            |      |   |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest cost                         |   | $         |           |      |   | $          | 254,144    |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Actual return on assets               |   |           | (576,464   | )    |   |            | (1,491,587 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net amortization and deferral         |   |           | 874,288    |      |   |            | 939,619    |  
|                                                      |                                       |   |           |            |      |   |            |           
|Net pension expense (benefit)                         |                                       | $ | 297,824   |            |      | $ | (297,824   | )         
|                                                      |                                       |   |           |            |      |   |            |           

F-21



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Pension and Profit Sharing Plans(continued)



| |  | Assumptions used in the accounting for net pension expense were:
| |  | ----------------------------------------------------------------

|                                        |  |      |     |      |  |  |     |  
|--------------------------------------- |  | ---- | --- | ---- |  |  | --- | -
|                                        |  | 2000 |     | 1999
|                                        |  |      |     |     
|Discount rates                          |  |      | N/A |      |  |  | 5.5 | %
|                                       
|                                       
|                                       
|                                       
|Rate of increase in compensation levels |  |      | N/A |      |  |  | 6.5 | %
|                                       
|                                       
|                                       
|                                       
|Long-term rate of return on assets      |  |      | N/A |      |  |  | 8.5 | %



| |  | During 1999, the Bank established a money purchase pension plan. The
plan provides for annual employer contributions, based on employee
compensation and covers substantially all employees. Contributions under
this plan, made from the safe harbour accrual, were $175,794and $156,988
for the years ended December 31, 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, were $149,044for
the year ended December 31, 2001.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 were $242,997, $230,971, and
$187,704 for the years ended December 31, 2001, 2000, and 1999,
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. The plan is funded only by
the Banks monthly payments of insurance premiums due. The following
table sets forth the financial status of the plan at December 31, 2001,
2000, and 1999:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |         |  
|----------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | --------- | --------- | ---- | - | -------- | ------- | - | - | --------- | ------- | -
|                                                                                                                  |                                                    |   | 2001      |           | 2000 |   | 1999    
|                                                                                                                  |                                                    |   |           |           |      |   |         
|Accumulated post-retirement benefit obligation:                                                                   |                                                    |   |           |           |      |   |          |         |   |   |           |        
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Retirees                                           |   | $         | 503,823   |      |   | $        | 299,422 |   |   | $         | 308,960 |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Other active participants, fully eligible          |   |           | 79,954    |      |   |          |        |   |   |           |        |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Other active participants, not fully eligible      |   |           | 1,023,038 |      |   |          | 659,531 |   |   |           | 786,293 |  
|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |        
|                                                                                                                  |                                                    |   | 1,606,815 |           |      |   | 958,953  |         |   |   | 1,095,253 |        
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Unrecognized net gain                                                                                             |                                                    |   | 31,712    |           |      |   | 250,074  |         |   |   | 11,504    |        
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Unrecognized transition obligation                                                                                |                                                    |   | (434,186  | )         |      |   | (467,585 | )       |   |   | (500,984  | )      
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Unrecognized past service (cost) savings                                                                          |                                                    |   | (128,666  | )         |      |   | 102,822  |         |   |   | 109,746   |        
|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |         |  
|Accrued post-retirement benefit cost                                                                              |                                                    | $ | 1,075,675 |           |      | $ | 844,264  |         |   | $ | 715,519   |        
|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |         |  
|Net post-retirement benefit expense for the years
ended December 31, 2001, 2000, and 1999 includes
the following: |                                                    |   |           |           |      |   |          |         |   |   |           |        
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Service cost                                       |   | $         | 135,368   |      |   | $        | 73,360  |   |   | $         | 71,739  |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Interest cost                                      |   |           | 100,651   |      |   |          | 60,006  |   |   |           | 67,844  |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Amortization of unrecognized transition obligation |   |           | 33,399    |      |   |          | 33,399  |   |   |           | 33,399  |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Amortization of net gain                           |   |           |          |      |   |          | (6,879  | ) |   |           |        |  
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                  | Amortization of past service cost (savings)        |   |           | 4,304     |      |   |          | (6,924  | ) |   |           | (6,924  | )
|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |         |  
|                                                                                                                  | Net post-retirement benefit expense                |   | $         | 273,722   |      |   | $        | 152,962 |   |   | $         | 166,058 |  
|                                                                                                                  |                                                    |   |           |           |      |   |          |         |   |   |           |         |  

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

F-22



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

|                            |  |      |     |      |  |      |     |   |  |  |     |  
|--------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                            |  | 2001 |     | 2000 |  | 1999
|                            |  |      |     |      |  |     
|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 2001,
2000, and 1999, the total of the service and interest cost components of
net periodic post-retirement health care benefit cost would increase by
$46,848, $28,474, and $37,610 for the years ended December 31, 2001,
2000, and 1999, respectively, and the accumulated post-retirement benefit
obligation would increase to $320,570, $181,436, and $203,668 as of
December 31, 2001, 2000, and 1999, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 12. Other Benefit Plans

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

Note 13. Other Operating Expenses



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

|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 
|--------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                                                        |  | 2001 |           | 2000 |  | 1999
|                                                                                        |  |      |           |      |  |     
|Professional services                                                                   |  | $    | 605,952   |      |  | $    | 642,609   |  |  | $ | 714,929   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Stationery, printing and supplies                                                       |  |      | 260,863   |      |  |      | 224,453   |  |  |   | 251,388   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Postage and delivery                                                                    |  |      | 262,759   |      |  |      | 269,710   |  |  |   | 235,110   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|FDIC assessment                                                                         |  |      | 37,696    |      |  |      | 67,393    |  |  |   | 22,481    | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Directors fees and expenses                                                             |  |      | 128,101   |      |  |      | 114,442   |  |  |   | 134,092   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Marketing                                                                               |  |      | 244,838   |      |  |      | 251,113   |  |  |   | 342,737   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Data processing                                                                         |  |      | 154,980   |      |  |      | 231,097   |  |  |   | 222,709   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Correspondent bank services                                                             |  |      | 74,533    |      |  |      | 95,245    |  |  |   | 98,896    | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Telephone                                                                               |  |      | 138,220   |      |  |      | 100,026   |  |  |   | 102,757   | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Liability insurance                                                                     |  |      | 93,608    |      |  |      | 98,446    |  |  |   | 91,783    | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Losses and expenses on real estate owned (OREO)                                         |  |      | 73,455    |      |  |      | 58,334    |  |  |   | 38,218    | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Asset impairment loss on Ferndale branch and
related closing expenses (see Note 5)      |  |      |          |      |  |      | 280,460   |  |  |   |          | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Provision for losses on unfunded credit related
commitments with off-balance sheet risk |  |      | 150,000   |      |  |      |          |  |  |   |          | 
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Other                                                                                   |  |      | 787,400   |      |  |      | 608,843   |  |  |   | 595,645   | 
|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 
|                                                                                        |  | $    | 3,012,405 |      |  | $    | 3,042,171 |  |  | $ | 2,850,745 | 
|                                                                                        |  |      |           |      |  |      |           |  |  |   |           | 

F-23



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2001, 2000, and 1999, the Company made payments totaling $131,378,
$131,378 and $281,378, respectively, relating 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.
|
| |  | Outstanding loan commitments, unused lines of credit and letters of credit are as follows:                                                                                                                                                                                                                                                                                            

|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|----------------------- | --------------------------------- | - | ---------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                        |                                   |   | 2001       |           | 2000 |   | 1999      
|                        |                                   |   |            |           |      |   |           
|Loan commitments:       |                                   |   |            |           |      |   |            |           |  |   |            |          
|                       
|                       
|                       
|                       
|                        | Construction and land development |   | $          | 250,000   |      |   | $          | 450,000   |  |   | $          | 740,000   | 
|                       
|                       
|                       
|                       
|                        | Other mortgage loans              |   |            | 5,456,022 |      |   |            | 79,000    |  |   |            | 739,800   | 
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|                        |                                   | $ | 5,706,022  |           |      | $ | 529,000    |           |  | $ | 1,479,800  |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|Unused lines of credit: |                                   |   |            |           |      |   |            |           |  |   |            |          
|                       
|                       
|                       
|                       
|                        | Home-equity lines                 |   | $          | 3,775,941 |      |   | $          | 3,417,102 |  |   | $          | 3,215,502 | 
|                       
|                       
|                       
|                       
|                        | Commercial lines                  |   |            | 7,272,045 |      |   |            | 7,615,035 |  |   |            | 9,981,462 | 
|                       
|                       
|                       
|                       
|                        | Unsecured consumer lines          |   |            | 862,555   |      |   |            | 908,600   |  |   |            | 824,978   | 
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|                        |                                   | $ | 11,910,541 |           |      | $ | 11,940,737 |           |  | $ | 14,021,942 |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 
|Letters of credit:      |                                   | $ | 1,257,361  |           |      | $ | 1,237,878  |           |  | $ | 1,384,969  |          
|                        |                                   |   |            |           |      |   |            |           |  |   |            |           | 

F-24



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Commitments and Contingencies(continued)



| |  | 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, 2001, the
Bank has accrued $150,000 for unfunded commitments related to these
financial instruments with off balance sheet risk, which is included in
other liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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, 2001 and 2000, the unamortized balance totaled $145,000
and $150,000, respectively, and was included in other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-25



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 were approximately $2,469,000, $2,694,000, and $2,276,000
at December 31, 2001, 2000, and 1999, respectively, based on the earnings
restrictions and minimum capital ratio requirements noted below.                                                                                                                      
|
| |  | Change in par value of common stock:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In December 1999, the Company changed the par value of its common stock
from $10 par value to $1 par value. The $9 per share of par value has
been reclassified as surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | 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). As of December 2001, the Company has terminated this
program.                                                                                                                                                                                                                                              
|
| |  | 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 $0, ($10,889), and $90 have been
recognized in the accompanying consolidated financial statements in 2001,
2000, and 1999, 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.
|
| |  | 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:                                                                                                                                                              

F-26



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)

|                                                       |  |        |        |       |  |       |        | 
|------------------------------------------------------ |  | ------ | ------ | ----- |  | ----- | ------ | 
|                                                       |  |        |        |       |  | Grant
|                                                       |  | Shares |        | Price
|                                                       |  |        |        |      
|Outstanding December 31, 1998                          |  |        | 8,689  |       |  | $     | 11.806 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Exercised                                              |  |        | (1,872 | )     |  |       |        | 
|                                                      
|                                                      
|                                                      
|                                                      
|Expired                                                |  |        | (6,817 | )     |  | $     | 11.806 | 
|                                                       |  |        |        |       |  |       |        | 
|Granted on August 12, 1999, expiring November 12, 2000 |  |        | 7,371  |       |  | $     | 10.978 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Exercised                                              |  |        | (1,755 | )     |  |       |        | 
|                                                       |  |        |        |       |  |       |        | 
|Outstanding December 31, 1999                          |  |        | 5,616  |       |  | $     | 10.978 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Expired                                                |  |        | (5,616 | )     |  | $     | 10.978 | 
|                                                       |  |        |        |       |  |       |        | 
|Outstanding December 31, 2000                          |  |        |       |       |  |       |        | 
|                                                      
|                                                      
|                                                      
|                                                      
|Outstanding December 31, 2001                          |  |        |       |       |  |       |        | 
|                                                       |  |        |        |       |  |       |        | 



| |  | At December 31, 2001, there were 41,562shares of common stock reserved
for issuance under the plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During December 2001, the Board of Directors approved for additional
options to be granted under this plan at $12.11 per share for a period of
15 months, expiring in March 2003. As of December 31, 2001, no options
had been granted under this plan.                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Board of Directors may suspend or discontinue the plan at its
discretion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Dividend reinvestment and stock purchase plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The Companys dividend reinvestment and stock purchase plan allows all
participating stockholders the opportunity to receive additional shares
of common stock in lieu of cash dividends at 95% of the fair market value
on the dividend payment date.                                                                                                                                                                                                                                                                                                                                          
|
| |  | During 2001, 2000, and 1999, 13,607,20,841, and 8,698 shares of common
stock, respectively, were purchased under the plan. At December 31,
2001, there were 154,239shares of common stock reserved for issuance
under the plan.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Board of Directors may suspend or discontinue the plan at its discretion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Stockholder purchase plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Companys stockholder purchase plan allows participating stockholders
an option to purchase newly issued shares of common stock. The 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.

F-27



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)

|                                                          |  |        |          |       |  |       |        | 
|--------------------------------------------------------- |  | ------ | -------- | ----- |  | ----- | ------ | 
|                                                          |  |        |          |       |  | Grant
|                                                          |  | Shares |          | Price
|                                                          |  |        |          |      
|Outstanding December 31, 1998                             |  |        | 185,414  |       |  | $     | 14.514 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Exercised                                                 |  |        | (6,025   | )     |  |       |        | 
|                                                         
|                                                         
|                                                         
|                                                         
|Expired                                                   |  |        | (179,389 | )     |  | $     | 14.514 | 
|                                                          |  |        |          |       |  |       |        | 
|Granted on June 24, 1999, expiring September 24, 1999     |  |        | 90,000   |       |  | $     | 12.917 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Exercised                                                 |  |        | (6,700   | )     |  |       |        | 
|                                                         
|                                                         
|                                                         
|                                                         
|Expired                                                   |  |        | (83,300  | )     |  | $     | 12.917 | 
|                                                          |  |        |          |       |  |       |        | 
|Granted on September 24, 1999, expiring December 24, 1999 |  |        | 90,000   |       |  | $     | 12.778 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Exercised                                                 |  |        | (4,322   | )     |  |       |        | 
|                                                         
|                                                         
|                                                         
|                                                         
|Expired                                                   |  |        | (85,678  | )     |  | $     | 12.778 | 
|                                                          |  |        |          |       |  |       |        | 
|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                             |  |        |         |       |  |       |        | 
|                                                          |  |        |          |       |  |       |        | 



| |  | At December 31, 2001, there were 181,666shares of common stock reserved
for issuance under the plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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, 2001, 2000, and 1999, that both the Company
and Bank meet all capital adequacy requirements to which it is subject.                                                                                                                                                                                                                                                                                                                                                

F-28



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Stockholders Equity(continued)



| |  | As of December 31, 2001, 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, 2001, 2000, and 1999 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, 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  | %
|                                        
|                                        
|                                        
|                                        
|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  | %

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, 1999                  |                                         |         |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Total Capital
(to Risk Weighted Assets) |         |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  |  |     
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Company |  | $      | 16,912,000 |                   |  |                   | 10.8 | %     |  | $           | 12,527,000 |                         |  |  | 8.0 | % |  |                        | N/A        |  |  |  |      |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Bank    |  |        | 16,586,000 |                   |  |                   | 10.3 | %     |  |             | 12,870,000 |                         |  |  | 8.0 | % |  | $                      | 16,087,000 |  |  |  | 10.0 | %
|                                        
|                                        
|                                        
|                                        
|Tier I Capital
(to Risk Weighted Assets) |                                         |         |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Company |  |        | 14,942,000 |                   |  |                   | 9.5  | %     |  |             | 6,265,000  |                         |  |  | 4.0 | % |  |                        | N/A        |  |  |  |      |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Bank    |  |        | 14,563,000 |                   |  |                   | 9.0  | %     |  |             | 6,437,000  |                         |  |  | 4.0 | % |  |                        | 9,655,000  |  |  |  | 6.0  | %
|                                        
|                                        
|                                        
|                                        
|Tier I Capital
(to Average Assets)       |                                         |         |  |        |            |                   |  |                   |      |       |  |             |            |                         |  |  |     |   |  |                        |            |  |  | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Company |  |        | 14,942,000 |                   |  |                   | 6.8  | %     |  |             | 8,815,000  |                         |  |  | 4.0 | % |  |                        | N/A        |  |  |  |      |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                         | Bank    |  |        | 14,563,000 |                   |  |                   | 6.6  | %     |  |             | 8,813,000  |                         |  |  | 4.0 | % |  |                        | 11,016,000 |  |  |  | 5.0  | %

Note 19. Earnings Per Common Share



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

|       |                                            |  |      |           |      |  |      |           |  |  |   |           | 
|------ | ------------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|       |                                            |  | 2001 |           | 2000 |  | 1999
|       |                                            |  |      |           |      |  |     
|Basic: |                                            |  |      |           |      |  |      |           |  |  |   |          
|      
|      
|      
|      
|       | Net Income                                 |  | $    | 1,725,236 |      |  | $    | 2,274,866 |  |  | $ | 1,445,350 | 
|      
|      
|      
|      
|       | Weighted average common shares outstanding |  |      | 1,656,904 |      |  |      | 1,652,001 |  |  |   | 1,636,275 | 
|      
|      
|      
|      
|       | Basic net income per share                 |  | $    | 1.04      |      |  | $    | 1.38      |  |  | $ | 0.88      | 



| |  | Diluted earnings per share calculations were not required for 2001 and
2000 since there were no outstanding options at December 31, 2001 and
2000.                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Diluted earnings per share calculations were not required for 1999, due
to all options having an anti-dilutive effect and the Company having a
simple capital structure.

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:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          |                                                                                                 |   |             |             |       |   |             |             |  |   |             |             |       |  |          |  |  |   |             |             |       |   |             |             |  |  |  |  |  |   |             |             | 
|----------------------------------------- | ----------------------------------------------------------------------------------------------- | - | ----------- | ----------- | ----- | - | ----------- | ----------- |  | - | ----------- | ----------- | ----- |  | -------- |  |  | - | ----------- | ----------- | ----- | - | ----------- | ----------- |  |  |  |  |  | - | ----------- | ----------- | 
|                                          |                                                                                                 |   | 2001        |             | 2000  |   | 1999       
|                                          |                                                                                                 |   |             |             |       |   |            
|                                          |                                                                                                 |   | Carrying    |             | Fair  |   | Carrying    |             |  |   |             |             | Fair  |  | Carrying |  |  |   |             |             | Fair 
|                                          |                                                                                                 |   | Amount      |             | Value |   | Amount      |             |  |   |             |             | Value |  | Amount   |  |  |   |             |             | Value
|                                          |                                                                                                 |  
|Financial
assets:
Cash and due from banks |                                                                                                 | $ | 10,888,085  |             |       | $ | 10,888,085  |             |  | $ | 9,559,329   |             |       |  |          |  |  | $ | 9,559,329   |             |       | $ | 8,317,450   |             |  |  |  |  |  | $ | 8,317,450   |            
|                                         
|                                         
|                                         
|                                         
|                                          | Interest-bearing deposits in
other financial institutions                                       |   |             | 1,879,444   |       |   |             | 1,879,444   |  |   |             | 50,947      |       |  |          |  |  |   |             | 50,947      |       |   |             | 10,245      |  |  |  |  |  |   |             | 10,245      | 
|                                         
|                                         
|                                         
|                                         
|                                          | Federal funds sold                                                                              |   |             | 5,453,299   |       |   |             | 5,453,299   |  |   |             | 5,898,363   |       |  |          |  |  |   |             | 5,898,863   |       |   |             | 555,627     |  |  |  |  |  |   |             | 555,627     | 
|                                         
|                                         
|                                         
|                                         
|                                          | Certificates of deposit in other
financial institutions                                         |   |             | 100,000     |       |   |             | 100,000     |  |   |             | 100,000     |       |  |          |  |  |   |             | 100,000     |       |   |             |            |  |  |  |  |  |   |             |            | 
|                                         
|                                         
|                                         
|                                         
|                                          | Investment securities
available for sale                                                        |   |             | 55,547,998  |       |   |             | 55,547,998  |  |   |             | 21,308,961  |       |  |          |  |  |   |             | 21,308,961  |       |   |             | 14,664,953  |  |  |  |  |  |   |             | 14,664,953  | 
|                                         
|                                         
|                                         
|                                         
|                                          | Investment securities held to
maturity                                                          |   |             | 16,516,923  |       |   |             | 16,881,451  |  |   |             | 31,285,937  |       |  |          |  |  |   |             | 31,019,121  |       |   |             | 28,657,242  |  |  |  |  |  |   |             | 27,041,751  | 
|                                         
|                                         
|                                         
|                                         
|                                          | Federal Home Loan Bank Stock                                                                    |   |             | 652,300     |       |   |             | 652,300     |  |   |             | 652,300     |       |  |          |  |  |   |             | 652,300     |       |   |             | 652,300     |  |  |  |  |  |   |             | 652,300     | 
|                                         
|                                         
|                                         
|                                         
|                                          | Common stock-Statutory Trust I                                                                  |   |             | 155,000     |       |   |             | 155,000     |  |   |             | 155,000     |       |  |          |  |  |   |             | 155,000     |       |   |             |            |  |  |  |  |  |   |             |            | 
|                                         
|                                         
|                                         
|                                         
|                                          | Ground rents                                                                                    |   |             | 249,900     |       |   |             | 249,900     |  |   |             | 249,900     |       |  |          |  |  |   |             | 249,900     |       |   |             | 254,025     |  |  |  |  |  |   |             | 254,025     | 
|                                         
|                                         
|                                         
|                                         
|                                          | Loans, less allowance for
credit losses                                                         |   |             | 164,569,252 |       |   |             | 164,570,000 |  |   |             | 162,373,731 |       |  |          |  |  |   |             | 162,525,000 |       |   |             | 151,106,560 |  |  |  |  |  |   |             | 138,422,000 | 
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued interest receivable                                                                     |   |             | 1,527,018   |       |   |             | 1,527,018   |  |   |             | 1,681,219   |       |  |          |  |  |   |             | 1,681,219   |       |   |             | 1,279,067   |  |  |  |  |  |   |             | 1,279,067   | 
|                                         
|                                         
|                                         
|                                         
|Financial
liabilities:
Deposits           |                                                                                                 |   | 229,306,718 |             |       |   | 231,692,000 |             |  |   | 205,968,337 |             |       |  |          |  |  |   | 205,969,000 |             |       |   | 194,089,995 |             |  |  |  |  |  |   | 194,002,000 |            
|                                         
|                                         
|                                         
|                                         
|                                          | Short-term borrowings                                                                           |   |             | 882,408     |       |   |             | 882,408     |  |   |             | 487,978     |       |  |          |  |  |   |             | 487,978     |       |   |             | 2,464,936   |  |  |  |  |  |   |             | 2,464,936   | 
|                                         
|                                         
|                                         
|                                         
|                                          | Long-term borrowings                                                                            |   |             | 7,274,791   |       |   |             | 7,274,791   |  |   |             | 7,296,523   |       |  |          |  |  |   |             | 7,296,523   |       |   |             |            |  |  |  |  |  |   |             |            | 
|                                         
|                                         
|                                         
|                                         
|                                          | Dividends payable                                                                               |   |             | 195,333     |       |   |             | 195,333     |  |   |             | 213,345     |       |  |          |  |  |   |             | 213,345     |       |   |             | 136,666     |  |  |  |  |  |   |             | 136,666     | 
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued interest payable                                                                        |   |             | 155,174     |       |   |             | 155,174     |  |   |             | 195,166     |       |  |          |  |  |   |             | 195,166     |       |   |             | 152,555     |  |  |  |  |  |   |             | 152,555     | 
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued interest payable on
junior subordinated debentures                                      |   |             | 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   |       |   |             |            |  |  |  |  |  |   |             |            | 
|                                         
|                                         
|                                         
|                                         
|Unrecognized financial instruments:       |                                                                                                 |   |             |             |       |   |             |             |  |   |             |             |       |  |          |  |  |   |             |             |       |   |             |             |  |  |  |  |  |   |             |            
|                                         
|                                         
|                                         
|                                         
|Commitments to extend credit              |                                                                                                 |   | 17,616,563  |             |       |   | 17,466,563  |             |  |   | 12,469,737  |             |       |  |          |  |  |   | 12,364,095  |             |       |   | 15,501,742  |             |  |  |  |  |  |   | 15,430,119  |            
|                                         
|                                         
|                                         
|                                         
|                                          | Standby letters of credit                                                                       |   |             | 1,257,361   |       |   |             | 1,257,361   |  |   |             | 1,237,878   |       |  |          |  |  |   |             | 1,237,878   |       |   |             | 1,384,969   |  |  |  |  |  |   |             | 1,384,969   | 



| |  | 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 July 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance
Methodology and Documentation Issues. SAB 102 summarizes certain SEC
views on the development, documentation, and application of a systematic
methodology as required by Financial Reporting Release No. 28 for
determining allowances for loan and lease losses in accordance with U.S.
generally accepted accounting principles. In particular, the guidance
focuses on the documentation the staff normally would expect registrants
to prepare and maintain in support of their allowance for credit losses.
Management believes the Bank is in compliance with the provisions of SAB
102.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations(SFAS 141), Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets(SFAS
142), and Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations(SFAS 143). SFAS 141
requires all business combinations to be accounted for using the purchase
method of accounting and is effective for all business combinations
initiated after June 30, 2001. SFAS 142 requires goodwill to be tested
for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards required.
SFAS 142 is effective for fiscal years beginning after December 15, 2001.
Early application is permitted for entities with fiscal years beginning
after March 15, 2001 provided that the first interim period financial
statements have not been previously issued. SFAS 143 requires that the
fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate
of a fair value can be made. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. In
managements opinion, the adoption of these statements will not have a
material impact on the financial position or the results of operations of
the Bank.
|
| |  | In August 2001, FASB issued Statement of Financial Accounting Standard
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement
supercedes SFAS 121, however, it retains most of its provisions. The
Bank is currently in compliance with this pronouncement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-32



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Subsequent Event



| |  | On March 14, 2002, the Board of Directors of the Bank adopted an
amendment to the current post-retirement healthcare benefits plan (See
Note 11), which limits plan coverage to those members of the Board of
Directors and retirees, and their respective spouses, eligible to receive
post-retirement healthcare benefits during 2002. In addition, all
post-retirement healthcare benefits currently provided by the Bank to the
above qualified participants will terminate on December 31, 2006. All
affected plan participants were notified of this amendment by March 19,
2002. This amendment to the post-retirement healthcare plan will result
in a curtailment gain of approximately $764,000 in the first quarter of
2002 and reduce the accrued post-retirement benefit cost to approximately
$312,000.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 23. 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,                                                                                    |                                                                        | 2001 |                                            | 2000       |   | 1999      
|                                                                                               
|Assets                                                                                         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cash                                                                                            |                                                                        | $    | 512,981                                    |            |   | $          | 110,768    |            |   | $          | 184,555    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Investment in The Bank of Glen Burnie                                                           |                                                                        |      | 22,133,607                                 |            |   |            | 22,013,186 |            |   |            | 14,722,533 |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Investment in GBB Properties, Inc.                                                              |                                                                        |      | 244,920                                    |            |   |            | 238,645    |            |   |            | 235,706    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Investment in the Glen Burnie Statutory Trust I                                                 |                                                                        |      | 155,000                                    |            |   |            | 155,000    |            |   |            |           |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Due from subsidiaries                                                                           |                                                                        |      | 104,384                                    |            |   |            | 198,479    |            |   |            | 96,321     |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other assets                                                                                    |                                                                        |      | 232,544                                    |            |   |            | 150,000    |            |   |            |           |           
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|                                                                                                |                                                                        |      | Total assets                               |            | $ | 23,383,436 |            |            | $ | 22,866,078 |            |            | $ | 15,239,115 | 
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|Liabilities and stockholders equity                                                           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Dividends payable                                                                               |                                                                        | $    | 195,333                                    |            |   | $          | 213,345    |            |   | $          | 136,666    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Accrued interest payable on junior subordinated debentures                                      |                                                                        |      | 171,518                                    |            |   |            | 166,986    |            |   |            |           |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Due to subsidiary                                                                               |                                                                        |      |                                           |            |   |            | 150,000    |            |   |            |           |           
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|                                                                                                |                                                                        |      | Total liabilities                          |            |   | 366,851    |            |            |   | 530,331    |            |            |   | 136,666    | 
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|Guaranteed
preferred beneficial interests in
Glen Burnie Bancorp junior
subordinated debentures |                                                                        |      | 5,155,000                                  |            |   |            | 5,155,000  |            |   |            |           |           
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|Stockholders equity:                                                                           |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Common stock                                                           |      |                                            | 1,663,560  |   |            |            | 1,110,049  |   |            |            | 1,093,496  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Surplus                                                                |      |                                            | 10,390,511 |   |            |            | 10,373,549 |   |            |            | 10,149,247 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Retained earnings                                                      |      |                                            | 5,970,537  |   |            |            | 5,544,305  |   |            |            | 4,013,171  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accumulated other comprehensive (loss)
income, net of (benefits) taxes |      |                                            | (163,023   | ) |            |            | 152,844    |   |            |            | (153,465   | )
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|                                                                                                |                                                                        |      | Total stockholders equity                 |            |   | 17,861,585 |            |            |   | 17,180,747 |            |            |   | 15,102,449 | 
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           
|                                                                                                |                                                                        |      | Total liabilities and stockholders equity |            | $ | 23,383,436 |            |            | $ | 22,866,078 |            |            | $ | 15,239,115 | 
|                                                                                                |                                                                        |      |                                            |            |   |            |            |            |   |            |            |           

F-33



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Parent Company Financial Information(continued)

|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |           | 
|--------------------------------------------------------------------------------------- | ---------- | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|Statements of Income                                                                   
|                                                                                       
|Years Ended December 31,                                                                |            | 2001 |           | 2000      |  | 1999
|                                                                                       
|Dividends and distributions from subsidiaries                                           |            | $    | 1,750,000 |           |  | $    | 475,000   |           |  | $ | 350,000   |          
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Other income                                                                            |            |      | 16,430    |           |  |      |          |           |  |   |          |          
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Standstill agreement expense                                                            |            |      | (131,378  | )         |  |      | (131,378  | )         |  |   | (281,378  | )        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Interest expense on junior subordinated debentures                                      |            |      | (550,962  | )         |  |      | (166,986  | )         |  |   |          |          
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Other expenses                                                                          |            |      | (42,156   | )         |  |      | (2,100    | )         |  |   | (1,078    | )        
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          
|Income before income tax benefit and equity in
undistributed net income of subsidiaries |            |      | 1,041,934 |           |  |      | 174,536   |           |  |   | 67,544    |          
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Income tax benefit                                                                      |            |      | 240,739   |           |  |      | 102,158   |           |  |   | 96,035    |          
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Change in undistributed net income of subsidiaries                                      |            |      | 442,563   |           |  |      | 1,998,172 |           |  |   | 1,281,771 |          
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          
|                                                                                        | Net Income |      | $         | 1,725,236 |  |      | $         | 2,274,866 |  |   | $         | 1,445,350 | 
|                                                                                        |            |      |           |           |  |      |           |           |  |   |           |          

F-34



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Parent Company Financial Information(continued)

|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |            |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------- | --------- | ------ | ---- | --------- | ---------- | -------- | - | --------- | ---------- | ------- | -
|Statements of Cash Flows                                                         
|                                                                                 
|Years Ended December 31,                                                          |                                                                                                             | 2001                                         |           | 2000      |        | 1999
|                                                                                 
|Cash flows from operating activities:                                             |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net income                                                                        |                                                                                                             | $                                            | 1,725,236 |           |        | $    | 2,274,866 |            |          | $ | 1,445,350 |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Adjustments to reconcile net income to net
cash provided by operating activities: |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Increase in other assets                                                                                    |                                              |           | (82,544   | )      |      |           | (150,000   | )        |   |           |           |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                                             | (Increase) decrease in due from subsidiaries |           |           | 94,095 |      |           |            | (102,158 | ) |           |            | (91,533 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Increase (decrease) in due to subsidiaries                                                                  |                                              |           | (150,000  | )      |      |           | 150,000    |          |   |           | (4,503     | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Increase in accrued interest payable                                                                        |                                              |           | 4,532     |        |      |           | 166,986    |          |   |           |           |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Change in undistributed net income of
subsidiaries                                                          |                                              |           | (442,563  | )      |      |           | (1,998,172 | )        |   |           | (1,281,771 | )      
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                  | Net cash provided by operating activities                                                                   |                                              |           | 1,148,756 |        |      |           | 341,522    |          |   |           | 67,543     |        
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|Cash flows from operating activities:                                             |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Purchase of common stock in the Glen Burnie
Statutory Trust I                                               |                                              |           |          |        |      |           | (155,000   | )        |   |           |           |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Capital contributed to subsidiary                                                                           |                                              |           |          |        |      |           | (5,000,000 | )        |   |           | (60,000    | )      
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                  | Net cash used by investing activities                                                                       |                                              |           |          |        |      |           | (5,155,000 | )        |   |           | (60,000    | )      
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|Cash flows from operating activities:                                             |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Proceeds from dividend reinvestment plan                                                                    |                                              |           | 168,026   |        |      |           | 201,755    |          |   |           | 106,149    |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Issuance of guaranteed preferred beneficial
interests in Glen Burnie Bancorp junior
subordinated debentures |                                              |           |          |        |      |           | 5,155,000  |          |   |           |           |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Proceeds from sales of common stock                                                                         |                                              |           |          |        |      |           | 49,989     |          |   |           | 270,566    |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Repurchase and retirement of common stock                                                                   |                                              |           | (148,750  | )      |      |           |           |          |   |           | (138       | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Dividends paid                                                                                              |                                              |           | (765,819  | )      |      |           | (667,053   | )        |   |           | (438,791   | )      
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|                                                                                  | Net cash (used) provided in financing activities                                                            |                                              |           | (746,543  | )      |      |           | 4,739,691  |          |   |           | (62,214    | )      
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|Increase (decrease) in cash                                                       |                                                                                                             |                                              | 402,213   |           |        |      | (73,787   | )          |          |   | (54,671   | )         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash, beginning of year                                                           |                                                                                                             |                                              | 110,768   |           |        |      | 184,555   |            |          |   | 239,226   |           
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           
|Cash, end of year                                                                 |                                                                                                             | $                                            | 512,981   |           |        | $    | 110,768   |            |          | $ | 184,555   |           
|                                                                                  |                                                                                                             |                                              |           |           |        |      |           |            |          |   |           |           

F-35



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 24. Quarterly Results of Operations(Unaudited)



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

|                                             |  |                     |       |              |  |         |       |          |  |   |       |  |  |   |       | 
|-------------------------------------------- |  | ------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|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  | 

|                                         |  |                     |       |              |  |         |       |          |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|1999                                    
|                                        
|(Dollars in thousands,                   |  | Three months ended,
|except per share amounts)                |  | December 31         |       | September 30 |  | June 30 |       | March 31
|                                        
|Interest income                          |  | $                   | 3,894 |              |  | $       | 3,957 |          |  | $ | 3,802 |  |  | $ | 3,895 | 
|                                        
|                                        
|                                        
|                                        
|Interest expense                         |  |                     | 1,428 |              |  |         | 1,410 |          |  |   | 1,379 |  |  |   | 1,406 | 
|                                        
|                                        
|                                        
|                                        
|Net interest income                      |  |                     | 2,466 |              |  |         | 2,547 |          |  |   | 2,423 |  |  |   | 2,489 | 
|                                        
|                                        
|                                        
|                                        
|Provision for credit losses              |  |                     | 300   |              |  |         |      |          |  |   |      |  |  |   |      | 
|                                        
|                                        
|                                        
|                                        
|Net securities (losses) gains            |  |                     | (93   | )            |  |         | 2     |          |  |   | 2     |  |  |   | 25    | 
|                                        
|                                        
|                                        
|                                        
|Income before income taxes               |  |                     | 1,156 |              |  |         | 626   |          |  |   | 553   |  |  |   | 296   | 
|                                        
|                                        
|                                        
|                                        
|Net income                               |  |                     | 487   |              |  |         | 403   |          |  |   | 361   |  |  |   | 194   | 
|                                        
|                                        
|                                        
|                                        
|Net income per share (basic and diluted) |  | $                   | 0.52  |              |  | $       | 0.37  |          |  | $ | 0.29  |  |  | $ | 0.15  | 



|    |  | 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 do not match the amounts reported in the Form 10-Q filed with
the SEC.

F-36