Forward-Looking Statements

When used in this discussion and elsewhere in this Form 10-Q, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors 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. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in the Company's periodic reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.

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

Glen Burnie Bancorp, a Maryland corporation (the "Company"), and its subsidiaries, The Bank of Glen Burnie (the "Bank") and GBB Properties, Inc., both Maryland corporations, and Glen Burnie Statutory Trust I, a Connecticut business trust, had consolidated net income of $527,000 ($0.20 basic and diluted earnings per share) for the third quarter of 2009, compared to the third quarter 2008 consolidated net loss of $2,118,000 ($0.71 basic and diluted loss per share), a 124.88% increase. Year-to-date consolidated net income was $1,472,000 ($0.53 basic and diluted earnings per share) for the nine months ended September 30, 2009, compared to consolidated net loss of $978,000 ($0.33 basic and diluted loss per share) for the corresponding 2008 period, a 250.51% increase. Included in the 2008 results were the affects of a write-down of $2,816,000 from three series of Fannie Mae and Freddie Mac preferred stock held by the Company taken during the third quarter of 2008. In addition to this 2008 write-down, which was not repeated in 2009, the increases from 2008 to 2009 were due to an increase in loan income and a decrease in income tax expense. The 2009 increases were partially offset by an increase in the provision for loan losses, additional interest expense on long-term borrowings from the Federal Home Loan Bank (FHLB) originated during the third quarter of 2008, an increase in interest expense on deposits, and a provision for a special FDIC assessment paid in September 2009. In addition, income for 2008 includes dividends for three quarters on the Company's holdings of FHLB stock, while 2009 income includes a dividend for the second quarter only (paid in August 2009), inasmuch as the first quarter dividend was suspended.

While the Bank has not been directly impacted by many of the difficulties facing other financial institutions in the current economic downturn, the turbulence in the U.S. economy and the stock market continues to have a significant impact on the Bank in specific identifiable areas. Overall deposits have continued to increase as stock market investors have sought more secure places to invest their funds. In addition, there has been an overall decline in interest rates in response to stock market turbulence. Both rates of interest paid by the Bank on deposits and rates of interest earned by the Bank on loans and other interest earning assets have declined, with the rates on earning assets declining at a faster rate than the rates paid on deposits, resulting in a decline in the net interest margin.

Results Of Operations

Net Interest Income. The Company's consolidated net interest income prior to provision for credit losses for the three and nine months ended September 30, 2009 was $3,100,000 and $8,999,000, respectively, compared to $3,121,000 and $8,979,000 for the same period in 2008, a decrease of $21,000 (0.67%) for the three months and an increase of $20,000 (0.22%) for the nine month period.

Interest income for the third quarter increased from $4,667,000 in 2008 to $4,749,000 in 2009, a 1.76% increase. The interest income increase for the three month period was due to an increase in loan income resulting from growth in the loan portfolio and an increase in interest income on U.S. Government agency securities, partially offset by a decrease in interest income on municipal securities, as a result of recent sales and maturities, and a decrease in other income. Interest income year-to-date increased from $13,572,000 in 2008 to $13,971,000 in 2009, a 2.94% increase. Interest income increased for the nine month period due to an increase in loan income resulting from growth in the loan portfolio, partially offset by a decrease in interest income on U.S. Government agency securities and municipal securities, as a result of previous sales and maturities. The increase in interest income was also partially offset by the payment of only one quarterly FHLB stock dividend as compared to three quarterly dividends for the corresponding 2008 nine month period, due to the suspension of the first quarter FHLB stock dividend (with the second quarter dividend being paid in the third quarter, in August 2009) and no determination to date by the FHLB with respect to the payment of the third quarter dividend.

Interest expense for the quarter increased from $1,546,000 in 2008 to $1,649,000 in 2009, a 6.66% increase. Interest expense year-to-date increased from $4,593,000 in 2008 to $4,972,000 in 2009, a 8.25% increase. The increase in interest expense for the three and nine month periods ended September 30, 2009 was due to an increase in interest paid on increased deposit balances and interest on long-term borrowings from the Federal Home Loan Bank, partially offset by a decrease in short-term borrowings.

Net interest margins for the three and nine months ended September 30, 2009 was 3.99% and 4.00%, compared to tax equivalent net interest margins of 4.54% and 4.36% for the three and nine months ended September 30, 2008. This decline is due to the continued narrowing of the gap between the interest rates offered by the Bank on increasing customer deposits and the rates the Bank is able to obtain on loans and other interest earning assets. Accordingly, while net interest income before provision for credit losses for the three and nine month periods has increased over the same periods in 2008, the net interest margin has declined in 2009 compared to 2008.

Provision for Credit Losses. The Company made a provision for credit losses of $337,000 and $696,000 during the three and nine month period ended September 30, 2009 and $239,000 and $446,000 for credit losses during the three and nine month period ended September 30, 2008. As of September 30, 2009, the allowance for credit losses equaled 55.33% of non-accrual and past due loans compared to 224.42% at December 31, 2008 and 919.11% at September 30, 2008. During the three and nine month period ended September 30, 2009, the Company recorded net charge-offs of $173,000 and $756,000, compared to net charge-offs of $224,000 and $607,000 during the corresponding period of the prior year. On an annualized basis, net charge-offs for the 2009 period represent 0.42% of the average loan portfolio.

Other Income. Other income increased from $557,000 for the three month period ended September 30, 2008, to $597,000 for the corresponding 2009 period, a $40,000 (7.18%) increase. The increase for the three month period was primarily due to an increase in gains on investment securities. For the nine month period, other income decreased from $1,539,000 at September 30, 2008, to $1,504,000 for the corresponding 2009 period, a $35,000 (2.27%) decrease. The decrease for the nine month period was primarily due to a decrease in service charges and other fees, partially offset by an increase in gains on investment securities.

Other Expenses. Other expenses decreased from $5,354,000 for the three month period ended September 30, 2008, to $2,712,000 for the corresponding 2009 period, a $2,642,000 (49.35%) decrease. The decrease for the three month period was primarily due to the $2,816,000 write-down on three series of Fannie Mae and Freddie Mac preferred stock held by the Company taken during the third quarter of 2008. For the nine month period, other expenses decreased from $10,619,000 at September 30, 2008, to $8,079,000 for the corresponding 2009 period, a $2,540,000 (23.92%) decrease. The decrease for the nine month period was primarily due to the $2,816,000 write-down taken in the third quarter of 2008 and a decrease in salaries and employee benefits in the 2009 period, partially offset by the $160,000 special FDIC assessment paid in September 2009 along with the $30,000 write-down, taken in the first quarter of 2009, on the value of a Trust Preferred security held by the Company.

Income Taxes. During the three and nine months ended September 30, 2009, the Company recorded income tax expense of $121,000 and $256,000, respectively, compared to income tax expense of $203,000 and $431,000 for the same period in 2008 reflecting the effect of the increased provision for loan losses and the FDIC assessment. The Company's effective tax rate for the three and nine month period in 2009 was 18.7% and 14.8%, respectively, compared to 22.5% and 19.0% for the prior year period. The 2008 effective rates are both based on net income excluding the $2,816,000 write-down described above. The decrease in the effective tax rate for the three month period was due to a decline in taxable income combined with an increase in the proportion of tax exempt income.

Comprehensive Income (Loss). In accordance with regulatory requirements, the Company reports comprehensive income (loss) in its financial statements. Comprehensive income (loss) consists of the Company's net income
(loss), adjusted for unrealized gains and losses on the Bank's investment portfolio of investment securities. For the third quarter of 2009, comprehensive income, net of tax, totaled $2,226,000, compared to the September 30, 2008 comprehensive loss of $2,586,000. Year-to-date comprehensive income, net of tax, totaled $2,734,000, as of September 30, 2009, compared to the September 30, 2008 year-to-date comprehensive loss of $2,228,000. The increase for the three and nine month period was due primarily to the 2008 net losses and to increases on unrealized gains on securities.

Financial Condition

General. The Company's assets increased to $354,550,000 at September 30, 2009 from $332,502,000 at December 31, 2008, primarily due to an increase in securities and loans offset partially by a decrease in cash and cash equivalents. The Bank's net loans totaled $239,134,000 at September 30, 2009, compared to $235,133,000 at December 31, 2008, an increase of $4,001,000 (1.70%), primarily attributable to an increase in commercial mortgages, with lesser increases in home equity loans, refinanced mortgages and demand business loans, and partially offset by a decrease in commercial construction loans, indirect loans (primarily auto loans) and mortgage loans purchased.

The Company's total investment securities portfolio (investment securities available for sale) totaled $81,301,000 at September 30, 2009, a $23,352,000 (40.30%) increase from $57,949,000 at December 31, 2008. This increase was funded by the increase in deposits received during the nine month period that exceeded the amount needed to fund loan growth and the decrease in interest bearing deposits at other institutions. The Bank's cash and due from banks (cash due from banks, interest-bearing deposits in other financial institutions, and federal funds sold), as of September 30, 2009, totaled $16,006,000, a decrease of $5,232,000 (24.64%) from the December 31, 2008 total of $21,238,000.

Deposits as of September 30, 2009 totaled $293,436,000, which is an increase of $23,668,000 (8.77%) from $269,768,000 at December 31, 2008. Demand deposits as of September 30, 2009 totaled $67,412,000, which is an increase of $3,873,000 (6.10%) from $63,539,000 at December 31, 2008. NOW accounts as of September 30, 2009 totaled $22,389,000, which is an increase of $1,310,000 (6.21%) from $21,079,000 at December 31, 2008. Money market accounts as of September 30, 2009 totaled $14,880,000, which is an increase of $2,116,000 (16.58%), from $12,764,000 at December 31, 2008. Savings deposits as of September 30, 2009 totaled $46,806,000, which is an increase of $1,004,000 (2.19%) from $45,802,000 at December 31, 2008. Certificates of deposit over $100,000 totaled $32,459,000 on September 30, 2009, which is an increase of $4,576,000 (16.41%) from $27,883,000 at December 31, 2008. Other time deposits (made up of certificates of deposit less than $100,000 and individual retirement accounts) totaled $109,490,000 on September 30, 2009, which is a $10,789,000 (10.93%) increase from the $98,701,000 total at December 31, 2008. Management continues to believe that the growth in deposits was due in part to the ongoing instability in the stock market and the resulting reallocation of investment portfolios by the Bank's customers.

Asset Quality. 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 September 30,       At December 31,
                                                                       2009                  2008
                                                                         (Dollars in Thousands)

Restructured loans                                              $               99     $               -

Non-accrual loans:
Real-estate - mortgage:
Residential                                                     $              215     $               -
Commercial                                                                   3,192                   659
Real-estate - construction                                                       -                     -
Installment                                                                     96                   208
Home Equity                                                                      -                     -
Commercial                                                                      40                     -

Total non-accrual loans                                                      3,543                   867

Accruing loans past due 90 days or more:
Real-estate - mortgage:
Residential                                                                      3                     3
Commercial                                                                       -                     -
Real-estate - construction                                                       -                     5
Installment                                                                      -                    26
Credit card and related                                                          -                     -
Commercial                                                                       -                     -
Other                                                                            -                     -

Total accruing loans past due 90 days or more                                    3                    34

Total non-accrual loans and past due loans                      $            3,546     $             901

Non-accrual and past due loans to gross loans                                 1.47 %                0.38 %

Allowance for credit losses to non-accrual and past due loans                55.33 %              224.42 %

At September 30, 2009, there was $3,550,000 in loans outstanding, other than those reflected in the above table, as to which known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. Reflected in the above table are $0 of prior period troubled debt restructurings that are now not performing under the terms of their modified agreements.

Allowance For Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. The allowance, based on evaluations of the collectability 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 are performed for each class of loans and 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 securing the loans and current economic conditions and trends that may affect the borrowers' ability to pay. For example, delinquencies in unsecured loans and indirect automobile installment loans will be reserved for at significantly higher ratios than loans secured by real estate. Based on that analysis, the Bank deems its allowance for credit losses in proportion to the total non-accrual loans and past due loans to be sufficient.

Transactions in the allowance for credit losses for the nine months ended September 30, 2009 and 2008 were as follows:

                                                                   Nine Months Ended September 30,
                                                                     2009                   2008
                                                                       (Dollars in Thousands)

Beginning balance                                              $          2,022       $          1,604

Charge-offs                                                              (1,017 )                 (867 )
Recoveries                                                                  261                    260
Net charge-offs                                                            (756 )                 (607 )
Provisions charged to operations                                            696                    446

Ending balance                                                 $          1,962       $          1,443

Average loans                                                  $        238,052       $        212,788

Net charge-offs to average loans (annualized)                              0.42 %                 0.38 %

Reserve for Unfunded Commitments. As of September 30, 2009, the Bank had outstanding commitments totaling $25,249,000. These outstanding commitments consisted of letters of credit, undrawn lines of credit, and other loan commitments. The following table shows the Bank's reserve for unfunded commitments arising from these transactions:

                                        Nine Months Ended September 30,
                                        2009                      2008
                                            (Dollars in Thousands)

Beginning balance                  $           200           $           200

Provisions charged to operations                 -                         -

Ending balance                     $           200           $           200

Contractual Obligations and Commitments. No material changes, outside the normal course of business, have been made during the third quarter of 2009.

MARKET RISK AND INTEREST RATE SENSITIVITY

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 Company's interest-rate sensitivity at September 30, 2009.

                                                                    Over 1
                                                   Over 3 to       Through         Over
                                   0-3 Months      12 Months       5 Years        5 Years        Total
                                                          (Dollars in Thousands)
Assets:
Cash and due from banks           $          -     $        -     $        -     $       -     $   7,222
Federal funds and overnight
deposits                                 8,784              -              -             -         8,784
Securities                                   -              -          2,681        78,620        81,301
Loans                                   13,291          4,496         90,634       130,713       239,134
Fixed assets                                 -              -              -             -         4,008
Other assets                                 -              -              -             -        14,101

Total assets                      $     22,075     $    4,496     $   93,315     $ 209,333     $ 354,550

Liabilities:
Demand deposit accounts           $          -     $        -     $        -     $       -     $  67,412
NOW accounts                            22,389              -              -             -        22,389
Money market deposit accounts           14,880              -              -             -        14,880
Savings accounts                        46,806              -              -             -        46,806
IRA accounts                             3,167         14,284         20,433           871        38,755
Certificates of deposit                 28,719         41,250         33,047           178       103,194
Short-term borrowings                       61              -              -             -            61
Long-term borrowings                        10             30          7,003        20,000        27,043
Other liabilities                            -              -              -             -         1,724
Junior subordinated debenture                -          5,155              -             -         5,155
Stockholders' equity:                        -              -              -             -        27,131

Total liabilities and
stockholders' equity              $    116,032     $   60,719     $   60,483     $  21,049     $ 354,550

GAP                               $    (93,957 )   $  (56,223 )   $   32,832     $ 188,284
Cumulative GAP                    $    (93,957 )   $ (150,180 )   $ (117,348 )   $  70,936
Cumulative GAP as a % of total
assets                                  -26.50 %       -42.36 %       -33.10 %       20.01 %

The foregoing analysis assumes that the Company'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. As of June 30, 2009, 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                     -4.2 %             -2.2 %             2.2 %              1.4 %
% Change in Economic Value of Equity               -13.7 %             -5.8 %             4.5 %             -4.7 %

LIQUIDITY AND CAPITAL RESOURCES

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

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

The Bank's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, certificates of deposit with other financial institutions that have an original maturity of three months or less 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. The Bank's cash and cash equivalents (cash due from banks, interest-bearing deposits in . . .