**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





x
      Annual report pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
      year ended December 31, 2005 or





o
      Transition report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
      the
      transition period from ____ to_____ .





**Commission
      file number:**  **0-24047**





**GLEN
      BURNIE BANCORP**


(Exact
      name of registrant as specified in its charter)




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




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






Title
                of Class
            
            Name
                of Each Exchange on Which
                RegisteredNone
            
            None




Title
      of Class


**Common
      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 x No
o





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





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


Yes  o No x




The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of February 24, 2006 was $34,280,907.





The
      number of shares of common stock outstanding as of February 24, 2006 was
      2,467,126.





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 2006 Annual
      Meeting of Shareholders (to be filed).









**GLEN
      BURNIE BANCORP**


2005
      ANNUAL REPORT ON FORM 10-K





Table
      of Contents




PART
        I
  Item
                  1.
              Business
              3Item
                  1A.
              Risk
                  Factors
              16Item
                  1B.
              Unresolved
                  Staff Comments
              19Item
                  2.
              Properties
              20Item
                  3.
              Legal
                  Proceedings
              20Item
                  4.
              Submission
                  of Matters to Vote of Security Holders
              20Executive
                  Officers of the Registrant
              21
 
 PART
        II
 
 Item
                  5.
              Market
                  for Registrant’s Common Equity, RelatedStockholder
                  Matters and Issuer Purchases of Equity Securities
              22Item
                  6.
              Selected
                  Financial Data
              23Item
                  7.
              Management’s
                  Discussion and Analysis of FinancialCondition
                  and Results of Operations
              24Item
                  7A.
              Quantitative
                  And Qualitative Disclosures About Market Risk
              32Item
                  8.
              Financial
                  Statements and Supplementary Data
              32Item
                  9.
              Changes
                  in and Disagreements with Accountantson
                  Accounting and Financial Disclosure
              32Item
                  9A.
              Controls
                  and Procedures
              32Item
                  9B.
              Other
                  Information
              322
 
 PART
        III
 
 Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              33Item
                  11.
              Executive
                  Compensation
              33Item
                  12.
              Security
                  Ownership of Certain Beneficial Ownersand
                  Management and related Stockholder Matters
              33Item
                  13.
              Certain
                  Relationships and Related Transactions
              33Item
                  14.
              Principal
                  Accountant Fees and Services
              33
 
 PART
        IV
 
 Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              34Signatures
              
              35





**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, Linthicum and Severna Park,
      Maryland. The Bank also maintains two remote Automated Teller Machine (“ATM”)
      locations in Ferndale 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.





Information
      on the Company and its subsidiary Bank may be obtained from the Company’s
      website www.thebankofglenburnie.com .
      Copies
      of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q,
      current reports on Form 8-K, and all amendments thereto are available free
      of
      charge on the website as soon as they are filed with the SEC through a link
      to
      the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu
      item, then click on the “All SEC Filings” or “Insider Transactions”
link.




**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
      Company 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
      indirect automobile loans originated through arrangements with local dealers.





The
      Company’s total loan portfolio increased during the 2005, 2004, 2003, and 2001
      fiscal years, while declining in 2002. In 2005, the increases were primarily
      due
      to an increase in commercial and industrial mortgages and indirect automobile
      loans. In 2001, 2003, and 2004, the increases in loans were primarily due to
      increases in residential mortgages. The commercial mortgage portfolio continued
      to decline in 2003 as a result of softening loan demand and increased
      competition from large financial institutions. From 2001 to 2004, the
      residential mortgage portfolio achieved steady increases due to a strong housing
      market environment.




3
 
  The
        following table provides information on the composition of the loan portfolio
        at
        the indicated dates.




**At
                December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(Dollars
                in Thousands)**
            
            $
            
            %
            
            $
            
            %
            
            $
            
            %
            
            $
            
            %
            
            $
            
            %Mortgage:Residential
            
            $
            71,841
            
            
            37.17
            %
            $
            71,039
            
            
            38.27
            %
            $
            64,471
            
            
            36.62
            %
            $
            49,572
            
            
            30.67
            %
            $
            44,293
            
            
            26.32
            %Commercial
            
            
            37,666
            
            
            19.50
            
            
            31,983
            
            
            17.23
            
            
            28,525
            
            
            16.20
            
            
            31,584
            
            
            19.54
            
            
            36,920
            
            
            21.94Construction
                and landdevelopment
            
            
            1,402
            
            
            0.73
            
            
            2,080
            
            
            1.12
            
            
            3,112
            
            
            1.77
            
            
            2,338
            
            
            1.45
            
            
            2,355
            
            
            1.40Consumer:Installment
            
            
            15,748
            
            
            8.15
            
            
            19,019
            
            
            10.25
            
            
            19,767
            
            
            11.23
            
            
            19,758
            
            
            12.22
            
            
            20,063
            
            
            11.92Credit
                card
            
            
            128
            
            
            0.07
            
            
            180
            
            
            0.10
            
            
            175
            
            
            0.10
            
            
            228
            
            
            0.14
            
            
            272
            
            
            0.16Indirect
                automobile
            
            
            60,510
            
            
            31.31
            
            
            55,703
            
            
            30.00
            
            
            53,883
            
            
            30.61
            
            
            52,795
            
            
            32.66
            
            
            59,308
            
            
            35.24Commercial
            
            
            5,932
            
            
            3.07
            
            
            5,618
            
            
            3.03
            
            
            6,113
            
            
            3.47
            
            
            5,374
            
            
            3.32
            
            
            5,083
            
            
            3.02Gross
                loans
            
            
            193,227
            
            
            100.00
            %
            
            185,622
            
            
            100.00
            %
            
            176,046
            
            
            100.00
            %
            
            161,649
            
            
            100.00
            %
            
            168,294
            
            
            100.00
            %Unearned
                income on loans
            
            
            (821
            )
            
            
            
            
            (919
            )
            
            
            
            
            (981
            )
            
            
            
            
            (847
            )
            
            
            
            
            (786
            )Gross
                loans net ofunearned
                income
            
            
            192,406
            
            
            
            
            
            184,703
            
            
            
            
            
            175,065
            
            
            
            
            
            160,802
            
            
            
            
            
            167,508Allowance
                for creditlosses
            
            
            (2,201
            )
            
            
            
            
            (2,412
            )
            
            
            
            
            (2,246
            )
            
            
            
            
            (2,515
            )
            
            
            
            
            (2,939
            )Loans,
                net
            
            $
            190,205
            
            
            
            
            $
            182,291
            
            
            
            
            $
            172,819
            
            
            
            
            $
            158,287
            
            
            
            
            $
            164,569




The
      following table sets forth the maturities for various categories of the loan
      portfolio at December 31, 2005. Demand loans and loans, which have no stated
      maturity, are treated as due in one year or less. At December 31, 2005, the
      Bank
      had $22,734,676 in loans due after one year with variable rates and $151,209,022
      in such loans with fixed rates.





**Due
                Within**
              **One
                Year**
            
            **Due
                Over One To Five Years**
            
            **Due
                Over**
              **Five
                Years**
            
            **Total****(In
                Thousands)**Real
                Estate - mortgage:Residential
            
            $
            7,536
            
            $
            4,837
            
            $
            59,468
            
            $
            71,841Commercial
            
            
            2,570
            
            
            20,957
            
            
            14,139
            
            
            37,666Construction
                and landdevelopment
            
            
            496
            
            
            —
            
            
            906
            
            
            1,402Installment
            
            
            1,689
            
            
            10,520
            
            
            3,539
            
            
            15,748Credit
                Card
            
            
            128
            
            
            —
            
            
            —
            
            
            128Indirect
                automobile
            
            
            932
            
            
            48,285
            
            
            11,293
            
            
            60,510Commercial
            
            
            5,932
            
            
            —
            
            
            —
            
            
            5,932$
            19,283
            
            $
            84,599
            
            $
            89,345
            
            $
            193,227





**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. Substantially all of the Bank’s real estate loans are secured by
      properties in Anne Arundel County, Maryland **.** Under
      the
      Bank’s loan policies, the maximum permissible loan-to-value ratio for
      owner-occupied residential mortgages is 80% of the lesser of the purchase price
      or appraised value. 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 80%. The maximum permissible loan-to-value ratio for residential and
      residential construction loans is 80%. The maximum loan-to-value ratio for
      permanent commercial mortgages is 75%. The maximum loan-to-value ratio for
      land
      development loans is 70% and for unimproved land is 65%. The Bank also offers
      home equity loans secured by the borrower’s primary residence, provided that the
      aggregate indebtedness on the property does not exceed 80% of its
      value.





**Commercial
      Lending.** The
      Bank’s commercial loan portfolio consists of demand, installment and time loans
      for commercial purposes. The Bank’s business demand, installment and time
      lending includes various working capital loans, equipment, vehicles, lines
      of
      credit and letters of credit for commercial customers. Demand loans require
      the
      payment of interest until called, while installment loans require a monthly
      payment of principal and interest, and 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.




4




**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, 2005, approximately 69.8%
      of the installment loans in the Bank’s portfolio (other than indirect automobile
      lending) had been originated for commercial purposes and 30.2% had been
      originated for consumer purposes.





**Indirect
      Automobile Lending.** The Bank
      commenced its indirect automobile lending program in January 1998. The Bank
      finances new automobiles for terms of up to 72 months and used automobiles
      for
      terms of up to 60 months. For used vehicles, the age of the vehicle plus the
      term of the loan cannot exceed eight years. The Bank does not lend more than
      the
      invoice price on new vehicles. On used vehicles, the Bank 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 in the case a borrower’s
      automobile insurance lapses. The Bank originates indirect loans through a
      network of approximately 40 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.





**Other
      Loans.** The Bank
      offers overdraft protection lines of credit, tied to checking accounts, 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 borrowers’ cost, 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 economic 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. In addition,
      dealerships are contractually obligated to indemnify the Bank for such losses
      for a limited period of time.





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 Bank’s Senior Credit Officer to identify potential
      underperforming loans and other credit facilities, estimate loss exposure and
      to
      ascertain compliance with the Bank’s policies. On a quarterly basis, the Bank’s
      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 any
      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 aggregate lending authority granted by the Bank to any
      one Lending Officer is $750,000. A combination of approvals from certain
      officers may be used to lend up to an aggregate of $1,000,000. The Bank’s
      Executive Committee is authorized to approve loans up to $2.0 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 allowance for possible loan losses.
      Under this authority, the Bank would have been permitted to lend up to $3.28
      million to any one borrower at December 31, 2005. 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 $5.01 million to any one borrower at December 31, 2005.
      It is currently the Bank’s policy to limit its exposure to any one borrower to
      no more than $2.95 million in the aggregate unless any borrowings exceeding
      this
      amount are approved by a 75% vote of the Board of Directors. At December 31,
      2005, the largest amount outstanding to any one borrower and its related
      interests was $4,140,000.




5




**Non-Performing
      Loans**





It
      is the
      policy of the Bank to reverse accrued, and 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,********2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(Dollars
                In Thousands)**Restructured
                Loans
            
            $
            —
            
            $
            95
            
            $
            —
            
            $
            41
            
            $
            —Non-accrual
                loans:Real
                estate - mortgage:Residential
            
            $
            14
            
            $
            122
            
            $
            34
            
            $
            264
            
            $
            284Commercial
            
            
            —
            
            
            255
            
            
            265
            
            
            178
            
            
            189Real
                estate - construction
            
            
            —
            
            
            —
            
            
            —
            
            
            7
            
            
            —Installment
            
            
            159
            
            
            205
            
            
            250
            
            
            112
            
            
            88Commercial
            
            
            12
            
            
            16
            
            
            23
            
            
            10
            
            
            40Total
                non-accrual loans
            
            
            185
            
            
            598
            
            
            572
            
            
            571
            
            
            601Accruing
                loans past due 90 days or moreReal
                estate - mortgage:Residential
            
            
            1
            
            
            1
            
            
            5
            
            
            1
            
            
            45Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Real
                estate - construction
            
            
            3
            
            
            6
            
            
            6
            
            
            —
            
            
            —Installment
            
            
            —
            
            
            —
            
            
            —
            
            
            13
            
            
            13Credit
                card & related
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1Total
                accruing loans past due90
                days or more
            
            
            4
            
            
            7
            
            
            11
            
            
            15
            
            
            59Total
                non-accrual and past due loans
            
            $
            189
            
            $
            605
            
            $
            583
            
            $
            586
            
            $
            660Non-accrual
                and past due loans togross
                loans
            
            
            0.10
            %
            
            0.33
            %
            
            0.33
            %
            
            0.36
            %
            
            0.39
            %Allowance
                for credit losses to non-accrual and past due loans
            
            
            1,164.55
            %
            
            398.68
            %
            
            385.25
            %
            
            429.13
            %
            
            445.30
            %





For
      the
      year ended December 31, 2005, interest of $15,522 would have been accrued on
      non-accrual loans if such loans had been current in accordance with their
      original terms. During that period, interest on non-accrual loans was not
      included in income. $152,183, or 82.1%, of the Bank’s total $185,430 non-accrual
      loans at December 31, 2005 were attributable to 6 borrowers. No charge-offs
      have
      previously been taken on these loans. One of these borrowers with a loan
      totaling $12,275 was 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, 2005, there were no loans outstanding not reflected in the above
      table as to which known information about the borrower’s possible credit
      problems caused management to have serious doubts as to the ability of the
      borrowers to comply with present loan repayment terms. These loans consist
      of
      loans which were not 90 days or more past due but where the borrower is in
      bankruptcy or has a history of delinquency or the loan to value ratio is
      considered excessive due to deterioration of the collateral or other
      factors.





At
      December 31, 2005, the Company had $50,000 in real estate acquired in partial
      or
      total satisfaction of debt, compared to $50,000 and $171,882 in such properties
      at December 31, 2004 and 2003, 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, 2005, see “Item 2. --
      Properties.”





**Allowance
      For Credit Losses**





The
      Bank’s allowance for credit losses is based on the probable estimated losses
      that may be sustained in its loan portfolio.  The allowance is based on two
      basic principles of accounting.  (1) Statement of Financial Accountings
      Standards (SFAS) No. 5 “Accounting for Contingencies”, which requires that
      losses be accrued when they are probable of occurring and estimable, and (2)
      SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”, which requires
      that losses be accrued based on the differences between the value of collateral,
      present value of future cash flows or values that are observable in the
      secondary market and the loan balance.




7




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, value of collateral, 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,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(Dollars
                In Thousands)**Beginning
                Balance
            
            $
            2,412
            
            $
            2,246
            
            $
            2,515
            
            $
            2,939
            
            $
            3,385Loans
                charged offReal
                estate - mortgage:Residential
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4Real
                estate - construction
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Installment
            
            
            495
            
            
            502
            
            
            687
            
            
            594
            
            
            498Credit
                card & related
            
            
            —
            
            
            —
            
            
            42
            
            
            95
            
            
            89Commercial
            
            
            127
            
            
            49
            
            
            29
            
            
            80
            
            
            96Total
            
            
            622
            
            
            551
            
            
            758
            
            
            730
            
            
            687RecoveriesReal
                estate - mortgage:Residential
            
            
            —
            
            
            35
            
            
            1
            
            
            1
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            —Real
                estate - construction
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Installment
            
            
            276
            
            
            293
            
            
            369
            
            
            215
            
            
            310Credit
                card & related
            
            
            —
            
            
            —
            
            
            30
            
            
            30
            
            
            53Commercial
            
            
            185
            
            
            49
            
            
            49
            
            
            59
            
            
            28Total
            
            
            461
            
            
            377
            
            
            449
            
            
            306
            
            
            391Net
                charge offs/(recoveries)
            
            
            161
            
            
            174
            
            
            308
            
            
            424
            
            
            296Provisions
                (credited) charged to operations
            
            
            (50
            )
            
            340
            
            
            40
            
            
            —
            
            
            (150
            )Ending
                balance
            
            $
            2,201
            
            $
            2,412
            
            $
            2,246
            
            $
            2,515
            
            $
            2,939Average
                loans
            
            $
            191,706
            
            $
            181,881
            
            $
            166,786
            
            $
            164,818
            
            $
            163,695Net
                charge-offs to average loans
            
            
            0.09
            %
            
            0.10
            %
            
            0.18
            %
            
            0.18
            %
            
            0.18
            %





8




The
      following table shows the allowance for credit losses broken down by loan
      category as of December 31, 2005, 2004, 2003, 2002 and 2001:





**At
                December 31****,****2005**
            
            **2004****Portfolio**
            
            **Allowance
                For**
              **Each
                Category**
            
            **Percentage
                Of Loans In Each Category To**
              ******Total
                Loans**
            
            **Allowance
                For**
              **Each
                Category**
            
            **Percentage
                Of Loans In Each Category To**
              **Total
                Loans****(Dollars
                In Thousands)**Real
                Estate - mortgage:Residential
            
            $
            153
            
            
            37.17
            %
            $
            153
            
            
            38.27
            %Commercial
            
            
            277
            
            
            19.50
            
            
            328
            
            
            17.23Real
                Estate -- construction
            
            
            8
            
            
            0.73
            
            
            13
            
            
            1.12Installment
            
            
            103
            
            
            8.15
            
            
            136
            
            
            10.25Credit
                Card
            
            
            —
            
            
            0.07
            
            
            —
            
            
            0.10Indirect
                automobile
            
            
            1,260
            
            
            31.31
            
            
            1,254
            
            
            30.00Commercial
            
            
            264
            
            
            3.07
            
            
            343
            
            
            3.03Unallocated
            
            
            136
            
            
            —
            
            
            185
            
            
            —Total
            
            $
            2,201
            
            
            100.00
            %
            $
            2,412
            
            
            100.00
            %






**At
                December 31,****2003**
            
            **2002**
            
            **2001****Portfolio**
            
            **Allowance
                For****Each
                Category**
            
            **Percentage
                Of**
              **Loans
                In****Each
                Category To**
              **Total
                Loans**
            
            **Allowance
                For**
              **Each
                Category**
            
            **Percentage
                Of**
              **Loans
                In Each**
              **Category
                To**
              **Total
                Loans**
            
            **Allowance
                For**
              **Each
                Category**
            
            **Percentage
                Of Loans In Each Category To**
              **Total
                Loans****(Dollars
                In
                Thousands)**Real
                Estate - mortgage:Residential
            
            $
            143
            
            
            36.62
            %
            $
            131
            
            
            30.67
            %
            $
            164
            
            
            26.32
            %Commercial
            
            
            314
            
            
            16.20
            
            
            349
            
            
            19.54
            
            
            456
            
            
            21.94Real
                Estate - construction
            
            
            29
            
            
            1.77
            
            
            48
            
            
            1.45
            
            
            71
            
            
            1.40Installment
            
            
            137
            
            
            11.23
            
            
            152
            
            
            12.22
            
            
            237
            
            
            11.92Credit
                Card
            
            
            —
            
            
            0.10
            
            
            —
            
            
            0.14
            
            
            —
            
            
            0.16Indirect
                automobile
            
            
            1,357
            
            
            30.61
            
            
            1,461
            
            
            32.66
            
            
            1,390
            
            
            35.24Commercial
            
            
            271
            
            
            3.47
            
            
            168
            
            
            3.32
            
            
            300
            
            
            3.02Unallocated
            
            
            (5
            )
            
            —
            
            
            206
            
            
            —
            
            
            321
            
            
            —Total
            
            $
            2,246
            
            
            100.00
            %
            $
            2,515
            
            
            100.00
            %
            $
            2,939
            
            
            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 tax treatment of the Bank’s portfolio of securities issued by
      certain states and their political subdivisions allows 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,****2005**
            
            **2004**
            
            **2003****(In
                Thousands)**U.S.
                Treasury securities
            
            $
            —
            
            $
            —
            
            $
            —U.S.
                Government agencies and mortgage backedsecurities
            
            
            52,402
            
            
            52,020
            
            
            52,444Obligations
                of states and political subdivisions
            
            
            30,277
            
            
            36,640
            
            
            43,624Corporate
                trust preferred
            
            
            4,976
            
            
            5,008
            
            
            5,026Total
                investment securities
            
            $
            87,655
            
            $
            93,668
            
            $
            101,094





9





The
      following table sets forth the scheduled maturities, book values and weighted
      average yields for the Company’s investment securities portfolio at December 31,
      2005:





**One
                YearOr Less**
            
            **One
                ToFive Years**
            
            **Five
                toTen Years**
            
            **More
                ThanTen Years**
            
            **Total****Book**
              ******Value**
            
            **Weighted
                Average****Yield**
            
            **Book**
              **Value**
            
            **Weighted
                Average****Yield**
            
            **Book**
              ******Value**
            
            **Weighted
                Average****Yield**
            
            **Book**
              ******Value**
            
            **Weighted
                Average****Yield**
            
            **Book**
              ******Value**
            
            **Weighted
                Average****Yield**U.S.
                Treasury securities
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %U.S.
                Government agencies and mortgage backed securities
            
            500
            
            
            3.00
            
            
            7,982
            
            
            3.72
            
            
            3,248
            
            
            4.77
            
            
            40,672
            
            
            5.09
            
            
            52,402
            
            
            4.84Obligations
                of states and political subdivisions
            
            —
            
            
            —
            
            
            3,647
            
            
            3.31
            
            
            11,398
            
            
            3.81
            
            
            15,232
            
            
            4.97
            
            
            30,277
            
            
            4.30Corporate
                trust preferred
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,976
            
            
            6.96
            
            
            4,976
            
            
            6.96Total
                investment securities
            $
            500
            
            
            3.00
            %
            $
            11,629
            
            
            3.59
            %
            $
            14,646
            
            
            4.02
            %
            $
            60,880
            
            
            5.20
            %
            $
            87,655
            
            
            4.79
            %





At
      December 31, 2005, the Bank had no investments in securities of a single issuer
      (other than the U.S. Government securities and securities of federal agencies
      and government-sponsored enterprises), which aggregated more than 10% of
      stockholders’ equity.





**Deposits
      And Other Sources Of Funds**





The
      funds
      needed by the Bank to make loans are primarily generated by deposit accounts
      solicited from the communities surrounding its branches in northern Anne Arundel
      County. Consolidated total deposits were $265,248,268 as of December 31, 2005.
      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 $36.7
      million under a line of credit from the FHLB of Atlanta as of December 31,
      2005.





**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(R) and Star(R) ATM
      networks.





As
      stated
      above, the Bank obtains deposits principally through its network of branch
      offices. The Bank does not solicit brokered deposits. At December 31, 2005,
      the
      Bank had approximately $22.4 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, 200 5:






**Amount**
              **(In
                Thousands)**Three
                months or less
            
            $
            5,599Over
                three through six months
            
            
            1,876Over
                six through 12 months
            
            
            6,128Over
                12 months
            
            
            8,818Total
            
            $
            22,418




**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 $36.7 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, 2005. The advance matures in **** September
      2010 and bears a 5.84% rate of interest. On September 7, 2000, the Company
      issued $5,155,000 of its 10.6% Junior Subordinated Deferrable Interest
      Debentures to Glen Burnie Statutory Trust I, a Connecticut statutory trust
      wholly owned by the Company. The Trust, in turn, issued $5 million of its 10.6%
      capital securities to institutional investors. The debentures are scheduled
      to
      mature on September 7, 2030, unless called by the Company not earlier than
      September 7, 2010. It is the Company’s intention to call these debentures at the
      earliest opportunity. The Bank also has a unsecured line of credit in the amount
      of **$** 5
      million
      from another commercial bank but has not drawn on this line. The Bank has a
      mortgage note on the 103 Crain Highway address with a balance of $170,977 as
      of
      December 31, 2005. This note is payable monthly through October 2010 and has
      a
      7% interest rate.




10




**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). With respect to indirect lending,
      the Bank faces competition from other banks and the financing arms of automobile
      manufacturers. The Bank competes in this area by offering competitive rates
      and
      responsive service to dealers.





The
      Bank’s interest rates, loan and deposit terms, and offered products and services
      are impacted, to a large extent, by such competition. The Bank attempts to
      provide superior service within its community and to know, and facilitate
      services to, its customers. It seeks commercial relationships with small to
      medium size businesses, which the Bank believes would welcome personal service
      and flexibility. While the Bank believes it is the ninth largest deposit holder
      in Anne Arundel County, Maryland, with an estimated 3.36% market share as of
      June 30, 2005 (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, 2005, the Bank had 125 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.





The
      Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
“Riegle-Neal Act”) authorizes the Federal Reserve Board to approve an
      application of an adequately capitalized and adequately managed bank holding
      company to acquire control of, or acquire all or substantially all of the assets
      of, a bank located in a state other than such holding company’s home state,
      without regard to whether the transaction is prohibited by the laws of any
      state. The Federal Reserve Board may not approve the acquisition of a bank
      that
      has not 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 Maryland Commissioner
      of Financial Regulation.




11




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





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





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





The
      Maryland Financial Institutions Code prohibits a bank holding company from
      acquiring more than 5% of any class of voting stock of a bank or bank holding
      company without the approval of the Commissioner of Financial Regulation except
      as otherwise expressly permitted by federal law or in certain other limited
      situations. The Maryland Financial Institutions Code additionally prohibits
      any
      person from acquiring voting stock in a bank or bank holding company without
      60
      days’ prior notice to the Commissioner if such acquisition will give the person
      control of 25% or more of the voting stock of the bank or bank holding company
      or will affect the power to direct or to cause the direction of the policy
      or
      management of the bank or bank holding company. Any doubt whether the stock
      acquisition will affect the power to direct or cause the direction of policy
      or
      management shall be resolved in favor of reporting to the Commissioner. The
      Commissioner may deny approval of the acquisition if the 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.”




12




**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 Maryland 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 customer information, the disclosure of credit
      terms and discrimination in credit transactions.




**Patriot
      Act.** On
      October 26, 2001, President Bush signed the USA Patriot Act (the “Patriot Act”),
      which includes provisions pertaining to domestic security, surveillance
      procedures, border protection, and terrorism laws to be administered by the
      Secretary of the Treasury.  Title III of the Patriot Act entitled,
“International Money Laundering Abatement and Anti-Terrorist Financing Act of
      2001” includes amendments to the Bank Secrecy Act which expand the
      responsibilities of financial institutions in regard to anti-money laundering
      activities with particular emphasis upon international money laundering and
      terrorism financing activities through designated correspondent and private
      banking accounts.




Effective
      December 25, 2001, Section 313(a) of the Patriot Act prohibits any insured
      financial institution such as the Bank, from providing correspondent accounts
      to
      foreign banks which do not have a physical presence in any country (designated
      as “shell banks”), subject to certain exceptions for regulated affiliates of
      foreign banks.  Section 313(a) also requires financial institutions to take
      reasonable steps to ensure that foreign bank correspondent accounts are not
      being used to indirectly provide banking services to foreign shell banks, and
      Section 319(b) requires financial institutions to maintain records of the owners
      and agent for service of process of any such foreign banks with whom
      correspondent accounts have been established.




Effective
      July 23, 2002, Section 312 of the Patriot Act creates a requirement for special
      due diligence for correspondent accounts and private banking accounts. 
Under Section 312, each financial institution that establishes, maintains,
      administers, or manages a private banking account or a correspondent account
      in
      the United States for a non-United States person, including a foreign individual
      visiting the United States, or a representative of a non-United States person
      shall establish appropriate, specific, and, where necessary, enhanced, due
      diligence policies, procedures, and controls that are reasonably designed to
      detect and record instances of money laundering through those
      accounts.




13




The
      Company and the Bank are not currently aware of any account relationships
      between the Bank and any foreign bank or other person or entity as described
      above under Sections 313(a) or 312 of the Patriot Act.  The terrorist
      attacks on September 11, 2001 have realigned national security priorities of
      the
      United States and it is reasonable to anticipate that the United States Congress
      may enact additional legislation in the future to combat terrorism including
      modifications to existing laws such as the Patriot Act to expand powers as
      deemed necessary.  The effects which the Patriot Act and any additional
      legislation enacted by Congress may have upon financial institutions is
      uncertain; however, such legislation would likely increase compliance costs
      and
      thereby potentially have an adverse effect upon the Company’s results of
      operations.





**Community
      Reinvestment Act.** Community Reinvestment Act (“CRA”) regulations evaluate banks’ lending to low
      and moderate income individuals and businesses across a four-point scale from
      “outstanding” to “substantial noncompliance,” and are a factor in regulatory
      review of applications to merge, establish new branch offices or form bank
      holding companies.  In addition, any bank rated in “substantial
      noncompliance” with the CRA regulations may be subject to enforcement
      proceedings.  The Bank has a current rating of “outstanding” for CRA
      compliance.





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





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





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.





14




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, 2005, the Bank was well capitalized
      as
      defined by the FDIC’s regulations.





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





**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.




15


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





**Loans
      To Directors, Executive Officers and Principal
      Stockholders.** Loans to
      directors, executive officers and principal stockholders of a state non-member
      bank must be made on substantially the same terms as those prevailing for
      comparable transactions with persons who are not executive officers, directors,
      principal stockholders or employees of the Bank unless the loan is made pursuant
      to a compensation or benefit plan that is widely available to employees and
      does
      not favor insiders. Loans to any executive officer, director and principal
      stockholder together with all other outstanding loans to such person and
      affiliated interests generally may not exceed 15% of the bank’s unimpaired
      capital and surplus and all loans to such persons may not exceed the
      institution’s unimpaired capital and unimpaired surplus. Loans to directors,
      executive officers and principal stockholders, and their respective affiliates,
      in excess of the greater of $100,000 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
      1A****. 
      RISK FACTORS**





**An
      investment in the Common Stock is subject to risks inherent to the Bank’s
      business. The material risk and uncertainties that management believes affect
      the Bank are described below. Additional risks and uncertainties that management
      is not aware of or focused on or that management currently deems immaterial
      may
      also impair the Company’s business operations.**





**Risk
      Factors Relating to our Business Generally**





***Fluctuations
      in interest rates could reduce the Bank’s profitability and affect the value of
      its assets.***





Like
      other financial institutions, the Bank is subject to interest rate risk. The
      Company’s income and cash flow depend to a great extent on the difference
      between the interest rates earned on the Bank’s interest-earning assets such as
      loans and investment securities, and the interest rates paid on the Bank’s
      interest-bearing liabilities such as deposits and borrowings. These rates are
      highly sensitive to many factors that are beyond the Company’s control,
      including general economic conditions and the policies of various government
      agencies, in particular the Federal Reserve Bank. Changes in interest rates
      will
      influence the origination of loans, the prepayment speed of loans, the purchase
      of investments, the generation of deposits and the rates received on loans
      and
      investment securities and paid on deposits or other sources of funding. The
      impact of these changes may be magnified if the Company does not effectively
      manage the relative sensitivity of its assets and liabilities to changes in
      market interest rates. Fluctuations in these areas may adversely affect the
      Company and its shareholders.





Until
      recently, interest rates have been at historically low levels. However, since
      June 30, 2004, the Federal Reserve has increased its target for Federal funds
      rate numerous times. While these short-term market interest rates (which are
      used as a guide for pricing deposits) have increased, longer-term market
      interest rates (which are used as a guide for pricing longer-term loans and
      leases) have not. This “flattening” of the market yield curve has had a negative
      impact on the Bank’s interest rate spread and net interest margin to date. If
      short-term interest rates continue to rise, and if rates on its deposits and
      borrowings continue to reprice upwards faster than the rates on long-term loans
      and investments, the Bank could experience compression of its interest rate
      spread and net interest margin, which could have a negative effect on the Bank’s
      profitability.




16




***The
      Bank is subject to credit risks relating to its loan
      portfolio.***





The
      Bank
      has certain lending policies and procedures in place that are designed to
      maximize loan income within an acceptable level of risk. Management reviews
      and
      approves these policies and procedures on a regular basis. A reporting system
      supplements the review process by providing management with frequent reports
      related to loan production, loan quality, concentrations of credit, loan
      delinquencies, and nonperforming and potential problem loans. Diversification
      in
      the loan portfolio is a means of managing risk associated with fluctuations
      and
      economic conditions.





The
      Bank
      maintains an independent loan review department that reviews and validates
      the
      credit risk program on a periodic basis. Results of these reviews are presented
      to management. The loan review process complements and reinforces the risk
      identification and assessment decisions made by lenders and credit personnel,
      as
      well as the Bank’s policies and procedures.





In
      the
      financial services industry, there is always a risk that certain borrowers
      may
      not repay borrowings. The Bank’s allowance for credit losses may not be
      sufficient to cover the loan losses that it may actually incur. If the Bank
      experiences defaults by borrowers in any of its businesses, the Bank’s earnings
      could be negatively affected. Changes in local economic conditions could
      adversely affect credit quality, particularly in its local business loan
      portfolio. Changes in national economic conditions could also adversely affect
      the quality of its loan portfolio.





Commercial
      and commercial real estate loans generally involve higher credit risks than
      residential real estate and consumer loans. Because payments on loans secured
      by
      commercial real estate or equipment are often dependent upon the successful
      operation and management of the underlying assets, repayment of such loans
      may
      be influenced to a great extent by conditions in the market or the economy.
      The
      Bank seeks to minimize these risks through its underwriting standards. The
      Bank
      obtains financial information and performs credit risk analysis on its
      customers. Underwriting standards are designed to promote relationship banking
      rather than transactional banking. Most commercial and industrial loans are
      secured by the assets being financed or other business assets; however, some
      loans may be made on an unsecured basis. The Bank’s credit policy sets different
      maximum exposure limits both by business sector and its current and historical
      relationship and previous experience with each customer.





The
      Bank
      offers both fixed-rate and adjustable-rate consumer mortgage loans secured
      by
      properties, substantially all of which are located in the Bank’s primary market
      area. Adjustable-rate mortgage loans help reduce the Bank’s exposure to changes
      in interest rates; however, during periods of rising interest rates, the risk
      of
      default on adjustable-rate mortgage loans may increase as a result of repricing
      and the increased payments required from the borrower.





Consumer
      loans are primarily all other non-real estate loans to individuals in the Bank’s
      regional market area. Consumer loans can entail risk, particularly in the case
      of loans that are unsecured or secured by rapidly depreciating assets. In these
      cases, any repossessed collateral may not provide an adequate source of
      repayment of the outstanding loan balance. The remaining deficiency often does
      not warrant further substantial collection efforts against the borrower beyond
      obtaining a deficiency judgment. In addition, consumer loan collections are
      dependent on the borrower’s continuing financial stability, and thus are more
      likely to be adversely affected by job loss, divorce, illness, or personal
      bankruptcy.





***General
      economic conditions nationally and in the Bank’s market area are less than
      favorable.***





The
      Company is affected by general economic conditions in the United States and,
      in
      particular, in the Bank’s market area. These conditions include short-term and
      long-term interest rates, inflation, money supply, political issues, legislative
      and regulatory changes, and the strength of both the U.S. economy and the local
      economy in which the Bank operates, all of which are beyond the Company’s
      control. Deterioration in economic conditions could result in an increase in
      loan delinquencies and non-performing assets, decreases in loan collateral
      values and a decrease in demand for the bank’s products and services, any of
      which could have a material adverse impact on the Company’s financial condition
      and results of operations.




17




***The
      financial services industry is very competitive.***





The
      Bank
      faces competition in attracting and retaining deposits, making loans, and
      providing other financial services throughout the Bank’s market area. The Bank’s
      competitors include other community banks, larger banking institutions, and
      wide
      range of other financial institutions such as credit unions, government
      sponsored enterprises, mutual fund companies, insurance companies and other
      non-bank enterprises. Many of these competitors have substantially greater
      resources than the Company. If the Bank is unable to compete effectively, it
      will lose market share and income from deposits, loans, and other products
      may
      be reduced.





***Legislative
      or regulatory changes or actions, or significant litigation, could adversely
      impact the Company or the businesses in which the Company is
      engaged.***





The
      Company and the Bank are subject to extensive state and federal regulation,
      supervision and legislation that govern almost all aspects of operations. Law
      and regulations may change from time to time and are primarily intended for
      the
      protection of consumers, depositors and the deposit insurance funds. The impact
      of any changes to laws and regulations or other actions by regulatory agencies
      may negatively impact the Company or its ability to increase the value of its
      business. Additionally, actions by regulatory agencies or significant litigation
      against the Company or the Bank may cause the Company to devote significant
      time
      and resources to defending itself and may lead to penalties that materially
      affect the Company and its shareholders. Future changes in the laws or
      regulations or their interpretations or enforcement could be materially adverse
      to the Company and its stockholders.





***The
      Company is subject to environmental liability risk associated with lending
      activities.***





A
      portion
      of the Bank’s loan portfolio is secured by real property. During the ordinary
      course of business, the Bank may foreclose on and take title to properties
      securing certain loans. In doing so, there is a risk that hazardous or toxic
      substances could be found on these properties. If hazardous or toxic substances
      are found, the Company may be liable for remediation costs, as well as for
      personal injury and property damage. Environmental laws may require the Company
      to incur substantial expenses and may materially reduce the affected property’s
      value or limit the Company’s ability to use or sell the affected property. In
      addition, future laws or more stringent interpretations or enforcement policies
      with respect to existing laws may increase the Company’s exposure to
      environmental liability. Although the Company has policies and procedures to
      perform an environmental review before initiating any foreclosure action on
      real
      property, these reviews may not be sufficient to detect all potential
      environmental hazards. The remediation costs and any other financial liabilities
      associated with an environmental hazard could have a material adverse effect
      on
      the Company’s financial condition and results of operations.





***The
      Bank’s information systems may experience an interruption or breach in
      security.***





The
      Bank
      relies heavily on communications and information systems to conduct its
      business. Any failure interruption or breach in security of these systems could
      result in failures or disruptions in the Bank’s customer relationship
      management, general ledger, deposit, loan and other system. While the Bank
      has
      policies and procedures designed to prevent or limit the effect of the failure,
      interruption or security breach of its information systems, there can be no
      assurance that any such failures, interruptions or security breaches will not
      occur, or if they do occur, that they will be adequately addressed. The
      occurrence, of any failures, interruptions or security breaches of the Bank’s
      information systems could damage the Bank’s reputation, result in a loss of
      customer business, subject the Bank to additional regulatory scrutiny, or expose
      the Bank to civil litigation and possible financial liability, any of which
      could have a material adverse effect on the Company’s financial condition and
      results of operation.





***Financial
      services companies depend on the accuracy and completeness of information about
      customers and counterparties.***





In
      deciding whether to extend credit or enter into other transactions, the Bank
      may
      rely on information furnished by or on behalf of customers and counterparties,
      including financial statements, credit reports and other financial information.
      The Bank may also rely on representations of those customers, counterparties
      or
      other third parties, such as independent auditors, as to the accuracy and
      completeness of that information. Reliance on inaccurate or misleading financial
      statements, credit reports or other financial information could have a material
      adverse impact on the Bank’s business and, in turn, the Company’s financial
      condition and results of operations.




18




***The
      inability to hire or retain certain key professionals, management and staff
      could adversely affect the Company’s revenues and net
      income.***





The
      Bank
      relies on key personnel to manage and operate our business, including major
      revenue generating functions such as our loan and deposit portfolios. The loss
      of key staff may adversely affect the Bank’s ability to maintain and mange these
      portfolios effectively, which could negatively affect the Company’s revenues. In
      addition, loss of key personnel could result in increased recruiting and hiring
      expenses, which could cause a decrease in the Company’s net income.





***Severe
      weather, acts of war and terrorism and other adverse external events could
      significantly impact the Company’s business***




Severe
      weather, acts of war or terrorism and other adverse external events could have
      a
      significant impact on the Bank’s ability to conduct business. Such events could
      affect the stability of the Bank’s deposit base, impair the ability of borrowers
      to repay outstanding loans, impair the value of collateral securing loans,
      cause
      significant property damage, result in loss of revenue and/or cause the Company
      to incur additional expenses. The occurrence of any such event could have a
      material adverse effect on the Bank’s business, which, in turn, could have a
      material adverse effect on the Company’s financial condition and results of
      operations. The close proximity of the all of the Company’s branch locations to
      Washington, D.C. may put it at an especially high risk of being impacted by
      terrorism.





**Risk
      Factors Relating to the Company’s Articles of Incorporation and the Common
      Stock**





***The
      liability of our directors is limited.***





Our
      Articles of Incorporation limit the liability of directors to the maximum extent
      permitted by Maryland law.





***The
      trading volume in the Common Stock is less than that of other larger services
      companies.***





Although
      the Common Stock is listed for trading on the Nasdaq SmallCap Market, the
      trading volume in the Common Stock is less than that of other larger financial
      services companies. A public trading market having the desired characteristics
      of depth, liquidity and orderliness depends on the presence in the marketplace
      of willing buyers and sellers of the Common Stock at any given time. This
      presence depends on the individual decisions of investors and general economic
      and market conditions over which the Company has no control. Given the lower
      trading volume of the Common Stock, significant sales of the Common Stock,
      or
      the expectation of these sales, could negatively impact the Company’s stock
      price.





***It
      may be difficult for a third party to acquire the Company, which could affect
      the price of the Common Stock.***





Our
      charter and Bylaws contain certain anti-takeover provisions pursuant to the
      Maryland General Corporation Law. In addition, the Company has a shareholders
      rights plan that could make it more difficult to acquire the Company. As a
      result, we may be a less attractive target to a potential acquirer who otherwise
      may be willing to pay a premium for our common stock above its market price.
      These provisions effectively inhibit a non-negotiated merger or other business
      combination, even if doing so would be perceived to be beneficial to the
      Company’s stockholders and could adversely affect the market price of the Common
      Stock.





**ITEM
      1B.** **UNRESOLVED
      STAFF COMMENTS**





Not
      applicable.




19


**ITEM
      2** **. 
      PROPERTIES**





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


**Year**
              **Opened**
            **Owned/******
              **Leased**
            **Book
                Value**
            **Approximate**
              **Square
                Footage**
            **Deposits****Main
                Office:**101
                Crain Highway, S.E.
              Glen
                Burnie, MD 21061
            1953
            Owned
            $730,858
            10,000
            $87,867,769**Branches:**Odenton
              1405
                Annapolis Road
              Odenton,
                MD 21113
            1969
            Owned
            233,830
            6,000
            37,884,037Riviera
                Beach
              8707
                Ft. Smallwood Road
              Pasadena,
                MD 21122
            1973
            Owned
            175,996
            2,500
            30,852,010Crownsville
              1221
                Generals Highway
              Crownsville,
                MD 21032
            1979
            Owned
            365,302
            3,000
            46,347,623Severn
              811
                Reece Road
              Severn,
                MD 21144
            1984
            Owned
            257,569
            2,500
            29,050,083South
                Crain
              7984
                Crain Highway
              Glen
                Burnie, MD 21061
            1995
            Leased
            48,631
            2,600
            21,372,433Linthicum
              Burwood
                Village Shopping Center
              Glen
                Burnie, MD 21060
            2005
            Leased
            263,629
            2,500
            4,033,989Severna
                Park
              534
                Ritchie Highway
              Severna
                Park, MD 21146
            2002
            Leased
            228,555
            2,184
            7,840,324**Operations
                Centers:**106
                Padfield Blvd.
              Glen
                Burnie, MD 21061
            1991
            Owned
            1,264,893
            16,200
            N/A103
                Crain Highway, S.E.
              Glen
                Burnie, MD 21061
            2000
            Owned
            294,012
            3,727
            N/A







At
      December 31, 2005, the Bank owned one foreclosed real estate property with
      a
      total book value of $ 50,000. 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, 2005, there were no actions to
      which the Company or the Bank was a party which involved claims for money
      damages exceeding 10% of the Company’s consolidated current assets in any one
      case or in any group of proceedings presenting in large degree the same legal
      and factual issues.





**ITEM
      4****.****SUBMISSION
      OF MATTERS TO VOTE OF SECURITY HOLDERS******





Not
      applicable.





20




**EXECUTIVE
      OFFICERS OF THE REGISTRANT**





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





**NAME**
            **AGE**
            **POSITIONS**F.
                William Kuethe, Jr.
            73
            President
                and Chief Executive OfficerMichael
                G. Livingston
            52
            Deputy
                Chief Executive Officer, Executive Vice President and Chief Operating
                OfficerJohn
                E. Porter
            52
            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.





MICHAEL
      G. LIVINGSTON was appointed Deputy Chief Executive Officer and Executive Vice
      President in August 2004 and became a Director on January 1, 2005. Mr.
      Livingston was a Senior Vice President from January 1998 until August 2004
      and
      had been Chief Lending Officer of the Bank from 1996 until August 2004. He
      served as Deputy Chief Operating Officer from February 14, 2003 through December
      31, 2003 and was appointed the Chief Operating Officer effective January 1,
      2004.





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.




21


**PART
      II**





**ITEM
      5****.****MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER****MATTERS
      AND
      ISSUER              
 PURCHASES OF EQUITY SECURITIES**





The
      Common Stock is traded on the Nasdaq SmallCap Market under the symbol “GLBZ”. As
      of February 24, 2006, there were 480 record holders of the Common Stock. The
      closing price for the Common Stock on that date was $17.43. A 20% dividend
      has
      been declared for stockholders’ of record on January 9, 2006, payable January
      23, 2006.








The
      following table sets forth the high and low sales prices for the Common Stock
      for each full quarterly period during 2005 and 2004 as reported by Nasdaq.
      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.





2005
            
            2004Quarter
                Ended
            
            High
            
            Low
            
            Dividends
            
            High
            
            Low
            
            DividendsMarch
                31,
            
            $
            24.30
            
            $
            21.00
            
            $
            0.12
            
            $
            26.51
            
            $
            24.10
            
            $
            0.11June
                30,
            
            
            21.97
            
            
            19.00
            
            
            0.12
            
            
            25.60
            
            
            21.10
            
            
            0.11September
                30
            
            
            21.30
            
            
            20.14
            
            
            0.14
            
            
            23.25
            
            
            21.10
            
            
            0.12December
                31
            
            
            21.93
            
            
            18.00
            
            
            0.21
            
            
            24.86
            
            
            21.96
            
            
            0.18





A
      regular
      dividend of $0.14 and a bonus dividend of $0.07 were declared for stockholders’
of record on December 23, 2005, payable on January 5, 2006 and January 6, 2006,
      respectively.





The
      Company intends to pay dividends approximating 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.




22




**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 6, 2004 and a
      three-for-two stock split effected through a stock dividend paid on June 21,
      2001.





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(Dollars
                In Thousand Except Per Share Data)****Operations
                Data:**Net
                Interest Income
            
            $
            11,966
            
            $
            12,016
            
            $
            11,263
            
            $
            11,368
            
            $
            10,674Provision
                for Credit Losses
            
            
            (50
            )
            
            340
            
            
            40
            
            
            -
            
            
            (150
            )Other
                Income
            
            
            2,114
            
            
            2,372
            
            
            2,289
            
            
            2,485
            
            
            1,821Other
                Expense
            
            
            10,625
            
            
            10,360
            
            
            9,748
            
            
            9,957
            
            
            10,332Net
                Income
            
            
            2,775
            
            
            3,056
            
            
            3,077
            
            
            2,811
            
            
            1,725**Share
                Data:**Basic
                Net Income Per Share
            
            $
            1.36
            
            $
            1.50
            
            $
            1.52
            
            $
            1.40
            
            $
            0.87Diluted
                Net Income Per Share
            
            
            1.36
            
            
            1.50
            
            
            1.52
            
            
            1.40
            
            
            0.87Cash
                Dividends Declared Per Common Share
            
            
            0.59
            
            
            0.52
            
            
            0.45
            
            
            0.42
            
            
            0.38Weighted
                Average Common Shares Outstanding:Basic
            
            
            2,045,622
            
            
            2,031,843
            
            
            2,019,502
            
            
            2,005,602
            
            
            1,994,171Diluted
            
            
            2,045,622
            
            
            2,031,843
            
            
            2,019,502
            
            
            2,008,986
            
            
            1,994,171**Financial
                Condition Data:**Total
                Assets
            
            $
            306,561
            
            $
            302,312
            
            $
            302,252
            
            $
            279,406
            
            $
            263,362Loans
                Receivable, Net
            
            
            190,205
            
            
            182,291
            
            
            172,819
            
            
            158,287
            
            
            164,569Total
                Deposits
            
            
            265,248
            
            
            261,674
            
            
            256,908
            
            
            241,420
            
            
            229,307Long
                Term Borrowings
            
            
            7,171
            
            
            7,200
            
            
            7,227
            
            
            7,251
            
            
            7,275Junior
                Subordinated Debentures
            
            
            5,155
            
            
            5,155
            
            
            5,155
            
            
            5,155
            
            
            5,155Total
                Stockholders’ Equity
            
            
            26,625
            
            
            25,744
            
            
            23,948
            
            
            21,789
            
            
            17,862**Performance
                Ratios:**Return
                on Average Assets
            
            
            0.89
            %
            
            1.00
            %
            
            1.05
            %
            
            1.05
            %
            
            0.69
            %Return
                on Average Equity
            
            
            10.50
            
            
            12.51
            
            
            13.56
            
            
            14.49
            
            
            9.77Net
                Interest Margin (1)
            
            
            4.46
            
            
            4.61
            
            
            4.48
            
            
            4.76
            
            
            4.80Dividend
                Payout Ratio
            
            
            43.52
            
            
            34.67
            
            
            29.53
            
            
            29.70
            
            
            43.27**Capital
                Ratios:**Average
                Equity to Average Assets
            
            
            8.47
            %
            
            8.16
            %
            
            7.76
            %
            
            9.03
            %
            
            9.08
            %Leverage
                Ratio
            
            
            10.17
            
            
            9.85
            
            
            9.25
            
            
            9.07
            
            
            8.79Total
                Risk-Based Capital Ratio
            
            
            16.98
            
            
            16.40
            
            
            15.79
            
            
            15.28
            
            
            13.92**Asset
                Quality Ratios:**Allowance
                for Credit Losses toGross
                Loans
            
            
            1.14
            %
            
            1.30
            %
            
            1.28
            %
            
            1.56
            %
            
            1.75
            %Non-accrual
                and Past Due Loans toGross
                Loans
            
            
            0.10
            %
            
            0.33
            %
            
            0.33
            %
            
            0.36
            %
            
            0.39
            %Allowance
                for Credit Losses to Non-Accrual
                and Past Due Loans
            
            
            1,164.55
            %
            
            398.68
            %
            
            385.25
            %
            
            429.13
            %
            
            445.30
            %Net
                Loan Charge-offs (Recoveries) to Average Loans
            
            
            0.09
            %
            
            0.10
            %
            
            0.18
            %
            
            0.26
            %
            
            0.18
            %(1)
                Presented on a tax-equivalent basis




23




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





**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,” “intends”, “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.





**Overview**





During
      2005, net interest income declined
      to $11,966,103 from $12,016,466 in 2004, and net income declined to $2,774,741
      from $3,055,501 in 2004. In 2005.the Company saw continued growth in both
      deposits and the loan portfolio. Non-interest bearing deposits increased by
      $5,886,555, and interest bearing deposits declined by $2,312,330. The loan
      portfolio increased by $7,913,706, primarily due to a $5,683,379 increase in
      commercial mortgage loans.





All
      per
      share amounts throughout this report have been adjusted to give retroactive
      effect to a six-for-five stock dividend paid on January 6, 2004.





**Comparison
      of Results of Operations for the Years Ended December 31, 2005, 2004 and
      2003**





**General.** For the
      year ended December 31, 2005, the Company reported consolidated net income
      of
      $2,774,741 ($1.36 basic and diluted earnings per share) compared to consolidated
      net income of $3,055,501 ($1.50 basic and diluted earnings per share) for the
      year ended December 31, 2004 and consolidated net income of $3,077,074 ($1.52
      basic and diluted earnings per share) for the year ended December 31, 2003.





**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 income producing assets. 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.





Net
      interest income is affected by the mix of loans in the Bank’s loan portfolio.
      Currently a majority of the Bank’s loans are mortgage and construction loans
      secured by real estate and indirect automobile loans secured by automobiles.
      These types of loans are made at interest rates lower than unsecured loans.
      While the Bank’s loan volume increased in 2004 and 2005, these rate changes
      produced lower yields on the Company’s interest-earning assets. Meanwhile,
      current market forces have resulted in higher rates of interest being paid
      by
      the Bank on deposits and borrowings used to fund income producing assets. In
      2006, the Company intends to increase the Bank’s commercial loan portfolio and
      reduce the Bank’s indirect automobile loan portfolio, which management expects
      will result in a higher average return on the loan portfolio.





Consolidated
      net interest income for the year ended December 31, 2005 was $11,966,103
      compared to $12,016,466 for the year ended December 31, 2004 and $11,263,294
      for
      the year ended December 31, 2003. The $50,363 decrease for the most recent
      year
      was primarily due to an increase in deposit expense, partially offset by an
      increase in loan income. The $753,172 increase in net interest income for 2004
      as compared to 2003 was primarily due to a decrease in interest expense on
      deposits coupled with an increase in income on U.S. Government agency
      securities. The after tax net interest income for 2005 was $12,750,162, a
      $195,909 or 1.51% decrease from the $12,946,071 after tax net interest income
      for 2004, which was an increase of $752,467 or 6.17% compared to $12,193,604
      in
      after tax net interest income for 2003.




24




Interest
      expense increased from $3,644,661 in 2004 to $4,131,459 in 2005, a $486,798,
      a
      13.36% increase, primarily due to an increase in deposit expense due to rates
      increasing. Interest expense decreased from $4,276,724 in 2003 to $3,644,661
      in
      2004, a $632,063, or 14.78% decrease, primarily due to a decrease in interest
      rates paid on deposits. Net interest margin for the year ended December 31,
      2005
      was 4.46% compared to 4.61% and 4.48% for the years ended December 31, 2004
      and
      2003, 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,****2005**
            
            **VS.**
            
            **2004**
            
            **2004**
            
            **VS.**
            
            **2003****Change
                Due To:**
            
            
            
            **Change
                Due To:****Increase/**
              **Decrease**
            
            **Rate**
            
            **Volume**
            
            **Increase/**
              **Decrease**
            
            **Rate**
            
            **Volume****(In
                Thousands)****ASSETS:**Interest-earning
                assets:Federal
                funds sold
            
            $
            54
            
            $
            70
            
            $
            (16
            )
            $
            8
            
            $
            6
            
            $
            2Interest-bearing
                deposits
            
            
            40
            
            
            11
            
            
            29
            
            
            (24
            )
            
            4
            
            
            (28
            )Investment
                securities:U.S.
                Treasury securities, obligations of U.S. government agencies and
                mortgage-backed securities
            
            
            197
            
            
            70
            
            
            127
            
            
            244
            
            
            384
            
            
            (140
            )Obligations
                of states and political subdivisions(1)
            
            
            (438
            )
            
            0
            
            
            (438
            )
            
            (6
            )
            
            (28
            )
            
            22All
                other investment securities
            
            
            20
            
            
            22
            
            
            (2
            )
            
            1
            
            
            2
            
            
            (1
            )Total
                investment securities
            
            
            (221
            )
            
            92
            
            
            (313
            )
            
            239
            
            
            358
            
            
            (119
            )Loans,
                net of unearned income:Demand,
                time and lease
            
            
            99
            
            
            91
            
            
            1
            
            
            6
            
            
            10
            
            
            (4
            )Mortgage
                and construction
            
            
            474
            
            
            (65
            )
            
            539
            
            
            399
            
            
            (402
            )
            
            801Installment
                and credit card
            
            
            (151
            )
            
            (270
            )
            
            119
            
            
            (546
            )
            
            (794
            )
            
            248Total
                gross loans(2)
            
            
            422
            
            
            (238
            )
            
            660
            
            
            (141
            )
            
            (1,186
            )
            
            1,045Allowance
                for credit losses
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                net loans
            
            
            422
            
            
            (238
            )
            
            660
            
            
            (141
            )
            
            (1,186
            )
            
            1,045Total
                interest-earning assets
            
            $
            295
            
            $
            (65
            )
            $
            360
            
            $
            82
            
            $
            (818
            )
            $
            900**LIABILITIES:**Interest-bearing
                deposits:Savings
                and NOW
            
            $
            13
            
            $
            9
            
            $
            4
            
            $
            (16
            )
            $
            (41
            )
            $
            25Money
                market
            
            
            20
            
            
            29
            
            
            (9
            )
            
            (20
            )
            
            (19
            )
            
            (1
            )Other
                time deposits
            
            
            446
            
            
            422
            
            
            24
            
            
            (628
            )
            
            (491
            )
            
            (137
            )Total
                interest-bearing deposits
            
            
            479
            
            
            460
            
            
            19
            
            
            (664
            )
            
            (551
            )
            
            (113
            )Non-interest-bearing
                deposits
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Borrowed
                funds
            
            
            7
            
            
            41
            
            
            (34
            )
            
            32
            
            
            1
            
            
            31Total
                interest-bearing liabilities
            
            $
            486
            
            $
            501
            
            $
            (15
            )
            $
            (632
            )
            $
            (550
            )
            $
            (82
            )(1)
                Tax equivalent basis.
              (2)
                Non-accrual loans included in average balances.





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.




25




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Average**
              **Balance**
            
            **Interest**
            
            **Yield/**
              **Cost**
            
            **Average****Balance**
            
            **Interest**
            
            **Yield/**
              **Cost**
            
            **Average****Balance**
            
            **Interest**
            
            **Yield/**
              **Cost****(****Dollars
                In Thousands)****ASSETS:**Interest-earning
                assets:Federal
                funds sold
            
            $
            3,682
            
            $
            113
            
            
            3.07
            %
            $
            4,962
            
            $
            59
            
            
            1.18
            %
            $
            4,815
            
            $
            51
            
            
            1.06
            %Interest-bearing
                deposits
            
            
            2,008
            
            
            77
            
            
            3.84
            
            
            1,126
            
            
            37
            
            
            3.29
            
            
            2,078
            
            
            61
            
            
            2.94Investment
                securities:U.S.
                Treasury securities, obligations of U.S. government agencies and
                mortgage-backed securities
            
            
            53,521
            
            
            2,414
            
            
            4.51
            
            
            50,575
            
            
            2,217
            
            
            4.38
            
            
            54,497
            
            
            1,973
            
            
            3.62Obligations
                of states and political subdivisions(1)
            
            
            34,391
            
            
            2,258
            
            
            6.57
            
            
            41,016
            
            
            2,696
            
            
            6.57
            
            
            40,655
            
            
            2,702
            
            
            6.64All
                other investment securities
            
            
            4,996
            
            
            378
            
            
            7.57
            
            
            5,019
            
            
            358
            
            
            7.13
            
            
            5,038
            
            
            357
            
            
            7.09Total
                investment securities
            
            
            92,908
            
            
            5,050
            
            
            5.44
            
            
            96,610
            
            
            5,271
            
            
            5.46
            
            
            100,190
            
            
            5,032
            
            
            5.02Loans,
                net of unearned income:Demand,
                time and lease
            
            
            5,597
            
            
            432
            
            
            7.72
            
            
            5,556
            
            
            333
            
            
            5.99
            
            
            5,624
            
            
            327
            
            
            5.81Mortgage
                and construction
            
            
            109,025
            
            
            6,968
            
            
            6.40
            
            
            100,590
            
            
            6,494
            
            
            6.46
            
            
            88,853
            
            
            6,095
            
            
            6.86Installment
                and credit card
            
            
            77,084
            
            
            4,225
            
            
            5.49
            
            
            74,902
            
            
            4,376
            
            
            5.84
            
            
            71,326
            
            
            4,922
            
            
            6.90Total
                gross loans(2)
            
            
            191,706
            
            
            11,625
            
            
            6.07
            
            
            181,048
            
            
            11,203
            
            
            6.19
            
            
            165,803
            
            
            11,344
            
            
            6.84Allowance
                for credit losses
            
            
            (2,301
            )
            
            
            
            
            
            
            
            (2,338
            )
            
            
            
            
            
            
            
            (2,343
            )Total
                net loans
            
            
            189,404
            
            
            11,625
            
            
            6.14
            
            
            178,710
            
            
            11,203
            
            
            6.27
            
            
            163,460
            
            
            11,344
            
            
            6.94Total
                interest-earning assets
            
            
            288,002
            
            
            16,865
            
            
            5.86
            
            
            281,408
            
            
            16,570
            
            
            5.89
            
            
            270,317
            
            
            16,488
            
            
            6.06Cash
                and due from banks
            
            
            11,020
            
            
            
            
            
            
            
            
            11,203
            
            
            
            
            
            
            
            
            10,317Other
                assets
            
            
            13,275
            
            
            
            
            
            
            
            
            13,162
            
            
            
            
            
            
            
            
            12,039Total
                assets
            
            $
            312,297
            
            
            
            
            
            
            
            $
            305,773
            
            
            
            
            
            
            
            $
            292,673**LIABILITIES
                AND STOCKHOLDERS’ EQUITY:**Interest-bearing
                deposits:Savings
                and NOW
            
            $
            85,005
            
            
            281
            
            
            0.33
            %
            $
            83,354
            
            
            268
            
            
            0.32
            %
            $
            76,632
            
            
            284
            
            
            0.37
            %Money
                market
            
            
            19,389
            
            
            105
            
            
            0.55
            
            
            21,146
            
            
            85
            
            
            0.40
            
            
            21,514
            
            
            105
            
            
            0.49Other
                time deposits
            
            
            86,051
            
            
            2,705
            
            
            3.15
            
            
            84,621
            
            
            2,259
            
            
            2.66
            
            
            89,108
            
            
            2,887
            
            
            3.24Total
                interest-bearing deposits
            
            
            190,445
            
            
            3,091
            
            
            1.63
            
            
            189,121
            
            
            2,612
            
            
            1.38
            
            
            187,254
            
            
            3,276
            
            
            1.75Short-term
                borrowed funds
            
            
            1,815
            
            
            66
            
            
            3.64
            
            
            3,983
            
            
            57
            
            
            1.43
            
            
            1,816
            
            
            28
            
            
            1.54Long-term
                borrowed funds
            
            
            12,339
            
            
            974
            
            
            7.90
            
            
            12,367
            
            
            976
            
            
            7.89
            
            
            12,393
            
            
            972
            
            
            7.84Total
                interest-bearing liabilities
            
            
            204,599
            
            
            4,131
            
            
            2.02
            
            
            205,471
            
            
            3,645
            
            
            1.77
            
            
            201,463
            
            
            4,277
            
            
            2.12Non-interest-bearing
                deposits
            
            
            79,843
            
            
            
            
            
            
            
            
            74,686
            
            
            
            
            
            
            
            
            66,635Other
                liabilities
            
            
            1,395
            
            
            
            
            
            
            
            
            1,191
            
            
            
            
            
            
            
            
            2,154Stockholders’
                equity
            
            
            26,460
            
            
            
            
            
            
            
            
            24,425
            
            
            
            
            
            
            
            
            22,421Total
                liabilities and equity
            
            $
            312,297
            
            
            
            
            
            
            
            $
            305,773
            
            
            
            
            
            
            
            $
            292,673Net
                interest income
            
            
            
            
            $
            12,734
            
            
            
            
            
            
            
            $
            12,925
            
            
            
            
            
            
            
            $
            12,099Net
                interest spread
            
            
            
            
            
            
            
            
            3.84
            %
            
            
            
            
            
            
            
            4.12
            %
            
            
            
            
            
            
            
            3.94
            %Net
                interest margin
            
            
            
            
            
            
            
            
            4.46
            %
            
            
            
            
            
            
            
            4.61
            %
            
            
            
            
            
            
            
            4.48
            %1
                Tax equivalent basis. The incremental tax rate applied was 34.56%
                for 2005
                and 34.35% for 2004.
              2
                Non-accrual loans included in average
                balance.





**Provision
      For Credit Losses.** During
      the year ended December 31, 2005, the Company made a reverse provision of
      $50,000 for credit losses, compared to a provision of $340,000 for the year
      ended December 31, 2004, and a provision of $40,000 for the year ended December
      31, 2003. At December 31, 2005, the allowance for credit losses equaled
      1,164.55% of non-accrual and past due loans compared to 398.68% and 385.25%
      at
      December 31, 2004 and 2003, respectively. During the year ended December 31,
      2005, the Company recorded net charge-offs of $160,544 compared to $174,501
      and
      $308,306 in net charge-offs during the years ended December 31, 2004 and 2003,
      respectively.





**Other
      Income.** Other
      income includes service charges on deposit accounts, other fees and commissions,
      net gains on investment securities, and income on life insurance. Other income
      decreased from $2,371,636 in 2004 to $2,113,824 in 2005, a $257,812, or 10.87%
      decrease. The decrease was primarily due to a decrease on gains on investment
      securities. Other income increased from $2,289,413 in 2003 to $2,371,636 in
      2004, an $82,223, or 3.59% increase. The increase was primarily due to gains
      on
      investment securities, partially offset by a decrease in other fees and
      commissions.




26




**Other
      Expenses.** Other
      expenses increased from $10,359,377 in 2004 to $10,624,797 in 2005, a $265,420
      or 2.56% increase. This increase was primarily due to an increase in salaries
      and occupancy costs due to an additional branch being opened. Other expenses
      increased from $9,747,693 in 2003 to $10,359,377 in 2004, a $611,684 or 6.28%
      increase. This increase was primarily due to increases in salaries and employee
      benefits.





**Income
      Taxes.** During
      the year ended December 31, 2005, the Company recorded income tax expense of
      $730,389, compared to income tax expense of $633,224 for the year ended December
      31, 2004. This increase was primarily due to less tax exempt income on municipal
      securities. During the year ended December 31, 2004, the Company recorded income
      tax expense of $633,224, compared to income tax expense of $687,940 for the
      year
      ended December 31, 2003.





**Comparison
      of Financial Condition at December 31, 2005, 2004 and
      2003**





The
      Company’s total assets increased to $306,560,991 at December 31, 2005 from
      $302,312,126 at December 31, 2004. The Company’s total assets increased to
      $302,312,126 at December 31, 2004 from $302,252,466 at December 31, 2003.





The
      Company’s net loan portfolio increased to $190,204,998 at December 31, 2005
      compared to $182,291,292 at December 31, 2004 and $172,819,049 at December
      31,
      2003. The increase in the loan portfolio during the 2005 period is primarily
      due
      to an increase in commercial and industrial mortgages, and indirect automobile
      loans. The increase in the loan portfolio during the 2004 period is primarily
      due to an increase in residential mortgages with lesser increases in commercial
      mortgages and indirect automobile loans.





During
      2005, the Company’s total investment securities portfolio (including both
      investment securities available for sale and investment securities held to
      maturity) totaled $87,279,887, a $7,626,160 or 8.04%, decrease from $94,906,047
      at December 31, 2004. This decrease is primarily attributable to a decrease
      in
      state and municipal securities. During 2004, the Company’s total investment
      securities portfolio (including both investment securities available for sale
      and investment securities held to maturity) totaled $94,906,047, a $8,275,060
      or
      8.02%, decrease from $103,181,107 at December 31, 2003. This decrease is also
      primarily attributable to a decrease in state and municipal securities.





Deposits
      as of December 31, 2005 totaled $265,248,268, an increase of $3,574,225, or
      1.37%, from the $261,674,043 total as of December 31, 2004. Deposits as of
      December 31, 2004 totaled $261,674,043, an increase of $4,765,808, or 1.86%,
      from the $256,908,235 total as of December 31, 2003. Demand deposits as of
      December 31, 2005 totaled $79,313,921, a $5,886,555, or 8.02%, increase from
      $73,427,366 at December 31, 2004. NOW and Super NOW accounts as of December
      31,
      2005 decreased by $1,698,480, or 6.27% from their 2004 level, to $25,391,363.
      Money market accounts decreased by $3,461,850, or 17.13%, from their 2004 level,
      to total $16,746,954 at December 31, 2005. Savings deposits decreased by
      $2,444,561, or 4.24%, from their 2004 level, to $55,220,132 at December 31,
      2005. Time deposits over $100,000 totaled $22,417,618 on December 31, 2005,
      an
      increase of $1,414,286, or 6.74% from December 31, 2004. Other time deposits
      (made up of certificates of deposit less than $100,000 and individual retirement
      accounts) totaled $66,158,280 on December 31, 2005, a $3,878,277 or 6.23%
      increase from December 31, 2004.





Total
      stockholders’ equity as of December 31, 2005 increased by $881,033, or 3.42%,
      from the 2004 period. The increase was attributed to an increase in retained
      earnings and surplus, offset by a decrease in accumulated other comprehensive
      income, net of tax. Total stockholders’ equity as of December 31, 2004 increased
      by $ 1,796,780, or 7.50%, from the 2003 period. The increase was attributed
      to
      an increase in retained earnings, surplus and common stock offset by a decline
      in accumulated other comprehensive income, net of tax.





**Off-Balance
      Sheet Arrangements,** **** **Contractual
      Obligations, and Commitments**





**Off-Balance
      Sheet Arrangements.** 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.




27




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, 2005, the Bank has accrued $200,000 for
      unfunded commitments related to these financial instruments with off balance
      sheet risk, which is included in other liabilities.





**Contractual
      Obligations.** The
      following table presents, as of December 31, 2005, significant fixed and
      determinable contractual obligations to third parties by payment date. Further
      discussion of the nature of each obligation is included in the referenced note
      to the consolidated financial statements.





PAYMENTS
                DUE IN(IN
                THOUSANDS)
            
            NOTE
              REFERENCE
            
            ONE
                YEAR
              OR
                LESS
            
            ONE
                TO
              THREE
              YEARS
            
            THREE
                TO
              FIVE
              YEARS
            
            OVER
              FIVE
              YEARS
            
            TOTALDeposits
                without astated
                maturity (a),(c)
            
            9
            
            $
            176,672
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            176,672Time
                deposits (a)
            
            9
            
            
            49,820
            
            
            24,521
            
            
            12,380
            
            
            1,855
            
            
            88,576Short-term
                borrowings (a)
            
            6
            
            
            622
            
            
            —
            
            
            —
            
            
            —
            
            
            622Long-term
                borrowings (b)
            
            7,8
            
            
            577
            
            
            1,161
            
            
            13,320
            
            
            —
            
            
            15,058Operating
                leases
            
            5
            
            
            238
            
            
            447
            
            
            292
            
            
            1,836
            
            
            2,813(a)Excludes
                interest
              (b)Includes
                Junior Subordinated Debentures and semi-annual payments (made in
                March and
                September) of $273,215. This is also assuming that the Debentures
                will be
                paid off in September 2010.
              (c)Includes
                non-interest bearing deposits





**Commitments.** The
      following table details the amounts and expected maturities of significant
      commitments as of December 31, 2005. Further discussion of these commitments
      is
      included in Note 16 to the consolidated financial statements.




28





PAYMENTS
                DUE IN(IN
                THOUSANDS)
            
            ONE
                YEAR
              OR
                LESS
            
            ONE
                TO
              THREE
              YEARS
            
            THREE
                TO
              FIVE
              YEARS
            
            OVER
              FIVE
              YEARS
            
            TOTALLoan
              commitments:Other
                mortgage loans
            
            $
            1,881
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            1,881Construction
                & land development
            
            
            224
            
            
            —
            
            
            —
            
            
            —
            
            
            224Unused
                lines of credit:Home-equity
                lines
            
            
            1,160
            
            
            841
            
            
            696
            
            
            3,645
            
            
            6,342Commercial
                lines
            
            
            7,582
            
            
            —
            
            
            —
            
            
            —
            
            
            7,582Unsecured
                consumer lines
            
            
            866
            
            
            —
            
            
            —
            
            
            —
            
            
            866Letters
                of credit
            
            
            69
            
            
            —
            
            
            —
            
            
            274
            
            
            343




**Market
      Risk Management**





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





The
      following table sets forth the Bank’s interest-rate sensitivity at December 31,
      2005.





**0-3
                Months**
            
            **Over
                3 To**
              **12
                Months**
            
            **Over
                1**
              **Through****5 Years**
            
            **Over
                5**
              ******Years**
            
            **Total****(****Dollars
                In Thousands)****Assets:**Cash
                and due from banks
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            13,117Federal
                funds and overnight deposits
            
            
            2,333
            
            
            —
            
            
            —
            
            
            —
            
            
            2,333Securities
            
            
            —
            
            
            495
            
            
            12,027
            
            
            75,701
            
            
            88,223Loans
            
            
            13,484
            
            
            5,799
            
            
            84,599
            
            
            89,345
            
            
            193,227Fixed
                Assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,863Other
                Assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,798Total
                assets
            
            $
            15,817
            
            $
            6,294
            
            $
            96,626
            
            $
            165,046
            
            $
            306,561**Liabilities:**Demand
                deposit accounts
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            79,314NOW
                accounts
            
            
            25,391
            
            
            —
            
            
            —
            
            
            —
            
            
            25,391Money
                market deposit accounts
            
            
            16,747
            
            
            —
            
            
            —
            
            
            —
            
            
            16,747Savings
                accounts
            
            
            55,220
            
            
            208
            
            
            —
            
            
            —
            
            
            55,428IRA
                accounts
            
            
            2,356
            
            
            7,831
            
            
            13,856
            
            
            1,139
            
            
            25,185Certificates
                of deposit
            
            
            13,616
            
            
            25,806
            
            
            23,046
            
            
            715
            
            
            63,183Other
                liabilities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            9,533Junior
                Subordinated Debenture
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,155Stockholders’
                equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            26,625Total
                liabilities andStockholders’
                equity
            
            $
            113,333
            
            $
            33,845
            
            $
            36,902
            
            $
            1,845
            
            $
            306,561GAP
            
            $
            (97,516
            )
            $
            (27,551
            )
            $
            59,724
            
            $
            163,192Cumulative
                GAP
            
            
            (97,516
            )
            
            (125,067
            )
            
            (65,343
            )
            
            97,849Cumulative
                GAP as a % oftotal
                assets
            
            
            (31.81
            %)
            
            (40.80
            %)
            
            (21.32
            %)
            
            31.92
            %




29




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
      at
      within three months although it is the Company’s experience that such accounts
      may be less sensitive to changes in market rates.





In
      addition to gap analysis, the Bank utilizes a simulation model to quantify
      the
      effect a hypothetical immediate plus or minus 200 basis point change in rates
      would have on net interest income and the economic value of equity. The model
      takes into consideration the effect of call features of investments as well
      as
      prepayments of loans in periods of declining rates. When actual changes in
      interest rates occur, the changes in interest earning assets and interest
      bearing liabilities may differ from the assumptions used in the model and,
      in
      the Bank’s experience, the changes historically realized have been narrower than
      those projected by the model. However, the Bank believes that the model is
      a
      prudent forecasting tool. As of December 31, 2005, the model produced the
      following sensitivity profile for net interest income and the economic value
      of
      equity.





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








**Liquidity
      and Capital Resources**





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





The
      Bank’s principal sources of funds for investments and operations are net income,
      deposits from its primary market area, principal and interest payments on loans,
      interest received on investment securities and proceeds from maturing investment
      securities. Its principal funding commitments are for the origination or
      purchase of loans and the payment of maturing deposits. Deposits are considered
      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, 2005,
      totaled $15,449,727, an increase of $4,075,836 or 35.84%, from the December
      31,
      2004 total of $11,373,891. Most of this increase was due to interest-bearing
      deposits in FHLB.





As
      of
      December 31, 2005, the Bank was permitted to draw on a $36.7 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, 2005, a $7 million
      long-term convertible advance was outstanding under this line. In addition
      the
      Bank has a secured line of credit in the amount of **$** 5
      million
      from another commercial bank on which it has not drawn. Furthermore, on
      September 7, 2000, the Company issued $5,155,000 of its 10.6% Junior
      Subordinated Deferrable Interest Debentures to Glen Burnie Statutory Trust
      I, a
      Connecticut statutory trust wholly owned by the Company. The Trust, in turn,
      issued $5,000,000 of its 10.6% capital securities to institutional investors.
      The debentures are scheduled to mature on September 7, 2030, unless called
      by
      the Company not earlier than September 7, 2010. As of December 31, 2005, 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, 2005, the Company was in compliance with
      these requirements with a leverage ratio of 10.17%, a Tier 1 risk-based capital
      ratio of 15.79% and total risk-based capital ratio of 16.98%. At December 31,
      2005, the Bank met the criteria for designation as a well capitalized depository
      institution under FDIC regulations.




30




**Impact
      of Inflation and Changing Prices**





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





**Critical
      Accounting Policies**





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





**Allowance
      for Credit Losses.** The
      Bank's allowance for credit losses is determined based upon estimates that
      can
      and do change when the actual events occur, including historical losses as
      an
      indicator of future losses, fair market value of collateral, and various general
      or industry or geographic specific economic events.  The use of these
      estimates and values is inherently subjective and the actual losses could be
      greater or less than the estimates.  For further information regarding our
      allowance for credit losses, see “Allowance for Credit Losses” under Item 1-
“Business” of this Annual Report.





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





**Recently
      Issued Accounting Pronouncements**





In
      March
      2004, the FASB issued FASB Interpretation No. 46 (FIN 46R), *“Consolidation
      of Variable Interest Entities (Revised December 2003).”* FIN 46
      clarifies certain aspects of FIN 46 and provides certain entities with
      exemptions from the requirements of FIN 46. Fin 46R requires the consolidation
      by a business enterprise of variable interest entities (VIE) in which it is
      the
      primary beneficiary. FIN 46R also requires the adoption of FIN 46, as of
      December 31,2003, for all entities previously considered as special purpose
      entities and for all VIE’s created after January 31, 2003. The Company has
      assessed applicability of this pronouncement and believes they are currently
      in
      compliance with all applicable components of this standard.





In
      December 2004, the FASB issued SFAS No. 123, *“Share-Based
      Payment (Revised 2004).”* SFAS
      123R establishes standards for the accounting for transactions in which an
      entity (i) exchanges its equity instruments for goods or services, or (ii)
      incurs liabilities in exchange for goods or services that are based on the
      fair
      value of the entity’s equity instruments or that may be settled by the issuance
      of the equity instruments. SFAS 123R eliminates the ability to account for
      stock-based compensation using APB 25 and requires that such transactions be
      recognized as compensation cost in the income statement based on their fair
      values on the date of the grant. SFAS 123R is effective for the Company on
      January 1, 2006. The Company will transition to fair value based accounting
      for
      stock-based compensation using a modified version of prospective application
      (“modified prospective application”). Under modified prospective application, as
      it is applicable to the Company, SFAS 123R applies to new awards and to awards
      modified, repurchased, or cancelled after January 1, 2006. Additionally,
      compensation cost for the portion of awards for which the requisite service
      has
      not been rendered (generally referring to non-vested awards) that are
      outstanding as of January 1, 2006 must be recognized as the remaining requisite
      service is rendered during the period of and/or the periods after the adoption
      of SFAS 123R. The attribution of compensation cost for those earlier awards
      will
      be based on the same method and on the same grant-date fair values previously
      determined for the pro forma disclosures required for companies that did not
      adopt the fair value accounting method for stock-based employee compensation.




31




The
      Company may expect to recognize additional pre-tax, quarterly compensation
      costs
      beginning in the first quarter of 2006 as a result of the adoption of SFAS
      123R
      if additional options are issued. Future levels of compensation cost recognized
      related to stock-based compensation awards (including the aforementioned
      expected costs during the period of adoption) may be impacted by new awards
      and/or modifications, repurchases and cancellations of existing awards before
      and after the adoption of this standard.





In
      November 2005, the FASB issued FASB Staff Position (FSB) 115-1, *“The
      Meaning of Other-Than-TemporaryImpairment and Its Application to Certain
      Investments.”* This
      statement provides additional guidance for recognition and measurement
      provisions for other-than-temporary impairments relating to investment in debt
      and equity securities that are accounted for under FASB 115. Specifically,
      the
      guidance clarifies that an investor should recognize an impairment loss no
      later
      than when the impairment is deemed other-than-temporary, even if the decision
      to
      sell has not been made. The statement also requires certain disclosures about
      unrealized losses that have not been recognized as other-than-temporary
      impairments. The Company believes they are currently in compliance with this
      pronouncement.





**ITEM
      7A** **.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      information required by this item may be found in Item 7 of Part II of this
      report under the caption “Management’s Discussion and Analysis of Financial
      Condition and Results of Operation-Market Risk Management”, which is
      incorporated herein by reference.





**ITEM
      8****.****FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





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





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





Not
      applicable.





**ITEM
      9A** **.** **CONTROLS
      AND PROCEDURES**





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





**ITEM
      9B** **.** **OTHER
      INFORMATION**





Not
      applicable.




32




**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 2006 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. The information with respect to the Company’s Audit
      Committee is incorporated herein by reference to the section captioned “Meetings
      and Committees of the Board of Directors” in the Proxy Statement. The
      information with respect to compliance with Section 16(a) of the Exchange Act
      is
      incorporated herein by reference to the section captioned “Section 16(a)
      Beneficial Ownership Reporting Compliance” in the Proxy Statement. The
      information with respect to the Company’s Code of Ethics is incorporated herein
      by reference to the section captioned “Code of Ethics” in the Proxy
      Statement.





**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 AND RELATED
      STOCKHOLDER**


**MATTERS**




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





**ITEM
      13** **.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





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





**ITEM
      14** **.** **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





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





33


**PART
      IV**





**ITEM
      15****.****EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





**(a)
      1. Financial Statements** .




PageIndependent
                  Auditors’ Report
              F-1Consolidated
                  Balance Sheets as of December 31, 2005, 2004 and 2003
              F-2Consolidated
                  Statements of Income for the Years Ended December 31, 2005, 2004
                  and 2003
              F-3Consolidated
                  Statements of Comprehensive Income for the Years Ended December
                  31, 2005,
                  2004and
                  2003
              F-4Consolidated
                  Statements of Changes in Stockholders' Equity for the Years Ended
                  December
                  31, 2005, 2004 and 2003
              F-5Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2005,
                  2004 and
                  2003
              F-6Notes
                  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
            Articles
                of Amendment, dated October 8, 2003(incorporated
                by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form
                10-Q for the Quarter ended September 30, 2003, File No.
                0-24047)


3.3
            Articles
                Supplementary, dated November 16, 1999 (incorporated by reference
                to
                Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed December
                8, 1999, File No. 0-24047)


3.4
            By-Laws
                (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly
                Report on Form 10-Q for the Quarter ended September 30, 2003, File
                No.
                0-24047)


4.1
            Rights
                Agreement, dated as of February 13, 1998, between Glen Burnie Bancorp
                and
                The Bank of Glen Burnie, as Rights Agent, as amended and restated
                as of
                December 27, 1999 (incorporated by reference to Exhibit 4.1 to Amendment
                No. 1 to the Registrant’s Form 8-A filed December 27, 1999, File No.
                0-24047)


10.1
            Glen
                Burnie Bancorp Director Stock Purchase Plan (incorporated by reference
                to
                Exhibit 99.1 to Post-Effective Amendment No. 1 to the Registrant’s
                Registration Statement on Form S-8, File
                No.33-62280)


10.2
            The
                Bank of Glen Burnie Employee Stock Purchase Plan (incorporated by
                reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the
                Registrant’s Registration Statement on Form S-8, File No.
                333-46943)


10.3
            Amended
                and Restated Change-in-Control Severance Plan (incorporated by reference
                to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the
                Fiscal Year Ended December 31, 2001, File No.
                0-24047)


10.4
            The
                Bank of Glen Burnie Executive and Director Deferred Compensation
                Plan
                (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual
                Report on Form 10-K for the Fiscal Year Ended December 31, 1999,
                File No.
                0-24047)


21
              Subsidiaries
                  of the Registrant (incorporated by reference to Exhibit 3.2 to
                  the
                  Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended December
                  31, 2001, File No. 0-24047)
 23
              Consent of Trice Geary & Myers
                LLC
 31.1
              Rule 15d-14(a) Certification of Chief Executive
                Officer
 31.2
              Rule15d-14(a) Certification of Chief Financial
                Officer
 32.1
              Section1350 Certifications




34




**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
                BANCORPMarch
                14, 2006
              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.
              
              President,
                  Chief Executive Officer
              March
                  14, 2006F. William Kuethe, Jr.
              
              and
                  Director/s/
                  Michael G. Livingston
              
              Deputy
                  Chief Executive Officer,
              March
                  14, 2006Michael G. Livingston
              
              Executive
                  Vice President, ChiefOperating
                  Officer and Director/s/
                  John E. Porter
              
              Senior
                  Vice President and Chief
              March
                  14, 2006John E. Porter
              
              Financial
                  Officer/s/
                  John E. Demyan
              
              Chairman
                  of the Board and Director
              March
                  14, 2006John E. Demyan/s/
                  Shirley E. Boyer
              
              Director
              March
                  14, 2006Shirley E. Boyer/s/
                  Thomas Clocker
              
              Director
              March
                  14, 2006Thomas Clocker/s/
                  Norman E. Harrison, Jr.
              
              Director
              March
                  14, 2006Norman E. Harrison, Jr./s/
                  F. W. Kuethe, III
              
              Director
              March
                  14, 2006F. W. Kuethe, III/s/
                  Charles Lynch
              
              Director
              March
                  14, 2006Charles LynchDirector
              March
                  __, 2006Edward
                L. Maddox
  35
  /s/
                  William N. Scherer, Sr.
              
              Director
              March
                  14, 2006William N. Scherer, Sr./s/
                  Karen B. Thorwarth
              
              Director
              March
                  14, 2006Karen B. Thorwarth/s/
                  Mary Lou Wilcox
              
              Director
              March
                  14, 2006Mary Lou Wilcox


36





















REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Board
      of
      Directors


Glen
      Burnie Bancorp and Subsidiaries


Glen
      Burnie, Maryland





We
      have
      audited the accompanying consolidated balance sheets of Glen Burnie Bancorp
      and
      subsidiaries as of December 31, 2005, 2004, and 2003, 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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements, assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Glen Burnie
      Bancorp and subsidiaries as of December 31, 2005, 2004, and 2003, and the
      consolidated results of their operations and their consolidated cash flows
      for
      the years then ended in conformity with accounting principles generally accepted
      in the United States of America.














Salisbury,
      Maryland


January
      27, 2006


F-1




**Glen
                    Burnie Bancorp and Subsidiaries****Consolidated
                    Balance Sheets**December
                    31,
                
                **2005**
                
                2004
                
                2003**Assets**Cash
                    and due from banks
                
                **$**
                **9,405,148**
                
                $
                9,766,710
                
                $
                11,119,791Interest-bearing
                    deposits in other financial institutions
                
                
                **3,711,524**
                
                
                65,947
                
                
                57,192Federal
                    funds sold
                
                
                **2,333,055**
                
                
                1,541,234
                
                
                1,717,911Cash
                    and cash equivalents
                
                
                **15,449,727**
                
                
                11,373,891
                
                
                12,894,894Investment
                    securities available for sale, at fair value
                
                
                **86,128,724**
                
                
                93,278,857
                
                
                99,602,353Investment
                    securities held to maturity (fair value**2005
                      $1,238,740;**2004
                      $1,761,894;2003 $3,815,855)
                
                
                **1,151,163**
                
                
                1,627,190
                
                
                3,578,754Federal
                    Home Loan Bank stock, at cost
                
                
                **918,900**
                
                
                919,000
                
                
                896,400Maryland
                    Financial Bank stock, at cost
                
                
                **100,000**
                
                
                100,000
                
                
                -Common
                    stock in the Glen Burnie Statutory Trust I
                
                
                **155,000**
                
                
                155,000
                
                
                155,000Ground
                    rents, at cost
                
                
                **235,700**
                
                
                235,700
                
                
                248,300Loans,
                    less allowance for credit losses**2005
                    $2,201,350;**2004
                    $2,411,894;2003 $2,246,395
                
                
                **190,204,998**
                
                
                182,291,292
                
                
                172,819,049Premises
                    and equipment, at cost, less accumulated depreciation
                
                
                **3,863,275**
                
                
                4,030,777
                
                
                4,219,812Accrued
                    interest receivable on loans and investment securities
                
                
                **1,451,806**
                
                
                1,484,869
                
                
                1,575,918Deferred
                    income tax benefits
                
                
                **264,139**
                
                
                -
                
                
                -Other
                    real estate owned
                
                
                **50,000**
                
                
                50,000
                
                
                171,882Cash
                    value of life insurance
                
                
                **5,681,802**
                
                
                5,483,681
                
                
                4,782,258Other
                    assets
                
                
                **905,757**
                
                
                1,281,869
                
                
                1,307,846**Total
                      assets**
                
                **$**
                **306,560,991**
                
                $
                302,312,126
                
                $
                302,252,466**Liabilities
                    and Stockholders' Equity**Liabilities:Deposits:Noninterest-bearing
                
                **$**
                **79,313,921**
                
                $
                73,427,366
                
                $
                69,648,818Interest-bearing
                
                
                **185,934,347**
                
                
                188,246,677
                
                
                187,259,417Total
                      deposits
                
                
                **265,248,268**
                
                
                261,674,043
                
                
                256,908,235Short-term
                    borrowings
                
                
                **622,050**
                
                
                541,672
                
                
                6,601,920Long-term
                    borrowings
                
                
                **7,170,977**
                
                
                7,199,708
                
                
                7,226,501Junior
                    subordinated debentures owed to unconsolidatedsubsidiary
                    trust
                
                
                **5,155,000**
                
                
                5,155,000
                
                
                5,155,000Dividends
                    payable
                
                
                **339,005**
                
                
                287,938
                
                
                236,938Accrued
                    interest payable on deposits
                
                
                **83,111**
                
                
                55,980
                
                
                67,099Accrued
                    interest payable on junior subordinated debentures
                
                
                **171,518**
                
                
                171,518
                
                
                171,518Deferred
                    income tax liabilities
                
                
                **-**
                
                
                330,583
                
                
                792,100Other
                    liabilities
                
                
                **1,145,621**
                
                
                1,151,276
                
                
                1,145,527**Total
                    liabilities**
                
                
                **279,935,550**
                
                
                276,567,718
                
                
                278,304,838**Commitments
                    and contingencies**Stockholders'
                    equity:Common
                    stock, par value $1, authorized 15,000,000 shares;issued
                    and outstanding**2005
                    2,056,024**shares;2004
                    2,041,033 shares; 2003 1,689,281 shares
                
                
                **2,056,024**
                
                
                2,041,033
                
                
                1,689,281Surplus
                
                
                **11,458,465**
                
                
                11,169,283
                
                
                10,861,986Retained
                    earnings
                
                
                **13,341,097**
                
                
                11,773,915
                
                
                10,115,038Accumulated
                    other comprehensive income (loss), net of tax (benefits)
                
                
                **(230,145**
                **)**
                
                760,177
                
                
                1,281,323**Total
                    stockholders' equity**
                
                
                **26,625,441**
                
                
                25,744,408
                
                
                23,947,628**Total
                    liabilities and stockholders' equity**
                
                **$**
                **306,560,991**
                
                $
                302,312,126
                
                $
                302,252,466
  *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,
              
              **2005**
              
              2004
              
              2003**Interest
                  income on:**Loans,
                  including fees
              
              **$**
              **11,625,147**
              
              $
              11,203,896
              
              $
              11,344,040U.S.
                  Treasury securities
              
              
              **-**
              
              
              -
              
              
              18,394U.S.
                  Government agency securities
              
              
              **2,413,687**
              
              
              2,216,554
              
              
              1,954,437State
                  and municipal securities
              
              
              **1,473,550**
              
              
              1,769,813
              
              
              1,749,556Corporate
                  trust preferred securities
              
              
              **378,167**
              
              
              358,290
              
              
              356,740Federal
                  funds sold
              
              
              **113,246**
              
              
              59,461
              
              
              51,141Other
              
              
              **93,765**
              
              
              53,113
              
              
              65,710Total
                  interest income
              
              
              **16,097,562**
              
              
              15,661,127
              
              
              15,540,018**Interest
                  expense on:**Deposits
              
              
              **3,091,576**
              
              
              2,611,536
              
              
              3,276,093Short-term
                  borrowings
              
              
              **65,906**
              
              
              56,938
              
              
              24,046Long-term
                  borrowings
              
              
              **427,547**
              
              
              429,484
              
              
              430,155Junior
                  subordinated debentures
              
              
              **546,430**
              
              
              546,703
              
              
              546,430Total
                  interest expense
              
              
              **4,131,459**
              
              
              3,644,661
              
              
              4,276,724**Net
                  interest income**
              
              
              **11,966,103**
              
              
              12,016,466
              
              
              11,263,294**Provision
                  for credit losses**
              
              
              **(50,000**
              **)**
              
              340,000
              
              
              40,000**Net
                  interest income after provision for credit losses**
              
              
              **12,016,103**
              
              
              11,676,466
              
              
              11,223,294**Other
                  income:**Service
                  charges on deposit accounts
              
              
              **864,823**
              
              
              899,196
              
              
              924,709Other
                  fees and commissions
              
              
              **948,580**
              
              
              859,539
              
              
              781,795Gains
                  on investment securities, net
              
              
              **102,300**
              
              
              411,478
              
              
              218,579Income
                  on life insurance
              
              
              **198,121**
              
              
              201,423
              
              
              364,330Total
                  other income
              
              
              **2,113,824**
              
              
              2,371,636
              
              
              2,289,413**Other
                  expenses:**Salaries
                  and wages
              
              
              **4,620,793**
              
              
              4,404,605
              
              
              4,133,621Employee
                  benefits
              
              
              **1,788,453**
              
              
              1,891,244
              
              
              1,687,775Occupancy
              
              
              **793,903**
              
              
              684,242
              
              
              709,122Furniture
                  and equipment
              
              
              **885,203**
              
              
              839,485
              
              
              821,747Other
                  expenses
              
              
              **2,536,445**
              
              
              2,539,801
              
              
              2,395,428Total
                  other expenses
              
              
              **10,624,797**
              
              
              10,359,377
              
              
              9,747,693**Income
                  before income taxes**
              
              
              **3,505,130**
              
              
              3,688,725
              
              
              3,765,014**Federal
                  and state income tax expense**
              
              
              **730,389**
              
              
              633,224
              
              
              687,940**Net
                  income**
              
              **$**
              **2,774,741**
              
              $
              3,055,501
              
              $
              3,077,074**Basic
                  and diluted earnings per share of common stock**
              
              **$**
              **1.36**
              
              $
              1.50
              
              $
              1.52


*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 IncomeYears
                      Ended December 31,
                  
                  **2005**
                  
                  2004
                  
                  2003**Net
                      income**
                  
                  **$**
                  **2,774,741**
                  
                  $
                  3,055,501
                  
                  $
                  3,077,074**Other
                      comprehensive loss, net of tax**Unrealized
                      holding losses arising during theperiod
                      (net of deferred tax benefits**2005
                      $583,598**;2004
                      $173,611; 2003 $70,722)
                  
                  
                  **(927,530**
                  **)**
                  
                  (275,926
                  )
                  
                  (112,401
                  )Reclassification
                      adjustment for gains included in netincome
                      (net of deferred taxes**2005
                      $39,508**;2004
                      $154,291; 2003 $84,415)
                  
                  
                  **(62,792**
                  **)**
                  
                  (245,220
                  )
                  
                  (134,164
                  )Total
                      other comprehensive loss
                  
                  
                  **(990,322**
                  **)**
                  
                  (521,146
                  )
                  
                  (246,565
                  )**Comprehensive
                      income**
                  
                  **$**
                  **1,784,419**
                  
                  $
                  2,534,355
                  
                  $
                  2,830,509*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, 2005, 2004, and 2003Common
                    Stock
                
                
                
                Retained
                
                AccumulatedOtherComprehensive
                
                TotalStockholders'Shares
                
                Par
                    Value
                
                Surplus
                
                Earnings
                
                Income
                    (Loss)
                
                EquityBalances,
                    December 31, 2002
                
                
                1,677,173
                
                $
                1,677,173
                
                $
                10,637,578
                
                $
                7,946,747
                
                $
                1,527,888
                
                $
                21,789,386Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                3,077,074
                
                
                -
                
                
                3,077,074Cash
                    dividends, $.45 per share
                
                
                -
                
                
                -
                
                
                -
                
                
                (908,783
                )
                
                -
                
                
                (908,783
                )Dividends
                    reinvested under dividendreinvestment
                    plan
                
                
                8,758
                
                
                8,758
                
                
                187,702
                
                
                -
                
                
                -
                
                
                196,460Shares
                    issued under employee stockpurchase
                    plan
                
                
                3,350
                
                
                3,350
                
                
                42,779
                
                
                -
                
                
                -
                
                
                46,129Expired
                    stock options, net
                
                
                -
                
                
                -
                
                
                (6,073
                )
                
                -
                
                
                -
                
                
                (6,073
                )Other
                    comprehensive loss, net of tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (246,565
                )
                
                (246,565
                )Balances,
                    December 31, 2003
                
                
                1,689,281
                
                
                1,689,281
                
                
                10,861,986
                
                
                10,115,038
                
                
                1,281,323
                
                
                23,947,628Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                3,055,501
                
                
                -
                
                
                3,055,501Cash
                    dividends, $.52 per share
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,059,357
                )
                
                -
                
                
                (1,059,357
                )Dividends
                    reinvested under dividendreinvestment
                    plan
                
                
                10,796
                
                
                10,796
                
                
                221,159
                
                
                -
                
                
                -
                
                
                231,955Shares
                    issued under employee stockpurchase
                    plan
                
                
                3,689
                
                
                3,689
                
                
                72,673
                
                
                -
                
                
                -
                
                
                76,362Stock
                    split effected in form of 20%stock
                    dividend
                
                
                337,267
                
                
                337,267
                
                
                -
                
                
                (337,267
                )
                
                -
                
                
                -Vested
                    stock options, net
                
                
                -
                
                
                -
                
                
                13,465
                
                
                -
                
                
                -
                
                
                13,465Other
                    comprehensive loss, net of tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (521,146
                )
                
                (521,146
                )Balances,
                    December 31, 2004
                
                
                2,041,033
                
                
                2,041,033
                
                
                11,169,283
                
                
                11,773,915
                
                
                760,177
                
                
                25,744,408**Net
                    income**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **2,774,741**
                
                
                **-**
                
                
                **2,774,741****Cash
                    dividends, $.59 per share**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **(1,207,559**
                **)**
                
                **-**
                
                
                **(1,207,559**
                **)****Dividends
                    reinvested under dividend****reinvestment
                    plan**
                
                
                **12,708**
                
                
                **12,708**
                
                
                **243,407**
                
                
                **-**
                
                
                **-**
                
                
                **256,115****Shares
                    issued under employee stock****purchase
                    plan**
                
                
                **2,283**
                
                
                **2,283**
                
                
                **38,584**
                
                
                **-**
                
                
                **-**
                
                
                **40,867****Vested
                    stock options, net**
                
                
                **-**
                
                
                **-**
                
                
                **7,191**
                
                
                **-**
                
                
                **-**
                
                
                **7,191****Other
                    comprehensive loss, net of tax**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **(990,322**
                **)**
                
                **(990,322**
                **)****Balances,
                    December 31, 2005**
                
                
                **2,056,024**
                
                **$**
                **2,056,024**
                
                **$**
                **11,458,465**
                
                **$**
                **13,341,097**
                
                **$**
                **(230,145**
                **)**
                **$**
                **26,625,441***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,
                
                **2005**
                
                2004
                
                2003**Cash
                    flows from operating activities:**Net
                    income
                
                **$**
                **2,774,741**
                
                $
                3,055,501
                
                $
                3,077,074Adjustments
                    to reconcile net income to netcash
                    provided by operating activitiesDepreciation,
                    amortization, and accretion
                
                
                **761,402**
                
                
                828,444
                
                
                1,503,805Compensation
                    expense (income) from vested stock options, net
                
                
                **7,191**
                
                
                13,465
                
                
                (6,073
                )Provision
                    for credit losses
                
                
                **(50,000**
                **)**
                
                340,000
                
                
                40,000Provision
                    for unfunded commitments
                
                
                **50,000**
                
                
                -
                
                
                -Losses
                    on other real estate owned
                
                
                **-**
                
                
                7,372
                
                
                6,491Deferred
                    income taxes (benefits), net
                
                
                **28,383**
                
                
                (133,613
                )
                
                31,925Gains
                    on disposals of assets, net
                
                
                **(100,866**
                **)**
                
                (409,211
                )
                
                (216,776
                )Income
                    on investment in life insurance
                
                
                **(198,121**
                **)**
                
                (201,423
                )
                
                (364,330
                )Changes
                    in assets and liabilities:Decrease
                    (increase) in accrued interest receivable
                
                
                **33,063**
                
                
                91,049
                
                
                (28,407
                )Decrease
                    (increase) in other assets
                
                
                **238,828**
                
                
                5,663
                
                
                (79,638
                )Increase
                    (decrease) in accrued interest payable
                
                
                **27,131**
                
                
                (11,119
                )
                
                (44,299
                )(Decrease)
                    increase in other liabilities
                
                
                **(5,655**
                **)**
                
                5,749
                
                
                (373,602
                )Net
                    cash provided by operating activities
                
                
                **3,566,097**
                
                
                3,591,877
                
                
                3,546,170**Cash
                    flows from investing activities:**Maturities
                    of held to maturity mortgage-backed securities
                
                
                **476,502**
                
                
                952,233
                
                
                3,119,394Maturities
                    of other held to maturity investment securities
                
                
                **-**
                
                
                1,000,000
                
                
                499,732Maturities
                    of available for sale mortgage-backed securities
                
                
                **7,810,035**
                
                
                6,984,287
                
                
                22,500,165Maturities
                    of other available for sale investment securities
                
                
                **4,111,320**
                
                
                3,229,796
                
                
                718,025Sales
                    of available for sale debt securities
                
                
                **16,951,413**
                
                
                18,345,056
                
                
                10,994,980Purchases
                    of available for sale mortgage-backed securities
                
                
                **(12,488,670**
                **)**
                
                (18,214,141
                )
                
                (33,252,275
                )Purchases
                    of other available for sale investment securities
                
                
                **(10,874,843**
                **)**
                
                (4,651,079
                )
                
                (16,928,577
                )Sale
                    (purchase) of FHLB stock
                
                
                **100**
                
                
                (22,600
                )
                
                (193,200
                )Purchase
                    of MFB stock
                
                
                **-**
                
                
                (100,000
                )
                
                -Maturity
                    of certificate of deposit
                
                
                **-**
                
                
                -
                
                
                100,000Proceeds
                    from life insurance
                
                
                **-**
                
                
                -
                
                
                607,034Purchase
                    of life insurance contracts
                
                
                **-**
                
                
                (500,000
                )
                
                -Increase
                    in loans, net
                
                
                **(7,863,706**
                **)**
                
                (9,697,733
                )
                
                (14,572,303
                )Proceeds
                    from sales of other real estate
                
                
                **-**
                
                
                -
                
                
                235,000Purchases
                    of premises and equipment
                
                
                **(378,774**
                **)**
                
                (417,426
                )
                
                (784,278
                )Net
                    cash used by investing activities
                
                
                **(2,256,623**
                **)**
                
                (3,091,607
                )
                
                (26,956,303
                )**Cash
                    flows from financing activities:**Increase
                    in noninterest-bearing deposits, NOWaccounts,
                    money market accounts, and savings accounts, net
                
                
                **5,886,555**
                
                
                3,778,548
                
                
                20,933,258(Decrease)
                    increase in time deposits, net
                
                
                **(2,312,330**
                **)**
                
                987,260
                
                
                (5,444,630
                )Increase
                    (decrease) in short-term borrowings
                
                
                **80,378**
                
                
                (6,060,248
                )
                
                5,764,846Repayments
                    of long-term borrowings
                
                
                **(28,731**
                **)**
                
                (26,793
                )
                
                (24,988
                )Cash
                    dividends paid
                
                
                **(1,156,492**
                **)**
                
                (1,008,357
                )
                
                (908,136
                )Common
                    stock dividends reinvested
                
                
                **256,115**
                
                
                231,955
                
                
                196,460Issuance
                    of common stock
                
                
                **40,867**
                
                
                76,362
                
                
                46,129Net
                    cash provided (used) by financing activities
                
                
                **2,766,362**
                
                
                (2,021,273
                )
                
                20,562,939**Increase
                    (decrease) in cash and cash equivalents**
                
                
                **4,075,836**
                
                
                (1,521,003
                )
                
                (2,847,194
                )**Cash
                    and cash equivalents, beginning of year**
                
                
                **11,373,891**
                
                
                12,894,894
                
                
                15,742,088**Cash
                    and cash equivalents, end of year**
                
                **$**
                **15,449,727**
                
                $
                11,373,891
                
                $
                12,894,894**
                **
                **
                **
                **
                **
                **
                **
                **
                ***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,
                
                **2005**
                
                2004
                
                2003**Supplementary
                    Cash Flow Information:**Interest
                    paid
                
                **$**
                **4,104,328**
                
                $
                3,655,780
                
                $
                4,321,023Income
                    taxes paid
                
                
                **741,717**
                
                
                908,812
                
                
                689,087Total
                    decrease in unrealized depreciationon
                    available for sale securities
                
                
                **(1,613,427**
                **)**
                
                (849,050
                )
                
                (401,702
                )*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
      (“Bancorp” or “Company”) and its subsidiaries, The Bank of Glen Burnie and GBB
      Properties, Inc., a company engaged in the acquisition and disposition of other
      real estate. Intercompany balances and transactions have been eliminated. The
      Parent Only financial statements (see Note 21) of the Company account for the
      subsidiaries using the equity method of accounting.





Use
      of
      Estimates:





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





Securities
      Held to Maturity:





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





Securities
      Available for Sale:





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




Other
      Securities:





Federal
      Home Loan Bank (“FHLB”) stock is an equity interest that does not necessarily
      have readily determinable fair values for purposes of Statement of Financial
      Accounting Standards (“SFAS”) No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* ,
      because
      their ownership is restricted and they lack a market. FHLB stock can be sold
      back only at its par value of $100 per share and only to the FHLB or another
      member institution.




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 ninety days or more. When a loan is placed on nonaccrual
      status all interest previously accrued but not collected is reversed against
      current period interest income. Interest income generally is not recognized
      on
      specific impaired loans unless the likelihood of further loss is remote. Cash
      collections on such loans are applied as reductions of the loan principal
      balance and no interest income is recognized on those loans until the principal
      balance has been collected. Interest income on other nonaccrual loans is
      recognized only to the extent of interest payments received. The carrying value
      of impaired loans is based on the present value of the loan’s expected future
      cash flows or, alternatively, the observable market price of the loan or the
      fair value of the collateral.





The
      allowance for loan losses is maintained at a level believed adequate by
      management to absorb probable losses inherent in the loan portfolio and is
      based
      on the size and current risk characteristics of the loan portfolio, an
      assessment of individual problem loans and actual loss experience, current
      economic events in specific industries and geographical areas, including
      unemployment levels, and other pertinent factors, including regulatory guidance
      and general economic conditions. Determination of the allowance is inherently
      subjective as it requires significant estimates, including the amounts and
      timing of expected future cash flows on impaired loans, estimated losses on
      pools of homogeneous loans based on historical loss experience, and
      consideration of current economic trends, all of which may be susceptible to
      significant change. Loan losses are charged off against the allowance, while
      recoveries of amounts previously charged off are credited to the allowance.
      A
      provision for loan losses is charged to operations based on management’s
      periodic evaluation of the factors previously mentioned, as well as other
      pertinent factors. Evaluations are conducted at least quarterly and more often
      if deemed necessary.





The
      allowance for loan losses consists of an allocated component and an unallocated
      component. The components of the allowance for loan losses represent an
      estimation done pursuant to either SFAS No. 5, Accounting for Contingencies,
      or
      SFAS No. 114. The allocated component of the allowance for loan losses reflects
      expected losses resulting from analyses developed through specific credit
      allocations for individual loans and historical loss experience for each loan
      category. The specific credit allocations are based on regular analyses of
      all
      loans over a fixed-dollar amount where the internal credit rating is at or
      below
      a predetermined classification. The historical loan loss element is determined
      statistically using a loss migration analysis that examines loss experience
      and
      the related internal gradings of loans charged off. The loss migration analysis
      is performed quarterly and loss factors are updated regularly based on actual
      experience. The allocated component of the allowance for loan losses also
      includes consideration of concentrations and changes in portfolio mix and
      volume.





The
      unallocated portion of the allowance reflects management’s estimate of probable
      inherent but undetected losses within the portfolio due to uncertainties in
      economic conditions, delays in obtaining information, including unfavorable
      information about a borrower’s financial condition, the difficulty in
      identifying triggering events that correlate perfectly to subsequent loss rates,
      and risk factors that have not yet manifested themselves in loss allocation
      factors. In addition, the unallocated allowance includes a component that
      explicitly accounts for the inherent imprecision in loan loss migration models.
      The historical losses used in the migration analysis may not be representative
      of actual unrealized losses inherent in the portfolio.








F-9


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          1.   Summary of Significant Accounting Policies** (continued)
 
 Reserve
          for Unfunded Commitments:
 
 The
          reserve for unfunded commitments is established through a provision for
          unfunded
          commitments charged to other expenses. The reserve is calculated by utilizing
          the same methodology and factors as the allowance for credit losses. The
          reserve, based on evaluations of the collectibiltiy of loans and prior
          loan loss
          experience, is an amount that management believes will be adequate to absorb
          possible losses on unfunded commitments (off-balance sheet financial
          instruments) that may become uncollectible in the
          future.




Other
      Real Estate Owned (“OREO”):





OREO
      comprises properties acquired in partial or total satisfaction of problem loans.
      The properties are recorded at the lower of cost or fair value (appraised value)
      at the date acquired. Losses arising at the time of acquisition of such
      properties are charged against the allowance for credit losses. Subsequent
      write-downs that may be required and expenses of operation are included in
      other
      income or expenses. Gains and losses realized from the sale of OREO are included
      in other income or expenses. No loans were converted to OREO in 2005, 2004,
      or
      2003. The Bank financed no sales of OREO for 2005, 2004, or 2003.





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, has been amortized on the straight-line method
      over 10 years. Accumulated amortization totaled **$544,652** ,
      $503,802, and $449,337 at December 31, 2005, 2004, and 2003, respectively.
      Amortization expense totaled $ **40,850** ,
      $54,465, and **$** 54,465
      for the years ended December 2005, 2004, and 2003, respectively.





Long-Lived
      Assets:





The
      carrying value of long-lived assets and certain identifiable intangibles,
      including goodwill, is reviewed by the Bank for impairment whenever events
      or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable, as prescribed in SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      As of
      December 31, 2005, 2004, and 2003, certain loans existed which management
      considered impaired (See Note 4).





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.







F-10


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS





**Note
      1.   Summary of Significant Accounting Policies** (continued)





Temporary
      differences which give rise to deferred tax benefits relate principally to
      deferred compensation and benefit plans, allowance for credit losses, net
      unrealized depreciation on investment securities available for sale, and reserve
      for unfunded commitments.





Temporary
      differences which give rise to deferred tax liabilities relate principally
      to
      accumulated depreciation, accumulated securities discount accretion, and net
      unrealized appreciation on investment securities available for
      sale.





Credit
      Risk:





The
      Bank
      has deposits in other financial institutions in excess of amounts insured by
      the
      Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2005, the Bank
      had deposits and unsecured Federal funds sold with two separate financial
      institutions of approximately **$2,450,000** .





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.





Accounting
      for Stock Options:





The
      Company applies the intrinsic value-based method of accounting prescribed by
      the
      Accounting Principles Board (APB) Opinion No. 25, *Accounting
      for Stock Issued to Employees* and
      related interpretations in accounting for its employee stock options. As such,
      compensation expense would be recorded on the date of grant only if the current
      market price of the underlying stock exceeded the exercise price. SFAS No.
      123 *Accounting
      for Stock-Based Compensation* ,
      established accounting and disclosure requirements using a fair value-based
      method of accounting for stock-based employee compensation plans. As allowed
      by
      SFAS No. 123, the Company has elected to continue to apply the intrinsic
      value-based method of accounting prescribed above, and has adopted the
      disclosure-only provisions of SFAS No. 123.





The
      Company expects to adopt the provisions of SFAS No. 123R on January 1, 2006.
      Among other things, SFAS No. 123R eliminates the ability to account for
      stock-based compensation using APB 25 and requires that such transactions be
      recognized as compensation cost in the income statement based on their fair
      values on the date of the grant. SFAS No. 123R is effective for the Company
      on
      January 1, 2006 (See Note 20).





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 **$5,976,000** , **** $5,684,000,
      and $4,901,000 during the years ended December 31, 2005, 2004, and 2003,
      respectively.




F-11


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




Note 3.   Investment
      Securities




Investment
        securities are summarized as follows:




**Gross**
              
              **Gross****Amortized**
              
              **Unrealized**
              
              **Unrealized**
              
              **Fair****December
                  31, 2005**
              
              **Cost**
              
              **Gains**
              
              **Losses**
              
              **Value*********Available
                  for sale:*****U.S.
                  Government agencies**
              
              **$**
              **11,978,348**
              
              **$**
              **—**
              
              **$**
              **476,568**
              
              **$**
              **11,501,780****State
                  and municipal**
              
              
              **29,593,236**
              
              
              **634,992**
              
              
              **228,381**
              
              
              **29,999,847****Corporate
                  trust preferred**
              
              
              **4,976,388**
              
              
              **475,487**
              
              
              **—**
              
              
              **5,451,875****Mortgage-backed**
              
              
              **39,955,704**
              
              
              **26,808**
              
              
              **807,290**
              
              
              **39,175,222****$**
              **86,503,676**
              
              **$**
              **1,137,287**
              
              **$**
              **1,512,239**
              
              **$**
              **86,128,724*****Held
                  to maturity:*****State
                  and municipal**
              
              **$**
              **683,073**
              
              **$**
              **63,670**
              
              **$**
              **—**
              
              **$**
              **746,743****Mortgage-backed**
              
              
              **468,090**
              
              
              **23,907**
              
              
              **—**
              
              
              **491,997****$**
              **1,151,163**
              
              **$**
              **87,577**
              
              **$**
              **—**
              
              **$**
              **1,238,740**




Gross
              
              GrossAmortized
              
              Unrealized
              
              Unrealized
              
              FairDecember
                  31, 2004
              
              Cost
              
              Gains
              
              Losses
              
              Value*******Available
                  for sale:***U.S.
                  Government agencies
              
              $
              12,511,877
              
              $
              93,242
              
              $
              487,504
              
              $
              12,117,615State
                  and municipal
              
              
              35,956,838
              
              
              1,237,281
              
              
              88,450
              
              
              37,105,669Corporate
                  trust preferred
              
              
              5,008,127
              
              
              459,840
              
              
              —
              
              
              5,467,967Mortgage-backed
              
              
              38,563,539
              
              
              187,391
              
              
              163,324
              
              
              38,587,606$
              92,040,381
              
              $
              1,977,754
              
              $
              739,278
              
              $
              93,278,857***Held
                  to maturity:***State
                  and municipal
              
              $
              682,945
              
              $
              71,933
              
              $
              —
              
              $
              754,878Mortgage-backed
              
              
              944,245
              
              
              62,771
              
              
              —
              
              
              1,007,016$
              1,627,190
              
              $
              134,704
              
              $
              —
              
              $
              1,761,894




F-12


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**Note 3.   Investment Securities**(continued)


Gross
              
              GrossAmortized
              
              Unrealized
              
              Unrealized
              
              FairDecember
                  31, 2003
              
              Cost
              
              Gains
              
              Losses
              
              Value*******Available
                  for sale:***U.S.
                  Government agencies
              
              $
              13,066,518
              
              $
              382,806
              
              $
              214,216
              
              $
              13,235,108State
                  and municipal
              
              
              42,941,347
              
              
              1,342,191
              
              
              74,432
              
              
              44,209,106Corporate
                  trust preferred
              
              
              5,025,537
              
              
              495,725
              
              
              1,419
              
              
              5,519,843Mortgage-backed
              
              
              36,481,430
              
              
              361,884
              
              
              205,018
              
              
              36,638,296$
              97,514,832
              
              $
              2,582,606
              
              $
              495,085
              
              $
              99,602,353***Held
                  to maturity:***U.S.
                  Government agencies
              
              $
              1,000,000
              
              $
              48,293
              
              $
              —
              
              $
              1,048,293State
                  and municipal
              
              
              682,817
              
              
              66,133
              
              
              —
              
              
              748,950Mortgage-backed
              
              
              1,895,937
              
              
              122,675
              
              
              —
              
              
              2,018,612$
              3,578,754
              
              $
              237,101
              
              $
              —
              
              $
              3,815,855




The
        gross
        unrealized losses and fair value, aggregated by investment category and length
        of time that individual securities have been in a continuous unrealized loss
        position, at December 31, 2005 are as follows:




Securities
        available for sale:


**Less
                  than 12 months**
              
              **12
                  months or more**
              
              **Total****Fair**
              
              **Unrealized**
              
              **Fair**
              
              **Unrealized**
              
              **Fair**
              
              **Unrealized****Value**
              
              **Loss**
              
              **Value**
              
              **Loss**
              
              **Value**
              
              **Loss****Obligations
                  of U.S.****Government
                  agencies**
              
              **$**
              **5,424,531**
              
              **$**
              **59,048**
              
              **$**
              **6,077,219**
              
              **$**
              **417,520**
              
              **$**
              **11,501,750**
              
              **$**
              **476,568****State
                  and Municipal**
              
              
              **12,131,794**
              
              
              **160,443**
              
              
              **2,676,258**
              
              
              **67,938**
              
              
              **14,808,052**
              
              
              **228,381****Mortgaged-backed**
              
              
              **24,301,085**
              
              
              **458,810**
              
              
              **10,735,963**
              
              
              **348,480**
              
              
              **35,037,048**
              
              
              **807,290****$**
              **41,857,410**
              
              **$**
              **678,301**
              
              **$**
              **19,489,440**
              
              **$**
              **833,938**
              
              **$**
              **61,346,850**
              
              **$**
              **1,512,239**







Declines
      in the fair value of held to maturity and available for sale securities below
      their cost that are deemed to be other than temporary are reflected in earnings
      as realized losses. In estimating other-than-temporary impairment losses,
      management considers, among other things, (i) the length of time and the extent
      to which the fair value has been less than cost, (ii) the financial condition
      and near-term prospects of the issuer, and (iii) the intent and ability of
      the
      Company to retain its investment in the issuer for a period of time sufficient
      to allow for any anticipated recovery in fair value.





Management
      has the ability and intent to hold the securities classified as held to maturity
      until they mature, at which time the Company will receive full value for the
      securities. Furthermore, as of December 31, 2005, management also had the
      ability and intent to hold the securities classified as available for sale
      for a
      period of time sufficient for a recovery of cost. On December 31, 2005, the
      Bank
      held 29 investment securities having continuous unrealized loss positions for
      more than 12 months. Management has determined that all unrealized losses are
      largely due to increases in market interest rates over the yields available
      at
      the time the underlying securities were purchased. The fair value is expected
      to
      recover as the bonds approach their maturity date or repricing date or if market
      yields for such investments decline. Management does not believe any of the
      securities are impaired due to reasons of credit quality. Accordingly, as of
      December 31, 2005, management believes the impairments
      detailed in the table above are temporary and no impairment loss has been
      realized in the Company’s consolidated income statement.





F-13


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS





**Note
      3.   Investment Securities** (continued)




Contractual
      maturities of investment securities at December 31, 2005, 2004, and 2003 are
      shown below. Actual maturities may differ from contractual maturities because
      debtors may have the right to call or prepay obligations with or without call
      or
      prepayment penalties. Mortgage-backed securities have no stated maturity and
      primarily reflect investments in various Pass-through and Participation
      Certificates issued by the Federal National Mortgage Association and the
      Government National Mortgage Association. Repayment of mortgage-backed
      securities is affected by the contractual repayment terms of the underlying
      mortgages collateralizing these obligations and the current level of interest
      rates.




***Available
                  for Sale***
              
              ***Held
                  to Maturity*****Amortized**
              
              **Fair**
              
              **Amortized**
              
              **Fair****December
                  31, 2005**
              
              **Cost**
              
              **Value**
              
              **Cost**
              
              **Value****Due
                  within one year**
              
              **$**
              **500,000**
              
              **$**
              **494,687**
              
              **$**
              **—**
              
              **$**
              **—****Due
                  over one to five years**
              
              
              **11,628,697**
              
              
              **11,489,621**
              
              
              **—**
              
              
              **—****Due
                  over five to ten years**
              
              
              **12,395,207**
              
              
              **12,265,866**
              
              
              **—**
              
              
              **—****Due
                  over ten years**
              
              
              **22,024,068**
              
              
              **22,703,328**
              
              
              **683,073**
              
              
              **746,743****Mortgage-backed,
                  due in monthly
                  installments**
              
              
              **39,955,704**
              
              
              **39,175,222**
              
              
              **468,090**
              
              
              **491,997****$**
              **86,503,676**
              
              **$**
              **86,128,724**
              
              **$**
              **1,151,163**
              
              **$**
              **1,238,740***Available
                  for Sale*
              
              
              *Held
                  to Maturity*Amortized
              
              
              Fair
              
              
              Amortized
              
              
              FairDecember
                  31, 2004
              
              
              Cost
              
              
              Value
              
              
              Cost
              
              
              ValueDue
                  within one year
              
              $
              2,874,617
              
              $
              2,893,275
              
              $
              —
              
              $
              —Due
                  over one to five years
              
              
              7,894,560
              
              
              8,011,579
              
              
              —
              
              
              —Due
                  over five to ten years
              
              
              17,111,432
              
              
              17,210,406
              
              
              —
              
              
              —Due
                  over ten years
              
              
              25,596,233
              
              
              26,575,991
              
              
              682,945
              
              
              754,878Mortgage-backed,
                  due in monthly
                  installments
              
              
              38,563,539
              
              
              38,587,606
              
              
              944,245
              
              
              1,007,016$
              92,040,381
              
              $
              93,278,857
              
              $
              1,627,190
              
              $
              1,761,894*Available
                  for Sale*
              
              
              *Held
                  to Maturity*Amortized
              
              
              Fair
              
              
              Amortized
              
              
              FairDecember
                  31, 2003
              
              
              Cost
              
              
              Value
              
              
              Cost
              
              
              ValueDue
                  within one year
              
              $
              1,145,360
              
              $
              1,160,318
              
              $
              1,000,000
              
              $
              1,048,293Due
                  over one to five years
              
              
              11,310,601
              
              
              11,774,429
              
              
              —
              
              
              —Due
                  over five to ten years
              
              
              17,628,071
              
              
              17,797,250
              
              
              —
              
              
              —Due
                  over ten years
              
              
              30,949,370
              
              
              32,232,060
              
              
              682,817
              
              
              748,950Mortgage-backed,
                  due in monthly
                  installments
              
              
              36,481,430
              
              
              36,638,296
              
              
              1,895,937
              
              
              2,018,612$
              97,514,832
              
              $
              99,602,353
              
              $
              3,578,754
              
              $
              3,815,855




F-14




NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**Note
        3.   Investment Securities** (continued)
 
 Proceeds
        from sales of available for sale securities prior to maturity
        totaled **$16,951,413** , **** $18,345,056,
        and $10,994,980 for the years ended December 31, 2005, 2004, and 2003,
        respectively. The Bank realized gains of **$198,360** and
        losses of **$96,060** on
        those
        sales for 2005. The Bank realized gains of $483,760 and losses of $72,282
        on
        those sales for 2004. The Bank realized gains of $220,034 and losses of $1,455
        on those sales for 2003. Realized gains and losses were calculated based
        on the
        amortized cost of the securities at the date of trade. Income tax expense
        relating to net gains on sales of investment securities totaled **$39,509** ,
        $158,913, and $84,415 for the years ended December 31, 2005, 2004, and 2003,
        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:


**2005**
              
              2004
              
              2003Mortgage:Residential
              
              **$**
              **71,841,084**
              
              $
              71,038,619
              
              $
              64,470,867Commercial
              
              
              **37,666,243**
              
              
              31,982,864
              
              
              28,525,381Construction
                  and land development
              
              
              **1,402,203**
              
              
              2,080,178
              
              
              3,112,105Demand
                  and time
              
              
              **5,932,460**
              
              
              5,617,982
              
              
              6,113,311Installment
              
              
              **76,385,365**
              
              
              74,902,306
              
              
              73,824,338**193,227,355**
              
              
              185,621,949
              
              
              176,046,002Unearned
                  income on loans
              
              
              **(821,007**
              **)**
              
              (918,763
              )
              
              (980,558
              )**192,406,348**
              
              
              184,703,186
              
              
              175,065,444Allowance
                  for credit losses
              
              
              **(2,201,350**
              **)**
              
              (2,411,894
              )
              
              (2,246,395
              )**$**
              **190,204,998**
              
              $
              182,291,292
              
              $
              172,819,049




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 **$60,510,000** , **** $55,703,000,
      and $53,833,000 of such loans at December 31, 2005, 2004, and 2003,
      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, 2005, 2004, and 2003, the amounts of such loans outstanding totaled **$1,970,926** ,
      $1,443,878, and $1,998,843, respectively. During 2005, loan additions and
      repayments totaled **$900,974** and **$373,926** ,
      respectively.





F-15


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS





**Note
      4.   Loans** (continued)




The
        allowance for credit losses is as follows:


**2005**
              
              2004
              
              2003Balance,
                  beginning of year
              
              **$**
              **2,411,894**
              
              $
              2,246,395
              
              $
              2,514,700Provision
                  for credit losses
              
              
              **(50,000**
              **)**
              
              340,000
              
              
              40,000Recoveries
              
              
              **461,033**
              
              
              377,213
              
              
              449,909Loans
                  charged off
              
              
              **(621,577**
              **)**
              
              (551,714
              )
              
              (758,214
              )Balance,
                  end of year
              
              **$**
              **2,201,350**
              
              $
              2,411,894
              
              $
              2,246,395




Loans
          on
          which the accrual of interest has been discontinued totaled
**$185,430**, $598,162, and $572,282 at December 31, 2005, 2004,
          and 2003, respectively. Interest that would have been accrued under the
          terms of
          these loans totaled **$15,552**, $46,751, and $56,882 for the years
          ended December 31, 2005, 2004, and 2003, respectively. Loans past due 90
          days or
          more and still accruing interest totaled **$3,500**, $6,964 and
          $11,047 at December 31, 2005, 2004 and 2003, respectively.
 
 Information
        regarding loans classified by the Bank as impaired is summarized as
        follows:


**2005**
              
              2004
              
              2003Loans
                  classified as impaired
              
              **$**
              **185,930**
              
              $
              490,656
              
              $
              425,458Allowance
                  for credit losses onimpaired loans
              
              
              **93,054**
              
              
              116,160
              
              
              154,923Average
                  balance of impaired loans
              
              
              **104,906**
              
              
              461,400
              
              
              288,180
 Following
          is a summary of cash receipts on impaired loans and how they were
          applied:
  Cash
                  receipts applied to reduce principal balance
              
              **$**
              **14,054**
              
              $
              27,630
              
              $
              64,490Cash
                  receipts recognized as interest income
              
              
              **2,790**
              
              
              27,190
              
              
              20,945Total
                  cash receipts
              
              **$**
              **16,844**
              
              $
              54,820
              
              $
              85,435







No
      troubled debt restructurings transpired in 2005. The remaining prior investment
      in troubled debt was not performing under the terms of the modified agreement
      in
      the amount of **$12,508** as of
      December 31, 2005.





At
      December 31, 2004, the recorded investment in new troubled debt restructurings
      totaled $94,783. The average recorded investment in troubled debt restructurings
      totaled $96,624 for the year ended December 31, 2004. The allowance for credit
      losses relating to troubled debt restructurings totaled $31,436 at December
      31,
      2004. The Bank recognized $8,015 in interest income on troubled debt
      restructurings for cash payments received in 2004. All prior investments in
      troubled debt were performing under the terms of the modified agreements, with
      the exception of one credit relationship classified as impaired in the amount
      of
      $173,010 as of December 31, 2004.





No
      troubled debt restructurings transpired in 2003.





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




F-16


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS





**Note
      5.   Premises and Equipment**




A
      summary
      of premises and equipment is as follows:




Usefullives
              
              **2005**
              
              2004
              
              2003Land
              
              
              
              **$**
              **684,977**
              
              $
              684,977
              
              $
              684,977Buildings
              
              5-50
                  years
              
              
              **4,672,579**
              
              
              4,437,516
              
              
              4,399,730Equipment
                  and fixtures
              
              5-30
                  years
              
              
              **5,426,032**
              
              
              5,248,830
              
              
              5,062,486Construction
                  in progress
              
              
              
              
              **122,652**
              
              
              298,480
              
              
              282,341**10,906,240**
              
              
              10,669,803
              
              
              10,429,534Accumulated
                  depreciation
              
              
              
              
              **(7,042,965**
              **)**
              
              (6,639,026
              )
              
              (6,209,722
              )**$**
              **3,863,275**
              
              $
              4,030,777
              
              $
              4,219,812




Construction
        in progress at December 31, 2005 relates primarily to the new payroll system
        and
        the new cost accounting system for all operations.
 
 Depreciation
        expense totaled **$493,484** ,
        $469,633, and $453,967 for the years ended December 31, 2005, 2004, and 2003,
        respectively. Amortization of software and intangible assets totaled **$138,642** , **** $167,474,
        and $205,461 for the years ended December 31, 2005, 2004, and 2003,
        respectively.
 
 The
        Bank
        leases its South Crain Highway, Severna Park, and Linthicum branches. Minimum
        lease obligations under the South Crain Highway branch are $115,400 per year
        through September 2009, adjusted annually by the CPI. Minimum lease obligations
        under the Severna Park branch are $30,000 per year through September 2007.
        Minimum lease obligations under the Linthicum branch are $92,700 per year
        through December 2014, adjusted annually on a pre-determined basis, with
        one ten
        year extension option. The Bank is also required to pay all maintenance costs
        under all these leasing arrangements. Rent expense totaled **$200,596** ,
        $125,198, and $106,928 for the years ended December 31, 2005, 2004, and 2003,
        respectively.
 
 **Note
        6.  Short-term borrowings**
  Short-term
          borrowings are as follows:
 **2005**
                
                2004
                
                2003Notes
                    payable - U.S. Treasury
                
                **$**
                **622,050**
                
                $
                541,672
                
                $
                401,920FHLB
                
                
                **—**
                
                
                —
                
                
                6,200,000**$**
                **622,050**
                
                $
                541,672
                
                $
                6,601,920
  F-17
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          6.   Short-term borrowings** (continued)
 
 Notes
          payable to the U.S. Treasury represents Federal treasury tax and loan deposits
          accepted by the Bank from its customers to be remitted on demand to the
          Federal
          Reserve Bank. The Bank pays interest on these balances at a slight discount
          to
          the Federal funds rate. This arrangement is secured by investment securities
          with an amortized cost of approximately **$1,000,000** at
          December 31, 2005, 2004, and 2003.
 
 The
          Bank
          owned 9,189 shares of common stock of the FHLB at December 31, 2005. The
          Bank is
          required to maintain an investment of .2% of total assets, adjusted annually,
          plus 4.5% of total advances, adjusted for advances and repayments. The
          credit
          available under this facility is determined at 12% of the Bank’s total assets,
          or approximately $36,700,000 at December 31, 2005. Long-term advances totaled
          $7,000,000 under this credit arrangement at December 31, 2005 (see Note
          7). This
          credit facility is secured by a floating lien on the Bank’s residential mortgage
          loan portfolio. Average short-term borrowings under this facility approximated **$1,482,000,** $3,605,000 **** and **** $1,555,000 **** for
          2005,
          2004, and 2003, respectively.
 
 The
          Bank
          also has available $5,000,000 in a short-term credit facility, an unsecured
          line
          of credit, from another bank for short-term liquidity needs, if necessary.
          No
          outstanding borrowings existed under this credit arrangement at December
          31,
          2005, 2004, and 2003.
 
 **Note
          7.   Long-term Borrowings**
 
 Long-term
          borrowings are as follows:


**2005**
              
              2004
              
              2003Federal
                  Home Loan Bank of Atlanta,convertible
                  advance
              
              **$**
              **7,000,000**
              
              $
              7,000,000
              
              $
              7,000,000Mortgage
                    payable-individual, interest at 7%, payments
                    of $3,483, including principal and
                    interest, due monthly through October
                    2010, secured by real estate
              
              
              **170,977**
              
              
              199,708
              
              
              226,501**$**
              **7,170,977**
              
              $
              7,199,708
              
              $
              7,226,501


The
        Federal Home Loan Bank of Atlanta convertible advance matures in September
        2010,
        with interest at 5.84%, payable quarterly. The Federal Home Loan Bank of
        Atlanta
        has the option of converting the rate to a three-month LIBOR; however, if
        converted, the borrowing can be repaid without penalty. The proceeds of the
        convertible advance were used to purchase higher yielding investment
        securities.
 
 At
        December 31, 2005, the scheduled maturities of long-term borrowings are
        approximately as follows:
 **2005**2006
                    
                    **$**
                    **31,000**2007
                    
                    
                    **33,000**2008
                    
                    
                    **35,000**2009
                    
                    
                    **38,000**2010
                    
                    
                    **7,034,000****$**
                    **7,171,000**




F-18


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


**Note
        8.   Junior Subordinated Debentures owed to Unconsolidated Subsidiary
        Trust**
 
 The
        Bancorp sponsored a trust, Glen Burnie Statutory Trust I, of which 100% of
        the
        common equity is owned by the Company. The trust was formed for the purpose
        of
        issuing Company-obligated mandatorily redeemable capital securities (the
        capital
        securities) to third-party investors and investing the proceeds from the
        sale of
        such capital securities solely in junior subordinated debt securities of
        the
        Company (the debentures). The debentures held by the trust are the sole assets
        of that trust. Distributions on the capital securities issued by the trust
        are
        payable semi-annually at a 10.6% rate per annum equal to the interest rate
        being
        earned by the trust on the debentures held by that trust. The capital securities
        are subject to mandatory redemption, in whole or in part, upon repayment
        of the
        debentures. The Company has entered into agreements which, taken collectively,
        fully and unconditionally guarantee the capital securities subject to the
        terms
        of each of the guarantees. The debentures held by the trust carry non-call
        provisions over the first 10 year period, and a declining 10 year premium
        call
        thereafter. Both the capital securities of the statutory trust and the junior
        subordinated debentures are scheduled to mature on September 7, 2030, unless
        called by the Bancorp not earlier than September 7, 2010.
 
 Despite
        the fact that Trust I is not included in the Company’s consolidated financial
        statements, the $5.0 million in trust preferred securities issued by the
        trust
        are included in the Tier 1 capital of the Bank for regulatory capital purposes
        as allowed by the Federal Reserve Board (the “Board”). In April 2005, the Board
        amended its risk-based capital standards for bank holding companies to allow
        the
        continued inclusion of outstanding and prospective issuances of trust preferred
        securities in the Tier 1 capital of bank holding companies, subject to stricter
        quantitative limits and qualitative standards. The Board also is revising
        the
        quantitative limits applied to the aggregate amount of cumulative perpetual
        preferred stock, trust preferred securities, and minority interest in the
        equity
        accounts of most consolidated subsidiaries (collectively, restricted core
        capital elements) included in the Tier 1 capital of bank holding companies.
        The
        new quantitative limits become effective after a five-year transition period.
        In
        addition, the Board is revising the qualitative standards for capital
        instruments included in regulatory capital consistent with longstanding Board
        policies. The Board has adopted this final rule to address supervisory concerns,
        competitive equity considerations and changes in generally accepted accounting
        principles and to strengthen the definition of regulatory capital for bank
        holding companies.
 
 **Note
        9.   Deposits**
  Major
        classifications of interest-bearing deposits are as follows:




**2005**
              
              2004
              
              2003NOW
                  and SuperNOW
              
              **$**
              **25,391,363**
              
              $
              27,089,844
              
              $
              28,400,505Money
                  Market
              
              
              **16,746,954**
              
              
              20,208,804
              
              
              20,144,401Savings
              
              
              **55,220,132**
              
              
              57,664,694
              
              
              53,378,579Certificates
                  of Deposit, $100,000 or more
              
              
              **16,758,682**
              
              
              16,556,548
              
              
              15,649,757Other
                  time deposits
              
              
              **71,817,216**
              
              
              66,726,787
              
              
              69,686,175**$**
              **185,934,347**
              
              $
              188,246,677
              
              $
              187,259,417




F-19


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**Note
        9.   Deposits** (continued)
 
 Interest
        expense on deposits is as follows:
 
  **2005**
              
              2004
              
              2003NOW
                  and SuperNOW
              
              **$**
              **39,315**
              
              $
              31,465
              
              $
              42,980Money
                  Market
              
              
              **105,166**
              
              
              84,385
              
              
              104,546Savings
              
              
              **241,845**
              
              
              236,550
              
              
              241,429Certificates
                  of Deposit, $100,000 or more
              
              
              **490,436**
              
              
              424,710
              
              
              584,996Other
                  time deposits
              
              
              **2,214,814**
              
              
              1,834,426
              
              
              2,302,142**$**
              **3,091,576**
              
              $
              2,611,536
              
              $
              3,276,093
  At
          December 31, 2005, the scheduled maturities of time deposits are approximately
          as follows:
  **2005**2006
                
                **$**
                **49,820,000**2007
                
                
                **17,795,000**2008
                
                
                **6,726,000**2009
                
                
                **4,692,000**2010
                
                
                **7,688,000**2011
                    and thereafter
                
                
                **1,855,000****$**
                **88,576,000**




Deposit
        balances of executive officers and directors and their affiliated interests
        totaled approximately **$1,967,000** , **** $1,309,000,
        and $1,048,000 at December 31, 2005, 2004, and 2003, respectively.
 
 The
        Bank
        had no brokered deposits at December 31, 2005, 2004, and 2003.
 
 **Note
        10.  Income Taxes**
  The
        components of income tax expense for the years ended December 31, 2005, 2004,
        and 2003 are as follows:
  **2005**
                
                2004
                
                2003Current:Federal
                
                **$**
                **635,576**
                
                $
                660,981
                
                $
                561,686State
                
                
                **66,430**
                
                
                105,856
                
                
                94,330Total
                    current
                
                
                **702,006**
                
                
                766,837
                
                
                656,016Deferred
                    income taxes (benefits):Federal
                
                
                **18,967**
                
                
                (111,600
                )
                
                26,453State
                
                
                **9,416**
                
                
                (22,013
                )
                
                5,471Total
                    deferred
                
                
                **28,383**
                
                
                (133,613
                )
                
                31,924Income
                    tax expense
                
                **$**
                **730,389**
                
                $
                633,224
                
                $
                687,940




F-20


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


**Note
        10.  Income Taxes** (continued)
 
 A
        reconciliation of income tax expense computed at the statutory rate of 34%
        to
        the actual income tax expense for the years ended December 31, 2005, 2004,
        and
        2003 is as follows:


**2005**
            
            2004
            
            2003Income
                before income taxes
            
            **$**
            **3,505,130**
            
            $
            3,688,725
            
            $
            3,765,014Taxes
                computed at Federal income tax rate
            
            **$**
            **1,191,745**
            
            $
            1,254,167
            
            $
            1,280,105Increase
                (decrease) resulting from:Tax-exempt
                income
            
            
            **(556,922**
            **)**
            
            (648,864
            )
            
            (693,992
            )State
                income taxes, net of Federal income tax benefit
            
            
            **43,844**
            
            
            55,336
            
            
            65,869Other
            
            
            **51,722**
            
            
            (27,415
            )
            
            35,958Income
                tax expense
            
            **$**
            **730,389**
            
            $
            633,224
            
            $
            687,940




The
      components of the net deferred income tax liabilities as of December 31, 2005,
      2004, and 2003 are as follows:


**2005**
                
                2004
                
                2003Deferred
                    income tax benefits:Accrued
                    deferred compensation and benefit plan
                    obligations
                
                **$**
                **32,876**
                
                $
                57,807
                
                $
                80,173Allowance
                    for credit losses
                
                
                **127,467**
                
                
                140,771
                
                
                —Net
                      unrealized depreciation on investmentsecurities
                      available for sale
                
                
                **144,806**
                
                
                —
                
                
                —Reserve
                    for unfunded commitments
                
                
                **77,240**
                
                
                57,930
                
                
                57,930Total
                    deferred income tax benefits
                
                
                **382,389**
                
                
                256,508
                
                
                138,103Deferred
                    income tax liabilities:Accumulated
                    depreciation
                
                
                **109,270**
                
                
                76,244
                
                
                71,052Allowance
                    for credit losses
                
                
                **—**
                
                
                —
                
                
                8,235Accumulated
                    securities discount accretion
                
                
                **8,980**
                
                
                32,547
                
                
                44,713Net
                      unrealized appreciation on investmentsecurities
                      available for sale
                
                
                **—**
                
                
                478,300
                
                
                806,203Total
                    deferred income tax liabilities
                
                
                **118,250**
                
                
                587,091
                
                
                930,203Net
                    deferred income tax benefits (liabilities)
                
                **$**
                **264,139**
                
                $
                (330,583
                )
                $
                (792,100
                )
  **Note
          11.  Pension and Profit Sharing Plans**
 
 The
          Bank
          has a money purchase pension plan, which provides for annual employer
          contributions based on employee compensation, and covers substantially
          all
          employees. Contributions under this plan, made from an existing safe harbor
          accrual as a result of a prior termination of a defined benefit pension
          plan,
          totaled, $182,581 and $188,995 for the years ended December 31, 2004 and
          2003,
          respectively. Beginning in 2004, the Bank is also accruing additional
          contributions under this plan. These additional contributions, included
          in
          employee benefit expense, totaled **$180,514** and
          $210,000 for the years ended December 31, 2005 and 2004, respectively.
          The Bank
          is also making additional contributions under this plan for the benefit
          of
          certain employees whose retirement funds were negatively affected by
          the
          termination of a defined benefit pension plan. These additional contributions,
          included in employee benefit expense, totaled**$40,769**,****$60,182,
          and****$76,189****for
          the
          years ended December 31, 2005, 2004, and 2003, respectively. As of and
          for the
          year ended December 31, 2005, the Bank has accrued approximately**$248,000**as
          additional contributions for adversely affected employees.
  F-21
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          11.  Pension and Profit Sharing Plans** (continued)
  The
          Bank
          also has a defined contribution retirement plan qualifying under Section
          401(k)
          of the Internal Revenue Code that is funded through a profit sharing agreement
          and voluntary employee contributions. The plan provides for discretionary
          employer matching contributions to be determined annually by the Board
          of
          Directors. The plan covers substantially all employees. The Bank’s contributions
          to the plan, included in employee benefit expense, totaled **$343,729** , **** $357,138,
          and $362,978 for the years ended December 31, 2005, 2004, and 2003,
          respectively.
  **Note
          12.  Post-Retirement Health Care Benefits**
 
 The
          Bank
          provides health care benefits to employees who retire at age 65 with five
          years
          of full time service immediately prior to retirement and two years of
          participation in the medical benefits plan. In 2001, the Bank amended the
          plan
          to include the current Board of Directors and their spouses and the spouses
          of
          current retirees. In the first quarter of 2002, the Bank again amended
          the plan
          so that all post-retirement healthcare benefits currently provided by the
          Bank
          to the above qualified participants will terminate on December 31, 2006.
          The
          plan was funded only to the extent of the Bank’s monthly payments of insurance
          premiums, which totaled **$62,425** ,
          $122,664, and $87,538 for the years ended December 31, 2005, 2004, and
          2003,
          respectively.
 
 The
          following table sets forth the financial status of the plan at December
          31,
          2005, 2004, and 2003:


**2005**
                
                2004
                
                2003Accumulated
                    post-retirement benefit obligation:Retirees
                
                **$**
                **63,489**
                
                $
                268,168
                
                $
                261,119Unrecognized
                    net gain (loss)
                
                
                **21,636**
                
                
                (118,489
                )
                
                (53,526
                )Accrued
                    post-retirement benefit cost
                
                **$**
                **85,125**
                
                $
                149,679
                
                $
                207,593
  Net
            post-retirement benefit (income) expense for the years ended December
            31, 2005,
            2004, and 2003 includes
            the following:
  **2005**
                
                2004
                
                2003Interest
                    cost
                
                **$**
                **7,685**
                
                $
                23,854
                
                $
                21,280Amortization
                    of net (gain) loss
                
                
                **(9,814**
                **)**
                
                40,896
                
                
                1,039Net
                    post-retirement benefit (income) expense
                
                **$**
                **(2,129**
                **)**
                $
                64,750
                
                $
                22,319





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




**2005**
              
              2004
              
              2003Health
                  care cost trend rate
              
              **5.0**%****
              
              5.0%
              
              5.0%Discount
                  rate
              
              **6.5**%****
              
              6.5%
              
              6.5%




F-22




NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**Note
      12.  Post-Retirement Health Care Benefits** (continued)





If
      the
      assumed health cost trend rate were increased to 6% for 2005, 2004, and 2003,
      the total of the service and interest cost components of net periodic
      post-retirement health care benefit (income) cost would (decrease) increase
      by
      ( **$35)** ,
      $220,
      and $294 to **($2,094)** ,
      $64,970, and $22,613 as of and for the years ended December 31, 2005, 2004,
      and
      2003, respectively.





**Note
      13.  Other Benefit Plans**




The
      Bank
      has life insurance contracts on several officers and is the sole owner and
      beneficiary of the policies. Cash value totaled **$5,681,802** ,
      $5,483,681, and $4,782,258 at December 31, 2005, 2004, and 2003, respectively.
      Income on their insurance investment totaled **$198,121** ,
      $201,423, and $364,330 for 2005, 2004, and 2003, respectively, including a
      gain
      of approximately $117,000 attributable to the death of its Executive Vice
      President during 2003.





The
      Bank
      has an unfunded grantor trust, as part of a change in control severance plan,
      covering substantially all employees (See Note 15). 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.





**Note
      14.  Other Operating Expenses**




Other
      operating expenses include the following:


**2005**
              
              2004
              
              2003Professional
                  services
              
              **$**
              **465,905**
              
              $
              430,301
              
              $
              475,565Stationery,
                  printing and supplies
              
              
              **246,882**
              
              
              229,806
              
              
              221,453Postage
                  and delivery
              
              
              **233,403**
              
              
              232,742
              
              
              216,410FDIC
                  assessment
              
              
              **34,953**
              
              
              36,972
              
              
              37,852Directors
                  fees and expenses
              
              
              **192,227**
              
              
              194,901
              
              
              134,020Marketing
              
              
              **240,177**
              
              
              220,899
              
              
              197,768Data
                  processing
              
              
              **105,994**
              
              
              123,782
              
              
              158,365Correspondent
                  bank services
              
              
              **87,784**
              
              
              81,668
              
              
              77,833Telephone
              
              
              **151,440**
              
              
              117,228
              
              
              135,588Liability
                  insurance
              
              
              **96,832**
              
              
              94,370
              
              
              98,945Provision
                  for unfunded commitments
              
              
              **50,000**
              
              
              —
              
              
              —Losses
                  and expenses on real estate owned (OREO)
              
              
              **681**
              
              
              551
              
              
              21,544Other
                  ATM expense
              
              
              **228,710**
              
              
              251,688
              
              
              201,614Other
              
              
              **401,457**
              
              
              524,893
              
              
              418,471**$**
              **2,536,445**
              
              $
              2,539,801
              
              $
              2,395,428




F-23


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**Note
        15.  Standstill Agreement**
 
 During
        1998, the Company was pursued by another competing financial institution
        (the
“Institution”) in a hostile take-over attempt. As part of a negotiation
        settlement, the Company and the Institution entered into a standstill agreement
        through November 2008.
 
 **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:




**2005**
              
              2004
              
              2003Loan
                  commitments:Construction
                  and land development
              
              **$**
              **224,000**
              
              $
              3,150,000
              
              $
              —Other
                  mortgage loans
              
              
              **1,881,400**
              
              
              1,137,500
              
              
              2,082,250**$**
              **2,105,400**
              
              $
              4,287,500
              
              $
              2,082,250Unused
                  lines of credit:Home-equity
                  lines
              
              **$**
              **6,341,738**
              
              $
              6,297,160
              
              $
              4,668,479Commercial
                  lines
              
              
              **7,581,877**
              
              
              10,550,804
              
              
              8,500,927Unsecured
                  consumer lines
              
              
              **866,091**
              
              
              836,377
              
              
              982,715**$**
              **14,789,706**
              
              $
              17,684,341
              
              $
              14,152,121Letters
                  of credit:
              
              **$**
              **343,320**
              
              $
              723,134
              
              $
              772,731




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.
 
 F-24
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **Note
        16.** **Commitments
        and Contingencies** (continued)
 
 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, 2005, the Bank has accrued **$200,000** as a
        reserve for losses on unfunded commitments related to these financial
        instruments with off balance sheet risk, which is included in other
        liabilities.
 
 **Note
        17.  Stockholders’ Equity**
 
 Restrictions
        on dividends:
 
 Banking
        regulations limit the amount of dividends that may be paid without prior
        approval of the Bank’s regulatory agencies. Regulatory approval is required to
        pay dividends that exceed the Bank’s net profits for the current year plus its
        retained net profits for the preceding two years. Retained earnings from
        which
        dividends may not be paid without prior approval totaled approximately **$7,609,000** , **** $5,633,000,
        and $4,993,000 at December 31, 2005, 2004, and 2003, respectively, based
        on the
        earnings restrictions and minimum capital ratio requirements noted
        below.
 
 Employee
        stock purchase benefit plans:
 
 The
        Company has a stock-based compensation plan, which is described below. The
        Bank
        applies APB No. 25 and related Interpretations in accounting for this plan.
        Net
        compensation cost (benefit) of **$7,191** ,
        $13,465, and ($6,073) have been recognized in the accompanying consolidated
        financial statements in 2005, 2004, and 2003, 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.
 
 The
        Company expects to adopt the provisions of SFAS No. 123, *Share-Base
        Payment (Revised 2004),* on
        January 1, 2006. Among other things, SFAS No. 123R eliminates the ability
        to
        account for stock-based compensation using APB 25 and requires that such
        transactions be recognized as compensation cost in the income statement based
        on
        their fair values on the date of grant.
 
 Employees
        who have completed one year of service are eligible to participate in the
        employee stock purchase plan. The number of shares of common stock granted
        under
        options will bear a uniform relationship to compensation. The plan allows
        employees to buy stock under options granted at 85% of the fair market value
        of
        the stock on the date of grant. Options 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-25
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        17.  Stockholders’ Equity** (continued)
 GrantShares
                
                PriceOutstanding
                    December 31, 2002
                
                
                5,466Exercised
                
                
                (4,020
                )
                $
                11.48Expired
                
                
                (1,446
                )
                $
                11.48Outstanding
                    December 31, 2003
                
                
                —Granted
                    on January 7, 2004, expiring December 15, 2004
                
                
                7,944
                
                $
                20.70Exercised
                
                
                (3,689
                )Expired
                
                
                (4,255
                )
                $
                20.70Outstanding
                    December 31, 2004
                
                
                **—****Granted
                    on April 13, 2005, expiring December 2, 2005**
                
                
                **4,736**
                
                **$**
                **17.90****Exercised**
                
                
                **(2,283**
                **)****Expired**
                
                
                **(2,453**
                **)**
                **$**
                **17.90****Outstanding
                    December 31, 2005**
                
                
                **—**




At
        December 31, 2005, shares of common stock reserved for issuance under the
        plan
        totaled **36,204** .
 
 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
        2005, 2004, and 2003, shares of common stock purchased under the
        plan **** totaled **12,708** ,
        10,796,
        and 8,758, respectively. At December 31, 2005, shares of common stock reserved
        for issuance under the plan totaled **138,416** .
 
 The
        Board
        of Directors may suspend or discontinue the plan at its discretion.
 
 Stockholder
        purchase plan:
 
 The
        Company’s stockholder purchase plan allows participating stockholders an option
        to purchase newly issued shares of common stock. The Board of Directors shall
        determine the number of shares that may be purchased pursuant to options.
        Options granted will expire no later than three months from the grant date.
        Each
        option will entitle the stockholder to purchase one share of common stock,
        and
        will be granted in proportion to stockholder share holdings. At the discretion
        of the Board of Directors, stockholders may be given the opportunity to purchase
        unsubscribed shares.
 
 There
        was
        no activity under this plan for the years ended December 31, 2005, 2004,
        and
        2003.
 
 At
        December 31, 2005, shares of common stock reserved for issuance under the
        plan
        totaled **217,999.**
  F-26
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        17.  Stockholders’ Equity** (continued)
 
 The
        Board
        of Directors may suspend or discontinue the plan at its discretion.
 
 Under
        all
        three plans, options granted, exercised, and expired, shares issued and
        reserved, and grant prices have been restated for the effects of any stock
        dividends or stock splits.
 
 Regulatory
        capital requirements:
  The
        Company and Bank are subject to various regulatory capital requirements
        administered by Federal and State banking agencies. Failure to meet minimum
        capital requirements can initiate certain mandatory, and possibly additional
        discretionary actions by regulators that, if undertaken, could have a direct
        material effect on the Company’s financial statements. The Company and Bank must
        meet specific capital guidelines that involve quantitative measures of their
        respective assets, liabilities, and certain off-balance sheet items as
        calculated under regulatory accounting principles. The Company’s and Bank’s
        capital amounts and classification are also subject to qualitative judgments
        by
        the regulators about components, risk weightings, and other
        factors.
 
 Quantitative
        measures established by regulation to ensure capital adequacy require the
        Company and Bank to maintain minimum amounts and ratios (as defined in the
        regulations) of total and Tier I capital to risk-weighted assets and of Tier
        I
        capital to average assets. Management believes, as of December 31, 2005,
        2004,
        and 2003, that both the Company and Bank meet all capital adequacy requirements
        to which they are subject.
 
 As
        of
        December 31, 2005, 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.
 
 As
        discussed in Note 8, the capital securities held by the Glen Burnie Statutory
        Trust I qualifies as Tier I capital for the Company under Federal Reserve
        Board
        guidelines.
 F-27
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        17. Stockholders’ Equity** (continued)
 
 A
        comparison of capital as of December 31, 2005, 2004, and 2003 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, 2005****Total
                    Capital****(to
                    Risk Weighted Assets)****Company**
                
                **$**
                **34,257,000**
                
                
                **17.0**
                **%**
                **$**
                **16,121,000**
                
                
                **8.0**
                **%**
                
                **N/A****Bank**
                
                
                **33,868,000**
                
                
                **16.8**
                **%**
                
                **16,128,000**
                
                
                **8.0**
                **%**
                **$**
                **20,160,000**
                
                
                **10.0**
                **%****Tier
                    I Capital****(to
                    Risk Weighted Assets)****Company**
                
                
                **31,856,000**
                
                
                **15.8**
                **%**
                
                **8,065,000**
                
                
                **4.0**
                **%**
                
                **N/A****Bank**
                
                
                **31,467,000**
                
                
                **15.6**
                **%**
                
                **8,068,000**
                
                
                **4.0**
                **%**
                
                **12,102,693**
                
                
                **6.0**
                **%****Tier
                    I Capital****(to
                    Average Assets)****Company**
                
                
                **31,856,000**
                
                
                **10.2**
                **%**
                
                **12,493,000**
                
                
                **4.0**
                **%**
                
                **N/A****Bank**
                
                
                **31,467,000**
                
                
                **10.1**
                **%**
                
                **12,462,000**
                
                
                **4.0**
                **%**
                
                **15,578,000**
                
                
                **5.0**
                **%**As
                    of December 31, 2004Total
                    Capital(to
                    Risk Weighted Assets)Company
                
                $
                32,416,000
                
                
                16.4
                %
                $
                15,813,000
                
                
                8.0
                %
                
                N/ABank
                
                
                32,004,000
                
                
                16.2
                %
                
                15,804,000
                
                
                8.0
                %
                $
                19,756,000
                
                
                10.0
                %Tier
                    I Capital(to
                    Risk Weighted Assets)Company
                
                
                29,944,000
                
                
                15.2
                %
                
                7,880,000
                
                
                4.0
                %
                
                N/ABank
                
                
                29,538,000
                
                
                15.0
                %
                
                7,877,000
                
                
                4.0
                %
                
                11,815,000
                
                
                6.0
                %Tier
                    I Capital(to
                    Average Assets)Company
                
                
                29,944,000
                
                
                9.9
                %
                
                12,099,000
                
                
                4.0
                %
                
                N/ABank
                
                
                29,538,000
                
                
                9.7
                %
                
                12,181,000
                
                
                4.0
                %
                
                15,226,000
                
                
                5.0
                %




F-28


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


**Note
        17. 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, 2003Total
                  Capital(to
                  Risk Weighted Assets)Company
              
              $
              30,110,000
              
              
              15.8
              %
              $
              15,255,225
              
              
              8.0
              %
              
              N/ABank
              
              
              29,674,000
              
              
              15.6
              %
              
              15,217,000
              
              
              8.0
              %
              $
              19,022,000
              
              
              10.0
              %Tier
                  I Capital(to
                  Risk Weighted Assets)Company
              
              
              27,726,000
              
              
              14.5
              %
              
              7,628,000
              
              
              4.0
              %
              
              N/ABank
              
              
              27,296,000
              
              
              14.4
              %
              
              7,609,000
              
              
              4.0
              %
              
              11,413,000
              
              
              6.0
              %Tier
                  I Capital(to
                  Average Assets)Company
              
              
              27,726,000
              
              
              9.3
              %
              
              11,990,000
              
              
              4.0
              %
              
              N/ABank
              
              
              27,296,000
              
              
              9.1
              %
              
              11,972,000
              
              
              4.0
              %
              
              14,965,000
              
              
              5.0
              %




**Note
        18.  Earnings Per Common Share**
  Earnings
          per common share are calculated as follows:




**2005**
                
                2004
                
                2003Basic:Net
                    income
                
                **$**
                **2,774,741**
                
                $
                3,055,501
                
                $
                3,077,074Weighted
                    average common shares outstanding
                
                
                **2,045,622**
                
                
                2,031,843
                
                
                2,019,502Basic
                    net income per share
                
                **$**
                **1.36**
                
                $
                1.50
                
                $
                1.52




Diluted
        earnings per share calculations were not required for 2005, 2004, and 2003
        as
        there were no options outstanding at December 31, 2005, 2004, and
        2003.
  F-29
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        19.  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:




**2005**
              
              2004
              
              2003**Carrying**
              
              **Fair**
              
              Carrying
              
              Fair
              
              Carrying
              
              Fair**Amount**
              
              **Value**
              
              Amount
              
              Value
              
              Amount
              
              ValueFinancial
                  assets:Cash
                  and due from banks
              
              **$**
              **9,405,148**
              
              **$**
              **9,405,148**
              
              $
              9,766,710
              
              $
              9,766,710
              
              $
              11,119,791
              
              $
              11,119,791Interest-bearing
                    deposits inother
                    financial institutions
              
              
              **3,711,524**
              
              
              **3,711,524**
              
              
              65,947
              
              
              65,947
              
              
              57,192
              
              
              57,192Federal
                  funds sold
              
              
              **2,333,055**
              
              
              **2,333,055**
              
              
              1,541,234
              
              
              1,541,234
              
              
              1,717,911
              
              
              1,717,911Investment
                  securities available for sale
              
              
              **86,128,724**
              
              
              **86,128,724**
              
              
              93,278,857
              
              
              93,278,857
              
              
              99,602,353
              
              
              99,602,353Investment
                    securities held tomaturity
              
              
              **1,151,163**
              
              
              **1,238,740**
              
              
              1,627,190
              
              
              1,761,894
              
              
              3,578,754
              
              
              3,815,855Federal
                  Home Loan Bank Stock
              
              
              **918,900**
              
              
              **918,900**
              
              
              919,000
              
              
              919,000
              
              
              896,400
              
              
              896,400Maryland
                  Financial Bank Stock
              
              
              **100,000**
              
              
              **100,000**
              
              
              100,000
              
              
              100,000
              
              
              —
              
              
              —Common
                  stock-Statutory Trust I
              
              
              **155,000**
              
              
              **155,000**
              
              
              155,000
              
              
              155,000
              
              
              155,000
              
              
              155,000Ground
                  rents
              
              
              **235,700**
              
              
              **235,700**
              
              
              235,700
              
              
              235,700
              
              
              248,300
              
              
              248,300Loans,
                  less allowance forcredit losses
              
              
              **190,204,998**
              
              
              **190,206,000**
              
              
              182,291,292
              
              
              180,500,000
              
              
              172,819,049
              
              
              172,820,000Accrued
                  interest receivable
              
              
              **1,451,806**
              
              
              **1,451,806**
              
              
              1,484,869
              
              
              1,484,869
              
              
              1,575,918
              
              
              1,575,918Financial
                  liabilities:Deposits
              
              
              **265,248,268**
              
              
              **264,846,000**
              
              
              261,674,043
              
              
              261,826,000
              
              
              256,908,235
              
              
              256,910,000Short-term
                  borrowings
              
              
              **622,050**
              
              
              **622,050**
              
              
              541,672
              
              
              541,672
              
              
              6,601,920
              
              
              6,601,920Long-term
                  borrowings
              
              
              **7,170,977**
              
              
              **7,533,950**
              
              
              7,199,708
              
              
              8,388,328
              
              
              7,226,501
              
              
              7,226,501Dividends
                  payable
              
              
              **339,005**
              
              
              **339,005**
              
              
              287,938
              
              
              287,938
              
              
              236,938
              
              
              236,938Accrued
                  interest payable
              
              
              **83,111**
              
              
              **83,111**
              
              
              55,980
              
              
              55,980
              
              
              67,099
              
              
              67,099Accrued
                  interest payable on junior subordinated
                  debentures
              
              
              **171,518**
              
              
              **171,518**
              
              
              171,518
              
              
              171,518
              
              
              171,518
              
              
              171,518Junior
                  subordinated debentures owed
                  to unconsolidatedsubsidiary trust
              
              
              **5,155,000**
              
              
              **5,155,000**
              
              
              5,155,000
              
              
              5,155,000
              
              
              5,155,000
              
              
              5,155,000Unrecognized
                  financial instruments:Commitments
                  to extend credit
              
              
              **16,895,106**
              
              
              **16,895,106**
              
              
              21,971,841
              
              
              21,971,841
              
              
              16,234,371
              
              
              16,234,371Standby
                  letters of credit
              
              
              **343,320**
              
              
              **343,320**
              
              
              723,134
              
              
              723,134
              
              
              772,731
              
              
              772,731




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-30
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        19.  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
        20.  Recently Issued Accounting Pronouncements**
 
 In
        March
        2004, the FASB issued FASB Interpretation No. 46 (FIN 46R), “ *Consolidation
        of Variable Interest Entities (Revised December 2003).”* FIN
        46R
        clarifies certain aspects of FIN 46 and provides certain entities with
        exemptions from the requirements of FIN 46. FIN 46R requires the consolidation
        by a business enterprise of variable interest entities (VIE) in which it
        is the
        primary beneficiary. FIN 46R also requires the adoption of FIN 46, as of
        December 31, 2003, for all entities previously considered as special purpose
        entities and for all VIE’s created after January 31, 2003. The Company has
        assessed applicability of this pronouncement and believes they are currently
        in
        compliance with all applicable components of this standard.
 
 In
        December 2004, the FASB issued SFAS No. 123, *“Share-Based
        Payment (Revised 2004).”* SFAS
        123R establishes standards for the accounting for transactions in which an
        entity (i) exchanges its equity instruments for goods or services, or (ii)
        incurs liabilities in exchange for goods or services that are based on the
        fair
        value of the entity’s equity instruments or that may be settled by the issuance
        of the equity instruments. SFAS 123R eliminates the ability to account for
        stock-based compensation using APB 25 and requires that such transactions
        be
        recognized as compensation cost in the income statement based on their fair
        values on the date of the grant. SFAS 123R is effective for the Company on
        January 1, 2006. The Company will transition to fair value based accounting
        for
        stock-based compensation using a modified version of prospective application
        (“modified prospective application”). Under modified prospective application, as
        it is applicable to the Company, SFAS 123R applies to new awards and to awards
        modified, repurchased, or cancelled after January 1, 2006. Additionally,
        compensation cost for the portion of awards for which the requisite service
        has
        not been rendered (generally referring to non-vested awards) that are
        outstanding as of January 1, 2006 must be recognized as the remaining requisite
        service is rendered during the period of and/or the periods after the adoption
        of SFAS 123R. The attribution of compensation cost for those earlier awards
        will
        be based on the same method and on the same grant-date fair values previously
        determined for the pro forma disclosures required for companies that did
        not
        adopt the fair value accounting method for stock-based employee compensation.
 
 The
        Company may expect to recognize additional pre-tax, quarterly compensation
        costs
        beginning in the first quarter of 2006 as a result of the adoption of SFAS
        123R
        if additional options are issued. Future levels of compensation cost recognized
        related to stock-based compensation awards (including the
        aforementioned expected costs during the period of adoption) may be impacted
        by
        new awards and/or modifications, repurchases and cancellations of existing
        awards before and after the adoption of this standard.
  F-31
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        20.  Recently Issued Accounting Pronouncements** (continued)
  In
        November 2005, the FASB issued FASB Staff Position (FSB) 115-1, “ *The
        Meaning of Other-Than-Temporary Impairment and Its Application to Certain
        Investments.”* This
        statement provides additional guidance for recognition and measurement
        provisions for other-than-temporary impairments relating to investment in
        debt
        and equity securities that are accounted for under FASB 115. Specifically,
        the
        guidance clarifies that an investor should recognize an impairment loss no
        later
        than when the impairment is deemed other-than-temporary, even if the decision
        to
        sell has not been made. The statement also requires certain disclosures about
        unrealized losses that have not been recognized as other-than-temporary
        impairments. The Company believes they are currently in compliance with this
        pronouncement.
 
 **Note
        21.  Parent Company Financial Information**
  The
          Balance Sheets, Statements of Income, and Statements of Cash Flows for
          Glen
          Burnie Bancorp (Parent Only) are presented below:


Balance
                  SheetsDecember
                  31,
              
              **2005**
              
              2004
              
              2003**Assets**Cash
              
              **$**
              **483,459**
              
              $
              453,685
              
              $
              268,893Investment
                  in The Bank of Glen Burnie
              
              
              **31,237,838**
              
              
              30,339,198
              
              
              28,672,564Investment
                  in GBB Properties, Inc.
              
              
              **266,561**
              
              
              262,343
              
              
              257,023Investment
                  in the Glen Burnie Statutory Trust I
              
              
              **155,000**
              
              
              155,000
              
              
              155,000Due
                  from subsidiaries
              
              
              **22,888**
              
              
              20,765
              
              
              26,658Other
                  assets
              
              
              **127,250**
              
              
              132,250
              
              
              137,182**Total
                  assets**
              
              **$**
              **32,292,996**
              
              $
              31,363,241
              
              $
              29,517,320**Liabilities
                  and Stockholders’ Equity**Dividends
                  payable
              
              **$**
              **339,005**
              
              $
              287,938
              
              $
              236,938Accrued
                  interest payable on borrowed funds
              
              
              **171,518**
              
              
              171,518
              
              
              171,518Other
                  liabilities
              
              
              **2,032**
              
              
              4,377
              
              
              6,236Borrowed
                  funds from subsidiary
              
              
              **5,155,000**
              
              
              5,155,000
              
              
              5,155,000**Total
                  liabilities**
              
              
              **5,667,555**
              
              
              5,618,833
              
              
              5,569,692Stockholders’
                  equity:Common
                  stock
              
              
              **2,056,024**
              
              
              2,041,033
              
              
              1,689,281Surplus
              
              
              **11,458,465**
              
              
              11,169,283
              
              
              10,861,986Retained
                  earnings
              
              
              **13,341,097**
              
              
              11,773,915
              
              
              10,115,038Accumulated
                  other comprehensive income,net of taxes
              
              
              **(230,145**
              **)**
              
              760,177
              
              
              1,281,323**Total
                  stockholders’ equity**
              
              
              **26,625,441**
              
              
              25,744,408
              
              
              23,947,628**Total
                  liabilities and stockholders’ equity**
              
              **$**
              **32,292,996**
              
              $
              31,363,241
              
              $
              29,517,320




F-32


NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            21.  Parent Company Financial Information** (continued)
  The
            borrowed funds from subsidiary balance represents the junior subordinated
            debt
            securities payable to the wholly-owned subsidiary trust that was deconsolidated
            as a result of applying the provisions of FIN 46. The Company continues
            to
            guarantee the capital securities issued by the trust, which totaled **$5,000,000** at
            December 31, 2005. (See Notes 8 and 20 for further discussions on FIN
            46).




Statements
                  of IncomeYears
                  Ended December 31,
              
              **2005**
              
              2004
              
              2003Dividends
                  and distributions from subsidiaries
              
              **$**
              **1,245,000**
              
              $
              1,235,000
              
              $
              880,000Other
                  income
              
              
              **16,430**
              
              
              16,430
              
              
              16,430Interest
                  expense on junior subordinated debentures
              
              
              **(546,430**
              **)**
              
              (546,703
              )
              
              (546,430
              )Other
                  expenses
              
              
              **(50,397**
              **)**
              
              (54,826
              )
              
              (52,896
              )Income
                    before income tax benefit and equity inundistributed
                    net income of subsidiaries
              
              
              **664,603**
              
              
              649,901
              
              
              297,104Income
                  tax benefit
              
              
              **224,149**
              
              
              225,965
              
              
              225,115Change
                  in undistributed net income of subsidiaries
              
              
              **1,885,989**
              
              
              2,179,635
              
              
              2,554,855**Net
                  income**
              
              **$**
              **2,774,741**
              
              $
              3,055,501
              
              $
              3,077,074Statements
                  of Cash FlowsYears
                  Ended December 31,
              
              
              **2005**
              
              
              2004
              
              
              2003**Cash
                  flows from operating activities:**Net
                  income
              
              **$**
              **2,774,741**
              
              $
              3,055,501
              
              $
              3,077,074Adjustments
                    to reconcile net income to netcash
                    provided by operating activities:Decrease
                  in other assets
              
              
              **5,000**
              
              
              4,932
              
              
              4,179(Increase)
                  decrease in due from subsidiaries
              
              
              **(2,123**
              **)**
              
              5,893
              
              
              7,826(Decrease)
                  increase in other liabilities
              
              
              **(2,345**
              **)**
              
              (1,859
              )
              
              3,097Change
                  in undistributed net income ofsubsidiaries
              
              
              **(1,885,989**
              **)**
              
              (2,179,635
              )
              
              (2,554,855
              )Net
                  cash provided by operating activities
              
              
              **889,284**
              
              
              884,832
              
              
              537,321**Cash
                  flows from financing activities:**Proceeds
                  from dividend reinvestment plan
              
              
              **256,115**
              
              
              231,955
              
              
              196,460Proceeds
                  from issuance of common stock
              
              
              **40,867**
              
              
              76,362
              
              
              46,130Dividends
                  paid
              
              
              **(1,156,492**
              **)**
              
              (1,008,357
              )
              
              (908,136
              )Net
                  cash used in financing activities
              
              
              **(859,510**
              **)**
              
              (700,040
              )
              
              (665,546
              )**Increase
                  (decrease) in cash**
              
              
              **29,774**
              
              
              184,792
              
              
              (128,225
              )**Cash,
                  beginning of year**
              
              
              **453,685**
              
              
              268,893
              
              
              397,118**Cash,
                  end of year**
              
              **$**
              **483,459**
              
              $
              453,685
              
              $
              268,893




F-33




NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            22. Quarterly Results of Operations (Unaudited)**
 
 The
            following is a summary of consolidated unaudited quarterly results of
            operations:


**2005****(Dollars
                  in thousands,**
              
              **Three
                  months ended,****except
                  per share amounts)**
              
              **December
                  31**
              
              **September
                  30**
              
              **June
                  30**
              
              **March
                  31****Interest
                  income**
              
              **$**
              **4,127**
              
              **$**
              **4,094**
              
              **$**
              **3,957**
              
              **$**
              **3,920****Interest
                  expense**
              
              
              **1,133**
              
              
              **1,080**
              
              
              **989**
              
              
              **930****Net
                  interest income**
              
              
              **2,994**
              
              
              **3,014**
              
              
              **2,968**
              
              
              **2,990****Provision
                  for credit losses**
              
              
              **—**
              
              
              **(50**
              **)**
              
              **—**
              
              
              **—****Net
                  securities gains**
              
              
              **28**
              
              
              **26**
              
              
              **45**
              
              
              **3****Income
                  before income taxes**
              
              
              **909**
              
              
              **935**
              
              
              **819**
              
              
              **842****Net
                  income**
              
              
              **671**
              
              
              **742**
              
              
              **674**
              
              
              **688****Net
                  income per share (basic and diluted)**
              
              **$**
              **0.32**
              
              **$**
              **0.37**
              
              **$**
              **0.33**
              
              **$**
              **0.34**2004(Dollars
                  in thousands,
              
              
              Three
                  months ended,except
                  per share amounts)
              
              
              December
                  31
              
              
              September
                  30
              
              
              June
                  30
              
              
              March
                  31Interest
                  income
              
              $
              3,908
              
              $
              4,065
              
              $
              3,807
              
              $
              3,881Interest
                  expense
              
              
              894
              
              
              928
              
              
              885
              
              
              938Net
                  interest income
              
              
              3,014
              
              
              3,137
              
              
              2,922
              
              
              2,943Provision
                  for credit losses
              
              
              —
              
              
              140
              
              
              60
              
              
              140Net
                  securities gains
              
              
              102
              
              
              41
              
              
              39
              
              
              230Income
                  before income taxes
              
              
              921
              
              
              973
              
              
              883
              
              
              912Net
                  income
              
              
              840
              
              
              769
              
              
              706
              
              
              741Net
                  income per share (basic and diluted)
              
              $
              0.40
              
              $
              0.38
              
              $
              0.35
              
              $
              0.372003(Dollars
                  in thousands,
              
              
              Three
                  months ended,except
                  per share amounts)
              
              
              December
                  31
              
              
              September
                  30
              
              
              June
                  30
              
              
              March
                  31Interest
                  income
              
              $
              3,955
              
              $
              3,864
              
              $
              3,909
              
              $
              3,812Interest
                  expense
              
              
              970
              
              
              1,051
              
              
              1,112
              
              
              1,144Net
                  interest income
              
              
              2,985
              
              
              2,813
              
              
              2,797
              
              
              2,668Provision
                  for credit losses
              
              
              30
              
              
              10
              
              
              —
              
              
              —Net
                  securities gains
              
              
              49
              
              
              63
              
              
              15
              
              
              92Income
                  before income taxes
              
              
              1,124
              
              
              1,033
              
              
              855
              
              
              753Net
                  income
              
              
              849
              
              
              839
              
              
              733
              
              
              656Net
                  income per share (basic and diluted)
              
              $
              0.42
              
              $
              0.41
              
              $
              0.37
              
              $
              0.32






F-34