<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
- --------------------------------------------------------------------------------
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
- --------------------------------------------------------------------------------
For the Quarter Ended Commission File Number
June 30, 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)
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 June 30, 1996
$0.01 par value common stock 469,358 shares
- ---------------------------- --------------
Class Outstanding
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Cecil Bancorp, Inc., and Subsidiaries
Contents
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Part I. Financial Information PAGE
<S> <C> <C>
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Statements of Financial 3-4
Condition - June 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Operations 5
Six Months Ended and Three Months Ended
June 30, 1996 and June 30, 1995
Consolidated Condensed Statement of Cash Flows 6-7
Six Months Ended and Three Months Ended
June 30, 1996 and June 30, 1995
Notes to Consolidated Condensed Financial Statements 8
ITEM 2. Managements Discussion and Analysis of Financial 9-14
Condition and Results of Operations
Part II. Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders 16
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2
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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ASSETS
------
<TABLE>
<CAPTION>
June December
30, 1996 31, 1995
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(Unaudited)
<S> <C> <C>
Cash $ 617,947 $ 1,116,017
Cash - Interest bearing 1,302,721 1,136,527
Investment securities
Securities held-to-maturity 2,501,783 2,025,015
Securities available-for-sale at
estimated market value 480,299 222,724
Mortgage-backed securities
Securities held-to-maturity 598,372 872,369
Securities available-for-sale at
estimated market value 1,723,344
Loans receivable, net 48,598,042 46,482,054
Loans held for sale 2,198,640 671,600
Real estate owned 73,003 73,003
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 523,730 454,304
Stock in Federal Home Loan Bank of
Atlanta - at cost 422,900 422,900
Accrued interest receivable 427,845 378,281
Deferred taxes 67,967 70,487
Prepaid expenses 52,288 47,946
Other assets 13,244 17,945
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TOTAL ASSETS $59,602,125 $53,991,172
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3
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June December
30, 1996 31, 1995
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(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $48,080,433 $44,649,452
Advance payments by borrowers for
property taxes and insurance 1,164,585 489,465
Employee stock ownership debt 346,572 346,572
Other liabilities 215,580 225,174
Advances from Federal Home Loan
Bank of Atlanta 2,750,000 1,250,000
----------- -----------
TOTAL LIABILITIES 52,557,170 46,960,663
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 469,358 shares and
481,361 shares, at June 30, 1996 and
December 31, 1995, respectively 4,694 4,814
Additional paid in capital 3,902,220 3,963,671
Net unrealized gain on securities
available-for-sale, net of deferred taxes 1,591 2,459
Employee stock ownership debt (346,572) (346,572)
Retained earnings, substantially restricted 3,639,069 3,599,871
Deferred compensation - Management
Recognition Plan (156,047) (193,734)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,044,955 7,030,509
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $59,602,125 $53,991,172
=========== ===========
</TABLE>
4
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $1,055,699 $905,722 $2,050,616 $1,727,210
Mortgage-backed securities 12,088 16,823 26,339 34,345
Investment securities 30,089 31,430 63,974 72,652
Other interest-earning assets 21,926 23,468 44,549 38,985
---------- -------- ---------- ----------
Total interest income 1,119,802 977,443 2,185,478 1,873,192
INTEREST EXPENSE
Deposits
NOW accounts 16,744 19,078 34,454 36,499
Passbook accounts 74,620 76,635 148,334 157,719
Money market deposit accounts 19,427 23,232 40,926 48,470
Certificates 410,222 318,809 819,289 585,958
Borrowings 18,772 13,201 31,147 18,167
---------- -------- ---------- ----------
Total interest expense 539,785 450,955 1,074,150 846,813
---------- -------- ---------- ----------
Net interest income 580,017 526,488 1,111,328 1,026,379
Provision for loan losses 9,000 7,500 18,000 15,000
---------- -------- ---------- ----------
Net interest income after
provision for loan losses 571,017 518,988 1,093,328 1,011,379
NONINTEREST INCOME (LOSS)
Loan service charges 6,795 5,690 13,468 11,460
Dividends on FHLB stock 7,623 7,560 15,123 12,960
Gain on sale of loans 1,257 6,050
Other 50,076 37,375 93,970 75,743
---------- -------- ---------- ----------
Total noninterest income 65,751 50,625 128,611 100,163
NONINTEREST EXPENSE
Compensation and benefits 216,461 189,788 480,865 389,382
Occupancy expense 23,751 21,181 50,241 33,734
Equipment and data processing expense 39,095 26,755 79,881 56,194
SAIF deposit insurance premium 30,262 27,194 59,773 54,389
Other 94,602 122,157 187,198 240,916
---------- -------- ---------- ----------
Total noninterest expense 404,171 387,075 857,958 774,615
---------- -------- ---------- ----------
Income before income taxes 232,597 182,538 363,981 336,927
INCOME TAXES
Current 67,259 75,147 125,067 134,001
Deferred 7,609 170 2,520 2,722
---------- -------- ---------- ----------
Total income taxes 74,868 75,317 127,587 136,723
---------- -------- ---------- ----------
NET INCOME $157,729 $107,221 $ 236,394 $ 200,204
========== ======== ========== ==========
Earnings per common share $0.36 $0.23 $0.54 $0.42
========== ======== ========== ==========
Cash dividends paid per common share $0.08 $0.05 $0.18 $0.23
========== ======== ========== ==========
</TABLE>
5
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on
loans and investments $ 2,242,447 $ 1,905,500
Cash paid to suppliers and employees (818,507) (788,382)
Proceeds from sale of loans 196,992
Origination of loans held for sale (1,809,700)
Interest paid (1,074,150) (846,813)
Income taxes paid (112,756) (93,405)
------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,375,674) 176,900
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of
investment securities 1,000,000 1,500,000
Proceeds from maturities of
mortgage-backed securities 274,932 65,550
Purchases of investment securities (1,720,625) (500,000)
Purchases of mortgage-backed securities (1,722,837)
Loans originated (11,047,228) (9,644,868)
Principal collected on loans 9,004,958 4,303,141
Purchases of office properties, equipment
and leasehold improvements (92,736) (19,153)
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NET CASH USED BY INVESTING ACTIVITIES (4,303,536) (4,295,330)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts, and savings accounts 16,364,266 6,333,502
Proceeds from sales of certificates 5,936,502 6,647,256
Payments of maturing certificates of deposits (18,869,787) (10,247,846)
Increase in advance payments by borrowers
for property taxes and insurance 675,120 567,583
Dividends paid (84,723) (112,446)
Advances from Federal Home Loan Bank
of Atlanta 1,500,000
Proceeds from issuance of common stock 178,799
Purchase of common stock (352,843)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,347,334 3,188,049
------------- -------------
NET DECREASE IN CASH (331,876) (930,381)
CASH
BEGINNING OF PERIOD 2,252,544 2,345,113
------------- -------------
END OF PERIOD $ 1,920,668 $ 1,414,732
============= =============
</TABLE>
6
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
-------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
Net Income $ 236,394 $ 200,204
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 23,310 16,799
Provision for loan losses 18,000 15,000
Amortization of investment
security premiums (discounts) (7,077) (15,631)
Stock dividends (8,951) (4,383)
Unrealized loss on loans held for sale
Increase in accrued interest receivable (49,564) (47,841)
(Increase) decrease in deferred taxes 2,520 (966)
(Increase) decrease in prepaid expenses (4,342) 36,684
(Increase) decrease in other assets 4,701 (232)
Decrease in other liabilities (9,594) (22,734)
Increase in loans held for sale (1,618,758)
Distribution from MRP Trust 37,687
------------ ---------
(1,612,068) (23,304)
------------ ---------
($ 1,375,674) $ 176,900
============ =========
</TABLE>
7
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
JUNE 30, 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 for the six month periods ended June 30,
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 439,516.
(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
includes any material adjustments or disclosures proposed by Simon,
Master & Sidlow, P.A. as a result of their review.
8
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CECIL BANCORP, INC. AND SUBSIDIARIES
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 and 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.
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.
To a lesser extent, the Bank's profitability is also affected by the level of
noninterest income and expense. Noninterest income 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 mortgages 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
9
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CECIL BANCORP, INC. AND SUBSIDIARIES
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.
FINANCIAL CONDITION
- -------------------
Total assets at June 30, 1996 increased $5,610,953 or 10.4% to $59,602,125 from
$53,991,172 at December 31, 1995. The increase was primarily the result of an
increase in loans receivable, mortgage backed securities and loans held for
sale. Total liabilities increased $5,596,507 or 11.9% to $52,557,170 at June
30, 1996 from $46,960,663 at December 31, 1995. This increase was a result of
an increase in savings deposits, escrows and also advances from the Federal Home
Loan Bank of Atlanta. Stockholder's equity increased $14,446, which included a
dividend payment of $0.08 per share during the second quarter of 1996.
Cash decreased $498,070 or 44.6% to $617,947 at June 30, 1996 from $1,116,017 at
December 31, 1995. Interest bearing cash increased slightly, up 14.6% at June
30, 1996 over the balance at December 31, 1995. Investment securities also
experienced an increase over the same period. An additional investment of
$250,000 was purchased and placed in the held-for-sale portfolio. Mortgage
Backed securities held-for-investment decreased slightly as a result of the
maturity of a five-year FHLMC balloon certificate. The Bank purchased a FHLMC
PC Gold, five-year balloon certificate in the amount of $1,750,000 during the
month of June, 1996. This investment was placed in the held-for-sale portfolio.
Loans receivable increased $2,115,988 or 4.6% to $48,598,042 at June 30, 1996
from $46,482,054 at December 31, 1995. The loans-for-sale portfolio increased
$1,527,040 or 227.4% to $2,198,640 at June 30, 1996 from $671,600 at December
31, 1995. The increase was the result of an increase in loan volume and a
favorable fixed-rate interest rate environment. Loans will be sold to fund
portfolio needs.
Total savings deposits increased $3,430,981 or 7.7% to $48,080,433 at June 30,
1996 from $44,469,452 at December 31, 1995. Increases are attributable to
cross selling and marketing plans. Increases in the Bank's outstanding advances
from the Federal Home Loan Bank of Atlanta were the result of the purchase of a
FHLMC PC Gold, five-year balloon, placed in the held-for-sale portfolio. The
outstanding balance increased by $1,500,000 or 120% to $2,750,000 at June 30,
1996 from $1,250,000 at December 31, 1995.
During the quarter ended June 30, 1996, the Company completed a 5% purchase
program of Cecil Bancorp, Inc. stock. As of June 30, 1996, the Company had
purchased 24,037 shares of Cecil Bancorp, Inc. stock.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended June 30, 1996 Net income for the three month period ended
- --------------------------------
June 30, 1996 increased 47.1% to $157,729 as compared to net income for the same
period in 1995 of $107,221. The annualized return on average assets and
annualized return on average equity were 1.10% and 9.04% respectively, for the
three month period ended June 30, 1996. This compares to an annualized return
on average assets and an annualized return on average equity of .86% and 9.04%
respectively, for the same period in 1995.
Net interest income, the Bank's primary source of income, increased 10.2% up
$53,529 for the three months ended June 30, 1996 over the same period in 1995.
The weighted average yield on interest earning assets increased from 7.87% for
the three months ended June 30, 1995 to 8.16% for the three months ended June
30, 1996. The weighted average rate paid on interest bearing liabilities
decreased from 4.21% for the three months ended June 30, 1995 to 3.93% for the
three months ended June 30, 1996.
Interest on loans receivable increased by $142,359 or 14.6%, from $977,443 for
the three months ended June 30, 1995 to $1,119,802 for the three months ended
June 30, 1996. The increase is attributable to an
10
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CECIL BANCORP, INC. AND SUBSIDIARIES
increase in the average balance outstanding of $6,238,614. The weighted average
yield increased from 8.34% for the three months ended June 30, 1995 to 8.50% for
the three months ended June 30, 1996.
Interest on mortgage backed securities decreased $4,735 or 28.1%, from $16,823
for the three months ended June 30, 1995 for $12,088 for the three months ended
June 30, 1996. The decrease was the result of a decline in the average
outstanding balance. The Bank purchased a FHLMC gold, 5 year Balloon, in the
amount of $1,750,000, near the end of June, 1996.
Interest on investment securities decreased $1,341 or 4.3% from $31,430 for the
three months ended June 30, 1995 to $30,089 for the three months ended June 30,
1996. Both the average balance and the weighted average yield declined
slightly.
Interest on other investments decreased $1,542, or 6.6% from $23,468 for the
three months ended June 30, 1995 to $21,926 for the three months ended June 30,
1996. The average balance outstanding increased slightly, which was offset by a
slight decrease in the weighted average yield.
Interest on savings deposits increased $83,259, or 19.0% from $437,754 for the
three months ended June 30, 1995 to $521,013 for the three months ended June 30,
1996. The average balance outstanding increased $6,437,285 for the period noted
above. The weighted average rate paid on deposits decreased from 4.25% for the
three months ended June 30, 1995 to 3.88% for the three months ended June 30,
1996. Interest expense paid on borrowings increased $5,571, or 42.2% from
$13,201 for the three months ended June 30, 1995 to $18,772 for the three months
ended June 30, 1996. Increases are attributable to an increase in the average
balance outstanding, which was offset by a slight decrease in the weighted
average cost of funds.
Noninterest income increased 29.9%, up $15,126 for the three months ended June
30, 1996, over the same period in 1995. Loan servicing fees increased 19.4%, up
$1,105 for the three months ended June 30, 1996 over the same period in 1995.
There was an increase in gains on the sale of loans for the three months ended
June 30, 1996 of $1,257 over the same period in 1995. This increase was
attributable to the Bank's decision to re-enter the secondary market during
1996. Other non-interest income increased 34%, up $15,126 for the three months
ended June 30, 1996 over the same period in 1995. Increases in this area can
primarily be attributable to increased service charges, due to the steady growth
of demand deposits, and the installation of two ATM machines, which are
primarily used by non-customers.
Noninterest expense increased 4.4%, up $26,673 for the three months ended June
30, 1996, over the same period in 1995. Compensation and benefits increased
14.1% for the three months ended June 30, 1996 over the same period in 1995,
which is a result of general merit increases and costs of benefits. Occupancy
expense increased 12.1% for the three months ended June 30, 1996 over the same
period in 1995, which results from the addition of leased space for the loan
department, commencing in September of 1995. Equipment and data processing
expenses increased 46.1% for the three months ended June 30, 1996, over the same
period in 1995. This increase can be attributable to new hardware and software
for the loan department. The SAIF deposit premium increased 11.3% for the three
months ended June 30, 1996 over the same period in 1996, as a result of
increased deposits. Other expenses decreased by 22.6% for the three months
ended June 30, 1996 over the same period in 1995, as a result of cost cutting
efforts and decreased service charge fees from correspondent banks.
Income tax expense for the three month period ended June 30, 1996 and 1995 was
$74,868 and $75,317, which equates to effective rates of 32.2% and 41.2%
respectively.
Six Months Ended June 30, 1996 Net income for the six month period ended June
- ------------------------------
30, 1996 increased $36,190 or 18.1% to $236,394, compared to net income for the
same period in 1995. Return on average assets and return on average equity were
.84% and 6.76% respectively, for the six month period ended June 30, 1996. This
compares to a return on average assets and return on average equity of .82% and
5.60% respectively, for the same period in 1995.
11
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CECIL BANCORP, INC. AND SUBSIDIARIES
Net interest income , the Bank's primary source of income, increased 8.3% up
$84,949 for the six months ended June 30, 1996, over the same period in 1995.
The weighted average yield on interest earning assets increased from 7.98% for
the six months ended June 30, 1995 to 8.12% for the six months ended June 30,
1996. The weighted average rate paid on interest bearing liabilities decreased
from 4.46% for the six months ended June 30, 1995 to 4.04% for the six months
ended June 30, 1996.
Interest on loans receivable increased by $323,406 or 18.7%, from $1,727,210 for
the six months ended June 30, 1995 to $2,050,616 for the six months ended June
30, 1996. The increase is attributable to an increase in the average balance
outstanding of $6,774,495. The weighted average yield increased from 8.34% for
the six months ended June 30, 1995 to 8.50% for the six months ended June 30,
1996.
Interest on mortgage backed securities decreased $8,006 or 23.3%, from $34,345
for the six months ended June 30, 1995 to $26,339 for the six months ended June
30, 1996. The decrease was the result of a decline in the average outstanding
balance. The Bank purchased a FHLMC gold, 5 year Balloon, in the amount of
$1,750,000, near the end of June 1996.
Interest on investment securities decreased $8,678 or 11.9% from $72,652 for the
six months ended June 30, 1995 to $63,974 for the six months ended June 30,
1996. Both the average balance and the weighted average yield declined
slightly.
Interest on other investments increased $5,564, or 14.3% from $38,985 for the
six months ended June 30, 1995 to $44,549 for the six months ended June 30,
1996. The average balance outstanding and the weighted average yield increased
from 6.47% for the six months ended June 30, 1995 to 6.97% for the six months
ended June 30, 1996.
Interest on savings deposits increased $214,357, or 25.9% from $828,646 for the
six months ended June 30, 1995 to $1,043,003 for the six months ended June 30,
1996. The average balance outstanding increased $6,240,265 for the period noted
above. The weighted average rate paid on deposits decreased from 4.25% for the
six months ended June 30, 1995 to 4.09% for the six months ended June 30, 1996.
Interest expense paid on borrowings increased $12,980, or 71.4% from $18,167 for
the six months ended June 30, 1995 to $31,147 for the six months ended June 30,
1996. Increases are attributable to an increase in the average balance
outstanding, which was offset by a slight decrease in the weighted average cost
of funds.
Noninterest income increased to $28,448 or 28.4% to $128,611 for the six months
ended June 30, 1996 from $100,163 for the same period in 1995. Loan servicing
fees increased 17.5%, up $2,008 for the six months ended June 30, 1996 over the
same period in 1995. This was a result of the increased balances in the loan
servicing portfolio. Gains on sale of loans was up $6,050 for the six months
ended June 30, 1996 over the same period in 1995, as a result of re-entering the
secondary market to sell fixed-rate loans. Other fees increased 24.1% up
$18,227 for the six months ended June 30, 1996 over the same period in 1995.
Increases were primarily attributable to increases in fee income, from service
charges and the addition of two new ATM machines.
Noninterest expense increased $83,343 or 10.8% to $857,958 for the six month
period ended June 30, 1996 from $774,615 for the six months ended June 30, 1995.
Compensation and benefits increased 23.5%, up $91,483 for the six month period
ended June 30, 1996 over the same period in 1995. Increases were a result of
compensation expenses associated with stock options that were exercised by
former President Gary A. Brown during the first quarter, costs of benefits and
merit increases . Occupancy expenses increased 48.9%, up $16,507 for the six
months ended June 30, 1996, over the same period in 1995. Snow removal during
the winter months and the lease expense for the additional office space rented
for the loan department, commencing in September 1995 were the major
contributors to the increase. The SAIF deposit premium increased 9.9%, up
$5,384 for the six months ended June 30, 1996, over the same period in 1995.
Increases were a result of increased savings deposits. Other expenses decreased
22.3%, down $53,718 for the six month period ended June 30, 1996, over the same
period in 1995. The decrease was attributable to a decrease in legal fees, cost
cutting measures introduced and decreased fees from correspondent banks.
12
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Income tax expense for the six month period ended June 30, 1996 and 1995 was
$127,587 and $136,723 which equates to effective rates of 35.1% and 40.6%
respectively.
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 days or more 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 June 30, 1996:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Nonperforming loans:
Residential mortgage $381,565 $218,612
Consumer and other 133,585 10,763
Assets acquired in settlement of loans:
Real estate held for development and sale
Real estate held for investments and sale
Repossessed assets 73,000 73,000
Total nonperforming assets $588,150 $229,375
</TABLE>
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.
13
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
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 June 30, 1996:
On June 30, 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 premiums.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
-------- ---- ----------
<S> <C> <C> <C>
Available capital 6,941 6,941 7,069
Required capital 895 1,790 2,903
Excess 6,046 5,151 4,166
Available capital 11.64% 11.64% 19.48%
Required capital 1.50% 3.00% 8.00%
Excess 10.14% 8.64% 11.48%
</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 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>
14
<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 16
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 June 30, 1996
15
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Cecil Bancorp, Inc. was held on April
23, 1996, at 10:00 a.m. at the Swiss Inn, Elkton, Maryland, for the purpose
of electing a board of directors. Proxies for the meeting were solicited
pursuant to Section 14 (a) of the Securities Exchange Act of 1934 and there
was no solicitation in opposition to management's solicitations.
All of management's nominees for directors as listed in the proxy statement
were elected with the following vote:
To serve for a three-year term:
<TABLE>
<CAPTION>
Shares Shares
Voted Shares Not
"For" "Withheld" Voted
<S> <C> <C> <C>
William F. Burkley 382,468 15,688 0
Doris P. Scott 382,468 15,688 0
Howard B. Tome 396,970 1,236 0
</TABLE>
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.
BY: /S/ MARY BEYER HALSEY
---------------------
Mary Beyer Halsey
President
Chief Executive Officer
Date: July 25, 1996
- -------------------
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 617,947
<INT-BEARING-DEPOSITS> 1,302,721
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,203,643
<INVESTMENTS-CARRYING> 3,100,155
<INVESTMENTS-MARKET> 3,100,728
<LOANS> 50,796,682
<ALLOWANCE> 131,000
<TOTAL-ASSETS> 59,602,125
<DEPOSITS> 48,080,443
<SHORT-TERM> 2,750,000
<LIABILITIES-OTHER> 1,380,165
<LONG-TERM> 346,572
0
0
<COMMON> 7,044,955
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 59,602,125
<INTEREST-LOAN> 1,055,699
<INTEREST-INVEST> 64,103
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,119,802
<INTEREST-DEPOSIT> 521,013
<INTEREST-EXPENSE> 539,785
<INTEREST-INCOME-NET> 580,017
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 404,171
<INCOME-PRETAX> 232,597
<INCOME-PRE-EXTRAORDINARY> 232,597
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,729
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 8.16
<LOANS-NON> 515,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 127,000
<CHARGE-OFFS> 10,000
<RECOVERIES> 5,000
<ALLOWANCE-CLOSE> 131,000
<ALLOWANCE-DOMESTIC> 131,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
