<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
______________________________________________________________________________
For Quarter Ended Commission File Number
March 31, 1996 0-24926
CECIL BANCORP, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1883546
-------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
127 North Street
Elkton, Maryland 21921
- - ---------------- -------------
(Address of principal (Zip Code)
executive office)
410 398-1650
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Number of shares outstanding of common stock
as of March 31, 1996
$0.01 par value common stock 481,748 shares
- - ---------------------------- ----------------------
class outstanding
1
<PAGE>
CECIL BANCORP INC., AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Statements of 3-4
Financial Condition March 31, 1996 and
December 31, 1995
Consolidated Condensed Statements of Operations 5
Three Months Ended March 31, 1996 and 1995
Consolidated Condensed Statements of Cash Flows 6-7
Three Months Ended March 31, 1996 and 1995
Notes to Consolidated Condensed Financial Statements 8
ITEM 2. Managements Discussion and Analysis of Financial 9-15
Condition and Results of Operations
PART II. OTHER INFORMATION 16
</TABLE>
2
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Cash $ 459,010 $ 1,116,017
Cash - Interest bearing 1,573,724 1,136,527
Investment securities
Securities held-to-maturity 3,272,700 2,025,015
Securities available-for-sale at
estimated market value 226,562 222,724
Mortgage-backed securities 814,425 872,369
Loans held for sale 1,219,471 671,600
Loans receivable, net 47,240,793 46,482,054
Real estate owned 73,003 73,003
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 491,524 454,304
Stock in Federal Home Loan Bank of
Atlanta - at cost 422,900 422,900
Accrued interest receivable 386,628 378,281
Deferred taxes 75,576 70,487
Prepaid expenses 63,995 47,946
Other assets 15,381 17,945
------------ -----------
TOTAL ASSETS $56,335,692 $53,991,172
============ ===========
</TABLE>
3
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $46,225,562 $44,649,452
Advance payments by borrowers for
property taxes and insurance 847,687 489,465
Employee stock ownership debt 346,572 346,572
Other liabilities 242,905 225,174
Advances from Federal Home Loan
Bank of Atlanta 1,750,000 1,250,000
----------- -----------
TOTAL LIABILITIES 49,412,726 46,960,663
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 493,395 shares
and 481,361 shares, at March 31, 1996
and December 31, 1995, respectively 4,934 4,814
Additional paid in capital 4,141,052 3,963,671
Net unrealized gain on securities available-
for-sale, net of deferred taxes 2,916 2,459
Employee stock ownership debt ( 346,572) ( 346,572)
Retained earnings, substantially restricted 3,631,363 3,599,871
Deferred compensation - Management
Recognition Plan ( 193,734) ( 193,734)
----------- -----------
7,239,959 7,030,509
----------- -----------
Less: Treasury stock - at cost
(Common 12,147 shares) 316,993
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,922,966 7,030,509
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $56,335,692 $53,991,172
=========== ===========
</TABLE>
4
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1996 1995
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Loans receivable $ 994,917 $ 821,488
Mortgage-backed securities 14,251 17,522
Investment securities 33,885 41,223
Other interest-earning assets 22,623 15,518
---------- ----------
Total interest income 1,065,676 895,751
---------- ----------
INTEREST EXPENSE
Deposits
NOW accounts 17,710 17,421
Passbook accounts 73,714 81,084
Money market deposit accounts 21,499 25,238
Certificates 408,706 267,149
Borrowings 12,735 4,966
---------- ----------
Total interest expense 534,364 395,858
---------- ----------
Net interest income 531,312 499,893
Provision for loan losses 9,000 7,500
---------- ----------
Net interest income after
provision for loan losses 522,312 492,393
---------- ----------
NONINTEREST INCOME (LOSS)
Loan service charges 6,673 5,770
Dividends on FHLB stock 7,500 5,400
Gain on sale of loans 4,793
Other 43,894 38,367
---------- ----------
Total noninterest income 62,860 49,537
---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 264,405 199,595
Occupancy expense 26,490 12,553
Equipment and data processing expense 40,786 29,438
SAIF deposit insurance premium 29,511 27,194
Other 92,595 118,759
---------- ----------
Total noninterest expense 453,787 387,539
---------- ----------
Income before income taxes 131,385 154,391
---------- ----------
INCOME TAXES
Current 57,808 58,854
Deferred ( 5,089) 2,552
---------- ----------
Total income taxes 52,719 61,406
---------- ----------
NET INCOME $ 78,666 $ 92,985
========== ==========
Earnings per common share $ .18 $ .21
========== ==========
Cash dividends paid per common share $ .10 $ .08
========== ==========
</TABLE>
5
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------
1996 1995
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on
loans and investments $1,107,384 $ 908,835
Cash paid to suppliers and employees ( 493,805) ( 487,911)
Proceeds from sale of loans 128,422
Origination of loans held for sale ( 671,500)
Interest paid ( 534,364) ( 395,858)
Income taxes paid ( 2,700) ( 240)
---------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ( 466,563) 24,826
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of
investment securities 500,000 1,500,000
Proceeds from maturities of
mortgage-backed securities 59,813 33,022
Purchases of investment securities (1,744,922) ( 500,000)
Loans originated (4,554,868) (4,415,495)
Principal collected on loans 3,787,129 1,851,533
Purchases of office properties, equipment
and leasehold improvements ( 48,064)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (2,000,912) (1,530,940)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts, and savings accounts 6,953,697 2,554,517
Proceeds from sales of certificates 2,598,129 2,626,098
Payments of maturing certificates of deposits (7,975,716) ( 4,779,256)
Increase in advance payments by borrowers
for property taxes and insurance 358,222 285,175
Dividends paid ( 47,175) ( 38,509)
Advances from Federal Home Loan Bank of Atlanta 500,000 500,000
Proceeds from issuance of common stock 177,501
Purchase of treasury stock ( 316,993)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,247,665 1,148,025
---------- ----------
NET DECREASE IN CASH ( 219,810) ( 358,089)
CASH
BEGINNING OF PERIOD 2,252,544 2,345,113
----------- ----------
END OF PERIOD $2,032,734 $1,987,024
=========== ==========
</TABLE>
6
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1996 1995
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Net Income $ 78,666 $ 92,985
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 10,844 8,261
Allowance for loan losses 9,000 7,500
Amortization of investment security
premiums and discounts ( 4,632) ( 8,042)
Stock dividends ( 3,380) ( 2,984)
Increase in accrued interest receivable ( 8,347) ( 25,427)
Increase in deferred taxes ( 5,089)
Increase in prepaid expenses ( 16,049) ( 19,911)
(Increase) decrease in other assets 2,564 ( 15,034)
Increase (decrease) in other liabilities 17,731 ( 12,522)
Increase in loans held for sale ( 547,871)
--------- ---------
( 545,229) ( 68,159)
--------- ---------
($466,563) $ 24,826
========= =========
</TABLE>
7
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
MARCH 31, 1996
--------------
(1) BASIS OF PRESENTATION
---------------------
(1) Summary of Significant Accounting Policies
------------------------------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the accounting policies in
effect at December 31, 1995, as set forth in the annual
consolidated financial statements of Cecil Bancorp, Inc. and
Subsidiaries (the "Bank"). In the opinion of Management, all
adjustments necessary for a fair presentation of the consolidated
financial statements are of a normal recurring nature and have
been included.
The results of operation of the three month periods ended March
31, 1996 and 1995, are not necessarily indicative of the results
to be expected for the full year.
(2) Earnings per Share
------------------
Earnings per common share for 1996 is computed by dividing net
income by the weighted average number of shares of common stock
outstanding. The weighted average number of shares of common
stock was 444,311.
(3) Other Financial Information
---------------------------
Simon, Master & Sidlow, P.A., Cecil Bancorp's independent
certified public accountants, performed a limited review of the
financial data presented on pages 1 through 5 inclusive. The
review was performed in accordance with standards for such
reviews established by the American Institute of Certified Public
Accountants. The review did not constitute an audit;
accordingly, Simon, Master & Sidlow, P.A. did not express an
opinion on the aforementioned data. The financial data include
any material adjustments or disclosures proposed by Simon, Master
& Sidlow, P.A. as a result of their review.
8
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- - -------
Cecil Bancorp, Inc. ("the Company") was incorporated under the laws of the
State of Maryland in July 1994. On November 10, 1994, Cecil Federal Savings
Bank ("Cecil Federal" or the "Bank" converted from mutual to stock form and
reorganized into the holding company form of ownership as a wholly owned
subsidiary of the Company. As a result of the conversion and reorganization,
the Company issued and sold 481,361 shares of its common stock at a price of
$10.00 per share to its depositors, borrowers, stock benefit plans and the
public, thereby recognizing net proceeds of $4,315,057. The Company's common
stock is registered with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is classified as a unitary savings institution holding company subject
to regulation by the Office of Thrift Supervision ("OTS") of the Department of
the Treasury.
The Company is primarily engaged in the business of directing, planning and
coordinating the business activities of Cecil Federal. Accordingly, the
information set forth in this report, including financial statements and related
data, relates primarily to the Bank and its subsidiaries. In the future, the
Company may become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions. Currently, the Company
does not maintain offices separate from those of Cecil Federal or employ any
persons other than its officers who are not separately compensated for such
service.
Cecil Federal is principally engaged in the business of attracting savings
deposits from the general public and investing those funds in loans for the
purchase and construction of one-to-four family residential real estate,
primarily located in Cecil County, Maryland, and in originating to a lessor
extent, land loans, commercial real estate loans, equity loans, consumer loans
and student loans. Also, during periods of reduced loan demand, the Bank
invests excess funds in mortgage-backed securities and other investment
securities, such as U.S. Treasury obligations and overnight funds in the Federal
Home Loan Bank of Atlanta.
Cecil Federal's profitability is primarily dependent upon its net interest
income, which is the difference between interest earned on its loan and
investment portfolios and the cost of funds or interest paid on deposits. Net
interest income is directly affected by the relative amounts of interest-earning
assets and interest-bearing liabilities and the interest rates earned or paid on
these balances.
9
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
To a lesser extent, the Bank's profitability is also affected by the level
of noninterest income and expense. Noninterest incomes consists primarily of
service fees and gains on sales of investments. Noninterest expenses include
salaries and benefits, occupancy expenses, equipment and data processing
expenses, deposit insurance expenses and other operating expenses.
The most significant outside factors influencing the operations of Cecil
Federal and other banks include general economic conditions, competition in the
local marketplace and related monetary and fiscal policies of agencies that
regulate financial institutions. More specifically, lending activities are
influenced by the demand for real estate financing and other types of loans,
which in turn are affected by the interest rates at which such loans may be
offered and other factors affecting loan demand and funds availability, while
the cost of funds (deposits) are influenced by interest rates on competing
deposits and general market rates of interest.
ASSET/LIABILITY MANAGEMENT
- - --------------------------
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread (the difference between the
weighted average interest yields earned on interest-earning assets and the
weighted average interest rates paid on interest-bearing liabilities) that can
be sustained during fluctuations in prevailing interest rates. Cecil Federal's
asset/liability management policies are designed to reduce the impact of changes
in interest rates on its net interest income by achieving a more favorable match
between the maturities or repricing dates of its interest-earning assets and
interest-bearing liabilities. The Bank has implemented these policies by
generally emphasizing the origination of one-year, three-year and five-year
adjustable rate mortgage loans and short-term consumer lending. The bank now
offers an adjustable rate product which remains fixed for the first ten years
and then converts to a one-year adjustable. Prior to June 1994, most fixed-rate
mortgage loans offered by the Bank were originated for sale in the secondary
market. From July 1, 1994 through June 30, 1995 the bank elected to not sell
fixed rate mortgages that were originated, but chose to maintain them in its
portfolio. Management has been monitoring the retention of fixed rate loans
through its asset/liability management policy. Beginning July 1, 1995, the bank
began originating fixed rate mortgages for sale in the secondary market.
Management intends to continue to concentrate on maintaining its interest
rate spread in a manner consistent with its lending policies, which are
principally the origination of adjustable-rate mortgages, with an appropriate
blend of fixed-rate mortgage loans in its primary market area.
10
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
FINANCIAL CONDITION
- - -------------------
Total assets at March 31, 1996 increased $2,344,520 or 4.3% to $56,335,692
from $53,991,172 at December 31, 1995. The increase was the result of increases
in loans receivable, interest bearing cash and securities held to maturity.
Total liabilities increased $1,576,110 or 5.2% to $49,412,726 at March 31, 1996,
from $46,960,663 at December 31, 1995. This increase was a result of an increase
in savings deposits, escrows and advances from the Federal Home Loan Bank of
Atlanta.
Cash decreased $657,007 or 58.9% to $459,010 at March 31, 1996 from
$1,116,017 at December 31, 1995. There was growth in interest bearing cash and
investment securities during the March 31, 1996 quarter. Increases in these
specific categories were a result of moving cash into securities and investing
funds into short term investments to match the Bank's liquidity requirements.
Loans receivable increased $1,306,610 or 2.8% to $48,460,264 at March 31,
1996 from $47,153,654 at December 31, 1995. Loan portfolio growth was spurred by
current economic conditions. The Bank experienced growth in its Loans held for
--------------
Sale portfolio due to the attractiveness of long term fixed rate interest rates.
- - ----
Effective July 1, 1995, the bank began originating fixed rate loans for sale in
the secondary market.
Total savings deposits increased $1,576,110 or 3.5% to $46,225,562 at March
31, 1996 from $44,649,452 at December 31, 1995. The increase was a result of
general product growth and development during the first quarter of 1996. The
Company also saw considerable increases in escrows held for others due primarily
to recent HUD/RESPA changes on the calculation of acceptable payments in advance
by account holders.
The Bank also saw increases in the balance of advances from Federal Home
Loan Bank of Atlanta. Additional funds were advanced to fund loan growth and to
satisfy liquidity requirements.
During the quarter ending March 31, 1996 the Company entered in to a 5%
purchase program of Cecil Bancorp, Inc. stock. As of March 31, 1996, the Company
had purchased 21,647 shares. In February, 1996, former President and CEO Gary A.
Brown excercised stock options for 12,034 shares(option price $11.00), and
subsequently sold 11,847 shares to the Company.
Cecil Federal Savings Bank distributed a dividend of $550,000 to the
holding company, Cecil Bancorp, Inc. during the first quarter to fund the
activities of the holding company.
11
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended March 31, 1996. Net income for the three month period ended
- - ----------------------------------
March 31, 1996 decreased 14.1% to $78,666 compared to net income for the same
period in 1995 of $92,985. Return on average assets and return on average
equity were .56% 1 and 4.48% 1 respectively, for the three month period ended
March 31, 1996. This compares to a return on average assets and return on
average equity of .78%1 and 5.40%1 respectively, for the same period in 1995.
Net interest income, the Bank's primary source of income, increased 6.3% up
$31,419 for the three months ended March 31, 1996 over the same period in 1995.
The weighted average yield on all interest earning assets increased from 7.69%
for the three months ended March 31, 1995 to 8.07% for the three months ended
March 31, 1996. The weighted average rate paid on interest bearing liabilities
increased from 3.66% for the three months ended March 31, 1995 to 3.91% for the
three months ended March 31, 1996.
Interest on loans receivable increased by $173,429, or 21.1%, from $821,488 for
the three months ended March 31, 1995 to $994,917 for the three months ended
March 31, 1996. The increase is attributable to both an increase in the
weighted average yield and an increase in the average balances outstanding. The
weighted average yield increased from 7.87% for the three months ended March 31,
1995 to 8.27% for the three months ended March 31, 1996.
Interest on mortgage backed securities decreased $3,271 or 18.7%, from $17,522
for the three months ended March 31, 1995 to $14,251 for the three months ended
March 31, 1996. The decrease was a result of a decline in the average balance
outstanding. There have been no new purchases of mortgage-backed securities
during the current quarter.
Interest on investment securities decreased $7,338 or 17.8%, from $41,223 for
the three months ended March 31, 1995 to $33,885 for the three months ended
March 31, 1996. Both the weighted average yield and average balance outstanding
declined slightly.
Interest on other investments increased $7,105 or 45.8%, from $15,518 for the
three months ended March 31, 1995 to $22,623 for the three months ended March
31, 1996. The average balance decreased slightly, which was offset by an
increase in the weighted average yield.
Interest on savings deposits increased $130,737 or 33.4% from $390,892 for the
three months ended March 31, 1995 to $521,629 for the three months ended March
31, 1996. The average balance outstanding increased $6,076,878 for the period
noted above. The
- - --------------
/1/ Annualized
12
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
weighted average rate paid on deposits also increased, from 3.66% for the three
months ended March 31, 1995 to 3.91% for the three months ended March 31, 1996.
Rate increases are a result of an increase in yields on short term investments.
Interest expense paid on advances secured from the Federal Home Loan Bank of
Atlanta increased $7,769 or 156.4% from $4,966 for the three months ended March
31, 1995 to $12,735 for the three months ended March 31, 1996. Increases can be
solely attributable to increases in the average balances outstanding, from
$500,000 for the three months ended March 31, 1995 to $1,083,333 for the three
months ended March 31, 1996.
Non interest income increased $13,323 or 26.9%, from $49,537 for the three
months ended March 31, 1995 for $62,860 for the three month period ended March
31, 1996. The increase is a result of increases in fee income and gains
realized on loans sold.
Non interest expense increased $66,248, or 17.1% from $387,539 for the three
months ended March 31, 1995 to $453,787 for the three months ended March 31,
1996. The increase between the years was primarily attributable to the
compensation expense associated with former President and CEO Gary A. Brown
exercising 12,034 stock options during the quarter. The Company recognized one
time expense of $45,127. Occupancy expense increased during the first quarter
as a result of increased heating and maintenance costs due to harsh weather
conditions.
Income tax expense for the three month period ended March 31, 1996 and 1995
respectively were $52,719 and $61,406, which equates to effective rates of 40.1%
and 39.8%, respectively.
13
<PAGE>
CECIL BANCORP, INC AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Nonperforming Assets and Problem Loans
- - --------------------------------------
Management reviews and identifies all loans and investments that require
designation as nonperforming assets. These assets include: (I) loans accounted
for on a nonaccrual basis, consisting of all loans 90 or more days past due;
(ii) troubled debt restructuring; and (iii) assets acquired in settlement of
loans. The following table sets forth certain information with respect to
nonperforming assets at March 31, 1996:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Nonperforming loans:
Residential mortgage $510,842 $14,761
Consumer and other 0 14,059
</TABLE>
Assets acquired in settlement of loans:
Real estate held for development and sale
Real estate held for investment and sale $73,000 $ 73,000
Repossessed assets __________ _________
Total nonperforming assets $583,842 $101,820
Residential mortgages classified consisted of 6 loans with balances ranging from
$33,000 to $197,000. The bank had no classified consumer loans as of March 31,
1996.
The provision for losses on loans is determined based on management's review of
the loan portfolio and analysis of borrower's ability to repay, past collection
experience, risk characteristics
14
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
CAPITAL ADEQUACY
- - ----------------
The Company Capital adequacy refers to the level of capital required to sustain
- - -----------
asset growth and to absorb losses. There are currently no regulatory capital
guidelines or requirements for the Company.
The Bank The Office of Thrift Supervision ("OTS"), which is the bank's
- - --------
principle regulator, has established requirements for tangible, core and risk
based measures of capital. As a result, the three capital measures mentioned
above were as follows at March 31, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk Based
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Available capital $6,771 $6,771 $6,895
Required capital 846 1,692 2,633
------- ------- -------
Excess $5,925 $5,079 $4,262
Available capital 12.01% 12.01% 20.95%
Required capital 1.50% 3.00% 8.00%
------- ------- -------
Excess 10.51% 9.01% 12.95%
</TABLE>
The Federal Deposit Improvement Act of 1991 ("FDICIA") established five capital
categories which are used to determine the rate of deposit insurance premiums
paid by insured institutions, thus introducing the concept of risk adjusted
premiums. This act has the effect of requiring weaker banks to pay higher
insurance premiums while allowing healthier , well capitalized banks to pay
lower premiums. The following table summarizes the five capital categories and
the minimum capital requirements for each of the three capital requirements:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Well capitalized 5+% 6+% 10+%
Adequately capitalized 4%-4.99% 4%-5.99% 8%-9.99%
Undercapitalized 3%-3.99% 3%-3.99% 6%-7.99%
Significantly undercapitalized 2%-2.99% 2%-2.99% 0%-5.99%
Critically undercapitalized 0%-1.99% - -
- - -------------------------------------------------------------------------------
</TABLE>
On March 31, 1996, the Bank's capital levels were sufficient to qualify it as a
well capitalized institution, the most favorable category, allowing the Bank to
pay lower deposit insurance premiums.
15
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
PART II. Other Information:
PAGE
- - ----
Item 1. Legal Proceedings -
Not Applicable
Item 2. Changes in Securities -
Not Applicable
Item 3. Defaults Upon Senior Securities -
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information -
Not Applicable
Item 6. Exhibits and Reports on Form 8-K -
No reports on Form 8-K were filed during the three months ended
March 31, 1996
16
<PAGE>
CECIL BANCORP INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
CECIL BANCORP, INC.
Date: May 6, 1996 By: /s/ Mary Beyer Halsey
--------------------------- ------------------------------
Mary Beyer Halsey
President
Chief Executive Officer
17
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