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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 Quarter Ended Commission File Number
September 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
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 September 30, 1996
$0.01 par value common stock 469,358 shares
- ---------------------------- --------------
(Class) (Outstanding)
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CECIL BANCORP, INC., AND SUBSIDIARIES
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Statements of
Financial Condition - September 30, 1996
and December 31, 1995 3-4
Consolidated Condensed Statements of
Operations Nine Months Ended and Three
Months Ended September 30, 1996 and
September 30, 1995 5
Consolidated Condensed Statement of
Cash Flows Nine Months Ended and Three
Months Ended September 30, 1996 and
September 30, 1995 6-7
Notes to Consolidated Condensed
Financial Statements 8
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-18
PART II. OTHER INFORMATION
2<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash $ 1,411,694 $ 1,116,017
Cash - Interest bearing 932,379 1,136,527
Investment securities
Securities held-to-maturity 2,514,922 2,025,015
Securities available-for-sale at
estimated market value 487,633 222,724
Mortgage-backed securities
Securities held-to-maturity 578,834 872,369
Securities available-for-sale at
estimated market value 1,651,362
Loans receivable, net 48,650,220 46,482,054
Loans held for sale 2,506,525 671,600
Real estate owned 73,003 73,003
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 517,484 454,304
Stock in Federal Home Loan Bank of
Atlanta - at cost 422,900 422,900
Accrued interest receivable 407,683 378,281
Deferred taxes 88,231 70,487
Prepaid expenses 41,205 47,946
Other assets 11,452 17,945
----------- -----------
TOTAL ASSETS $60,295,527 $53,991,172
=========== ===========
</TABLE>
3<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
(Unaudited)
LIABILITIES
Savings deposits $47,971,453 $44,649,452
Advance payments by borrowers for
property taxes and insurance 408,850 489,465
Employee stock ownership debt 346,572 346,572
Other liabilities 559,190 225,174
Advances from Federal Home Loan
Bank of Atlanta 4,000,000 1,250,000
----------- -----------
TOTAL LIABILITIES 53,286,065 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 September 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 4,720 2,459
Employee stock ownership debt (346,572) (346,572)
Retained earnings, substantially
restricted 3,600,447 3,599,871
Deferred Compensation-Management
Recognition Plan (156,047) (193,734)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,009,462 7,030,509
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $60,295,527 $53,991,172
=========== ===========
</TABLE>
4<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ -------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $1,127,670 $ 973,866 $3,178,286 $2,701,077
Mortgage-backed securities 46,618 16,141 72,957 50,486
Investment securities 34,261 31,904 98,235 104,556
Other interest-earning assets 38,568 20,881 83,117 59,866
---------- ---------- ---------- ----------
Total interest income 1,247,117 1,042,792 3,432,595 2,915,985
INTEREST EXPENSE
Deposits
NOW accounts 16,721 18,762 51,175 55,261
Passbook accounts &
Statement Svgs. 75,572 75,431 223,906 233,150
Money market deposit accounts 21,420 23,195 62,346 71,665
Certificates 417,962 373,438 1,237,251 959,396
---------- ---------- ---------- ----------
Interest expense on deposits 531,675 490,826 1,574,678 1,319,472
Borrowings 48,255 7,200 79,401 25,366
---------- ---------- ---------- ----------
Total interest expense 579,930 498,026 1,654,079 1,344,838
---------- ---------- ---------- ----------
Net interest income 667,187 544,766 1,778,516 1,571,147
Provision for loan losses 50,500 9,500 68,500 24,500
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 616,687 535,266 1,710,016 1,546,647
NONINTEREST INCOME (LOSS)
Loan service charges 7,731 6,357 21,199 17,816
Dividends on FHLB stock 7,623 7,643 22,746 20,604
Gain on sale of loans 46,262 4,551 52,313 4,551
Other 39,008 47,287 132,977 123,030
---------- ---------- ---------- ----------
Total noninterest income 100,624 65,838 229,235 166,001
NONINTEREST EXPENSE
Compensation and benefits 216,252 206,309 697,118 595,692
Occupancy expense 26,561 21,630 76,802 55,364
Equipment and data processing
expense 37,649 30,801 117,530 86,995
SAIF deposit insurance premium 301,838 27,578 361,611 81,967
Other 89,400 116,906 276,597 357,822
---------- ---------- ---------- ----------
Total noninterest expense 671,700 403,224 1,529,658 1,177,840
---------- ---------- ---------- ----------
Income before income taxes 45,611 197,880 409,593 534,808
INCOME TAXES
Current 17,427 74,353 142,495 209,321
Deferred 29,257 967 31,777 2,722
---------- ---------- ---------- ----------
Total income taxes 46,684 75,320 174,272 212,043
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (1,073) $ 122,560 $ 235,321 $ 322,765
========== ==========
========== ==========
Earnings per common share $ (.02) $ .28 $ .58 $ .73
========== ==========
========== ==========
Cash dividends paid per
common share $ .08 $ .25 .26 .48
========== ==========
========== ==========
</TABLE>
5<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
------- -------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on loans
and investments $ 3,556,490 $ 2,978,763
Cash paid to suppliers and employees (1,141,596) (1,226,292)
Proceeds from sale of loans 986,904 476,551
Origination of loans held for sale (2,806,500) (735,600)
Interest paid (1,654,079) (1,344,838)
Income taxes paid (158,507) (143,776)
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (1,217,288) 4,808
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities 2,500,000 2,500,000
Proceeds from maturities of mortgage-
backed securities 369,595 112,023
Purchases of investment securities (3,233,516) (996,172)
Purchases of mortgage-backed securities (1,722,837)
Loans originated (17,266,991) (13,498,021)
Principal collected on loans 14,026,309 6,749,737
Proceeds from sale of loans 1,041,000
Purchases of office properties, equipment
and leasehold improvements (99,813) (97,661)
----------- -----------
NET CASH USED BY INVESTING
ACTIVITIES (4,386,253) (5,230,094)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 19,778,449 11,879,117
Proceeds from sales of certificates 9,991,344 8,528,206
Payments of maturing certificates of deposits (26,447,792) (16,433,589)
Decrease in advance payments by borrowers for
property taxes and insurance (80,615) (242,981)
Advances from Federal Home Loan
Bank of Atlanta 2,750,000 1,000,000
Dividends paid (122,272) (231,053)
Proceeds from issuance of common stock 178,799
Purchase of common stock (352,843)
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 5,695,070 4,499,700
----------- -----------
NET INCREASE (DECREASE) IN CASH 91,529 (725,586)
CASH
BEGINNING OF PERIOD 2,252,544 2,345,113
----------- -----------
END OF PERIOD $ 2,344,073 $ 1,619,527
=========== ===========
</TABLE>
6<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
------- -------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Net Income $ 235,321 $ 322,765
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 36,633 26,032
Provision for loan losses 68,500 24,500
Amortization of investment security discounts (7,337) (26,441)
Stock dividends (16,288) (9,769)
Gain on sale of loans (4,551)
Increase in accrued interest receivable (29,402) (62,462)
(Increase) decrease in deferred taxes (17,744) 966
Increase in prepaid expenses 6,741 (20,486)
(Increase) decrease in other assets 6,493 (3,239)
Increase in other liabilities 334,016 16,542
Increase in loans held for sale (1,871,908) (259,049)
Distribution from MRP Trust 37,687
----------- ----------
(1,452,609) (317,957)
----------- ----------
$ 1,217,288) $ 4,808
=========== ==========
</TABLE>
7
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
SEPTEMBER 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 nine month periods ended
September 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 438,078 for the nine
months ended September 30, 1996.
(3) Other Financial Information
---------------------------
Simon, Master & Sidlow, P.A., Cecil Bancorp's independent
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 extend 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 and borrowings. 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, deposits insurance expenses and other operating
expenses.
9
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CECIL BANCORP, INC. AND SUBSIDIARIES
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, which 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-bearing 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 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.
Recaptalization of the Savings Associations Insurance Fund
- ----------------------------------------------------------
On September 30, 1996, Congress enacted and President
Clinton signed the Omnibus Consolidated Appropriations Act.
Among the law's many provisions is a resolution ending deposit
insurance premium disparity by fully funding the Savings
Association Insurance Fund ("SAIF"). The bill provided for a
one-time special assessment, estimated to be 65.7 basis points
for deposits bases as of March 31, 1995.
10
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CECIL BANCORP, INC. AND SUBSIDIARIES
As a result of this action, full pro rata sharing of the
Financing Corporation (FICO) debt service beginning no later than
January 1, 2000. Until full pro rata FICO sharing is in place,
FICO premiums for the Bank Insurance Fund (BIF) and SAIF will be
at 1.3 and 6.4 basis points, respectively, beginning January 1,
1997. Total premiums will be the sum of the FICO premium and any
regular insurance assessment, which is currently zero for
institutions in the lowest risk category. Management
anticipates paying the lowest premiums and future earnings will
be effected by the decrease in deposit insurance expense.
FINANCIAL CONDITION
- -------------------
Total assets at September 30, 1996 increased $6,304,355 or
11.7% to $60,295,527 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 $6,325,402 or 13.5% to $53,286,065 at
September 30, 1996 from $46,960,663 at December 31, 1995. This
increase was a result of an increase in savings deposits, and
advances from the Federal Home Loan Bank of Atlanta.
Stockholder's equity decreased 21,047, which included a dividend
payment of $0.08 per share during the third quarter of 1996.
Cash increased $295,677 or 26.5% to $1,411,694 at September 30,
1996 from $1,116,017 at December 31, 1995. Interest bearing cash
decreased slightly down 18.00% at September 30, 1996 over the
balance at December 31, 1995. Investment securities 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 $2,168,166 or 4.7% to $48,650,220 at
September 30, 1996 from $ 46,482,054 at December 31, 1995. The
loans-for-sale portfolio increased $1,834,925 or 273.2% to
$2,506,525 at September 30, 1996 from $671,600 at December 31,
1995. The increase was a 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 $3,322,001 or 7.4% to
$47,971,453 at September 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 a result of loan
portfolio funding demands and the purchase of a FHLMC PC Gold,
five-year balloon, placed in the held-for-sale portfolio. The
outstanding balance increased by $2,750,000 or 220% to $4,000,000
at September 30, 1996 from $1,250,000 at December 31, 1995.
11<PAGE>
<PAGE
CECIL BANCORP, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
- ----------------------
Three Months Ended September 30, 1996. Net income for the
three months period ended September 30, 1996 decreased 100.9% to
($1,073) as compared to net income for the same period in 1995 of
$122,560. Return on average assets and return on average equity
were (.008%)(annualized) and (.06%) (annualized) respectively,
for the three month period ended September 30, 1996. This
compares to a return on average assets and return on average
equity of .78% (annualized) and 10.46% (annualized) respectively,
for the same period in 1995.
The Company suffered a loss due to the one-time assessment of
$270,000 (tax effected, $165,726) to replenish the Savings
Association Insurance Fund. Without the assessment, earnings
would have increased by 34.3% to $164,653 for the three months
ended September 30, 1996 as compared to $122,560 for the three
months ended September 30, 1995. Return on average assets and
return on average equity would have been 1.15% (annualized) and
9.40% (annualized)as compared to .78% (annualized) and 10.46
(annualized) for the same period in 1995. Excluding the Savings
Association Insurance Fund assessment, Earnings per share would
have been $0.36 for the three months ended September 31, 1996 as
compared with $0.25 for the same period in 1995.
Net interest income, the Bank's primary source of income,
increased 22.5% up $122,421 for the three months ended September
30, 1996, over the same period in 1995. The weighted average
yield on interest earning assets increased from 7.98% for the
three months ended September 30, 1995 to 8.75% for the three
months ended September 30, 1996. The weighted average rate paid
on interest bearing liabilities decreased from 4.08% for the
three months ended September 30, 1995 to 3.66% for the three
months ended September 30, 1996.
Interest on loans receivable increased by $153,804 or 15.8% from
$973,866 for the three months ended September 30, 1995 to
$1,127,670 for the three months ended September 30, 1996. The
increase is attributable to an increase in the average balance
outstanding of $5,195,122 and an increase in the weighted average
yield. The weighted average yield increased from 8.47% for the
three months ended September 30, 1995 to 8.84% for the three
months ended September 30, 1996.
12<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Interest on mortgage backed securities increased $30,477 or
188.8% from $16,141 for the three months ended September 30, 1995
to $46,618 for the three months ended September 30, 1996. The
increase was a result of an increase in both the average
outstanding balance and the weighted average yield.
Interest on investment securities increased $2,357 or 7.4% from
$31,904 for the three months ended September 30, 1995 to $34,261
for the three months ended September 30, 1996. Both the average
balance and the weighted average yield increased slightly.
Interest on other investments increased $17,687 or 84.7% from
$20,881 for the three months ended September 30, 1995 to $38,568
for the three months ended September 30, 1996. The average
balance outstanding increased slightly, and the weighted average
yield increased by .47%.
Interest on savings deposits increased $40,849 or 8.3% from
$490,826 for the three months ended September 30, 1995 to
$531,675 for the three months ended September 30, 1996. The
average balance outstanding increased $5,830,203 for the period
noted above. The weighted average rate paid on deposits
decreased from 4.03% for the three moths ended September 30, 1995
to 3.82% for the three months ended September 30, 1996. Interest
expense paid on borrowings increased $41,055 or 570.2% from 7,200
for the three months ended September 30, 1995 to $48,255 for the
three months ended September 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.
Provisions for loan losses were increased by $41,000 or 431.6%
from $9,500 for the quarter ended September 30, 1995 to $50,500
for the quarter ended September 30, 1996. The company reported a
voluntary increase in general reserves as a result of the re-
assessment of reserve balances needed to provide for increased
exposure in outstanding loan categories other than one-to-four
residential loans.
Noninterest income increased 52.8% up $34,786 for the three
months ended September 30, 1996, over the same period in 1995.
Loan servicing fees increased 21.6%, up $1,374 for the three
months ended September 30, 1996 over the same period in 1995.
There was an increase in gains on the sale of loans for the three
months ended September 30, 1996 of $41,711 over the same period
in 1995. This increase was attributable to the Bank's decision
to re-enter the secondary mortgage market during 1996. Other
non-interest income decreased 17.5% down $8,279 for the three
months ended September 30, 1996 over the same period in 1995.
Decreases in this area can primarily be attributable to non-
receipt of insurance sales revenue due to service corporations,
received annually in September.
13<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Noninterest expense increased 66.6% up $268,476 for the three
months ended September 30, 1996, over the same period in 1995.
Compensation and benefits increased 4.8% for the three months
ended September 30, 1996 over the same period in 1995, which is a
result of general merit increases and costs of benefits.
Occupancy expense increased 22.8% for the three months ended
September 30, 1996 over the same period in 1995, which is the
result of the addition of leased space for the loan department,
commencing in the quarter ended, September, 1995. Equipment and
data processing expenses increased 22.2% for the three months
ended September 30, 1996, over the same period in 1995. This
increase can be attributable to a new hardware and software for
the loan department. During the quarter ended September, 1996,
$270,000, the one-time charge to recapitalize the Savings
Association Insurance Fund were incurred. Other expenses
decreased by 23.5% for the three months ended September 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 September 30,
1996 and 1995 was $46,684 and $75,320, which equates to effective
rates of 102.4% and 38.1% respectively. During the quarter ended
September 30, 1996, deferred taxes were adjusted by accountants
to bring to actual.
Nine Months Ended September 30, 1996. Net income for the nine
month period ended September 30, 1996 decreased $87,444 or 27.1%
to $235,321, compared to net income for the same period in 1995.
Return on average assets and return on average equity were .56%
(annualized) and 4.49% (annualized) respectively, for the nine
month period ended September 30, 1996. This compares to a return
on average assets and return on average equity of .86%
(annualized) and 6.01% (annualized) respectively, for the same
period in 1995.
The one-time assessment to recapitalize the Savings Association
Insurance Fund impacted earnings during the quarter ended
September 30, 1996. Without the assessment, earnings would have
increased by 24.3% to $401,047 for the nine months ended
September 30, 1996 as compared to $322,765 for the nine months
ended September 30, 1995. Return on average assets and return on
average equity would have been .95% (annualized) and 7.65%
(annualized) as compared to .86% (annualized) and 6.01%
(annualized) for the same period in 1995. Excluding the Savings
Association Insurance Fund assessment, earnings per share would
have been $0.93 for the nine months ended September 30, 1996 as
compared with $0.67 for the same period in 1995.
Net interest income, the Bank's primary source of income,
increased 13.2% up $207,369 for the nine months ended September
30, 1996, over the same period in 1995. The weighted average
yield on interest earning assets increased from 8.02% for the
nine months ended September 30, 1995 to 9.94% for the nine months
ended September 30, 1996 The weighted average rate paid on
interest bearing liabilities decreased from 4.41% for the nine
months ended September 30, 1995 to 4.28% for the nine months
ended September 30, 1996.
14<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Interest on loans receivable increased by $477,209 or 17.7% from
$2,701,077 for the nine months ended September 30, 1995 to
$3,178,286 for the nine months ended September 30, 1996. The
increase is attributable to an increase in the average balance
outstanding of $5,887,221. The weighted average yield increased
from 8.46% for the nine months ended September 30, 1995 to 12.81%
for the nine months ended September 30, 1996.
Interest on mortgage backed securities increased $22,471 or 44.5%
from $50,486 for the nine months ended September 30, 1995 to
$72,957 for the nine months ended September 30, 1996. This is a
result of an increase in the average balance outstanding and a
slight increase in the weighted average yield.
Interest on investment securities decreased $6,321 or 6.0% from
$104,556 for the nine months ended September 30, 1995 to $98,235
for the nine months ended September 30, 1996. Both the average
balance and the weighted average yield declined slightly.
Interest on other investments increased $23,251, or 38.8% from
$59,866 for the nine months ended September 30, 1995 to $83,117
for the nine months ended September 30, 1996. The average
balance outstanding and the weighted average yield increased from
6.82% for the nine months ended September 30, 1995 to 7.64% for
the nine months ended September 30, 1996.
Interest on savings deposits increased $255,205, or 19.3% from
$1,319,472 for the nine months ended September 30, 1995 to
$1,574,677 for the nine months ended September 30, 1996. The
average balance outstanding increased $6,382,119 for the period
noted above. The weighted average rate paid on deposits
decreased from 4.38% for the nine months ended September 30, 1995
to 4.41% for the nine months ended September 30, 1996. Interest
expense paid on borrowings increased $54,036 or 213.0% from
$25,366 for the nine months ended September 30, 1995 to $79,402
for the nine months ended September 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.
Provisions for loan losses were increased by $44,000 or 179.6%,
from $24,500 for the nine months ended September 30, 1995 to
$68,500 for the nine months ended September 30, 1996. The
company reported a voluntary increase in general reserves as a
result of the re-assessment of reserve balances needed to provide
for increased exposure in outstanding loan categories other than
one-to-four residential.
15<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Noninterest income increased $63,234 or 38.1% to $229,235 for the
nine months ended September 30, 1996 from $166,001 for the same
period in 1995. Loan servicing fees increased 19.0%, up $3,383
for the nine months ended September 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 were up $47,762 for
the nine months ended September 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 8.1% up $9,947 for the
nine months ended September 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 $351,818 or 29.9% to $1,529,658 for
the nine month period ended September 30, 1996 from $1,177,840
for the nine months ended September 30, 1995. Compensation and
benefits increased 17.0%, up $101,426 for the nine month period
ended September 30, 1996 over the same period in 1995. Occupancy
expenses increased 38.7%, up $21,438 for the nine months ended
September 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 the
quarter ended September 1995 were major contributors to the
increase. One-time charges to recapitalize the Savings
Association Insurance Fund were incurred during the quarter ended
September 30, 1996, which resulted in an increase in expense of
$270,000 (tax effected to $165,726). Other expenses decreased
22.7%, down $81,225 for the nine month period ended September 30,
1996, over the same period in 1995. The decrease was
attributable to a decrease in legal fees, cost cutting measure
introduced and decreased fees from correspondent banks.
Income tax expense for the nine month period ended September 30,
1996 and 1995 was $174,272 and $212,043 which equates to
effective rates of 42.6% and 39.6% respectively.
16<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Nonperforming Assets and Problem Loans
- --------------------------------------
Management reviews and identifies all loans and investments that
require a 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 September 30, 1996:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Nonperforming loans:
Residential mortgage $475,252 $133,587
Consumer and other 114,981 -0-
Assets required 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 $663,233 $206,587
</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 of individual loans or groups of similar loans
and underlying collateral, current and prospective economic
conditions and status of nonperforming loans. Loans or portion
thereof are charged-off when considered, in the opinion of
management, uncollectible. The following table summarizes
changes in the allowance for losses on loans during the nine
months ended September 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of period $131,082 $108,325
Provision for loan losses 50,500 9,500
Recoveries (Charge-offs), net (11,470) 718
Balance at end of periods $170,112 $118,543
</TABLE>
17<PAGE>
<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
September 30, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
-------- ---- ----------
<S> <C> <C> <C>
Available capital 6,935 6,935 7,102
Required capital 900 1,801 2,968
Excess 6,035 5,134 4,134
Available capital 11.55% 11.55% 19.15%
Required capital 1.50% 3.00% 8.00%
Excess 10.05% 8.55% 11.15%
</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
institution, 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>
On September 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.
18<PAGE>
<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 - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 -- Financial Data Schedule
No reports on Form 8-K were filed during the
three months ended September 30, 1996
19<PAGE>
<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: September 30, 1996
- --------------------------
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,411,694
<INT-BEARING-DEPOSITS> 932,379
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,138,995
<INVESTMENTS-CARRYING> 3,093,756
<INVESTMENTS-MARKET> 3,093,219
<LOANS> 48,650,220
<ALLOWANCE> 170,112
<TOTAL-ASSETS> 60,295,527
<DEPOSITS> 47,971,453
<SHORT-TERM> 4,000,000
<LIABILITIES-OTHER> 1,314,612
<LONG-TERM> 0
<COMMON> 7,009,462
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 60,295,527
<INTEREST-LOAN> 1,127,670
<INTEREST-INVEST> 119,447
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,247,117
<INTEREST-DEPOSIT> 531,675
<INTEREST-EXPENSE> 579,930
<INTEREST-INCOME-NET> 667,187
<LOAN-LOSSES> 50,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 671,700
<INCOME-PRETAX> 45,611
<INCOME-PRE-EXTRAORDINARY> 45,611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,073)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<YIELD-ACTUAL> 8.72
<LOANS-NON> 534,113
<LOANS-PAST> 56,120
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 131,082
<CHARGE-OFFS> 15,804
<RECOVERIES> 4,873
<ALLOWANCE-CLOSE> 170,112
<ALLOWANCE-DOMESTIC> 170,112
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
