<PAGE>
<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 Quarter Ended Commission File Number
June 30, 1997 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, 1997
$0.01 par value common stock 470,182 shares
- ---------------------------- --------------
class outstanding
1
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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, 1997
and December 31, 1996 3-4
Consolidated Condensed Statements of
Operations for Nine Months Ended and
Three Months Ended September 30, 1997
and September 30, 1997 5
Consolidated Condensed Statement of
Cash Flows for Nine Months Ended
September 30, 1997 and September 30, 1996 6-7
Notes to Consolidated Condensed
Financial Statements 8
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-16
PART II. OTHER INFORMATION 17
2
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash $ 1,332,521 $ 1,678,415
Cash - Interest bearing 894,485 502,207
Investment securities
Securities held-to-maturity 2,998,765 2,490,069
Securities available-for-sale at
estimated market value 520,538 496,358
Mortgage-backed securities
Securities held-to-maturity 444,501 531,775
Securities available-for-sale at
estimated market value 1,510,192 1,633,338
Loans receivable, net 53,537,887 49,779,988
Loans held for sale 1,295,704 1,707,883
Real estate owned 173,097
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 670,945 508,824
Stock in Federal Home Loan Bank of
Atlanta - at cost 438,100 422,900
Accrued interest receivable 455,184 432,828
Prepaid expenses 9,498 42,878
Other assets 31,564 36,160
----------- -----------
TOTAL ASSETS $64,312,981 $60,263,623
=========== ===========
</TABLE>
3
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $52,676,645 $47,365,022
Advance payments by borrowers for
property taxes and insurance 447,078 711,247
Employee stock ownership debt 308,064 308,064
Other liabilities 431,745 323,327
Deferred taxes 9,054 2,877
Advances from Federal Home Loan
Bank of Atlanta 3,000,000 4,500,000
----------- -----------
TOTAL LIABILITIES 56,872,586 53,210,537
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 470,182 shares
at September 30, 1997 and 469,358 shares
at December 31, 1996, respectively 4,702 4,694
Additional paid in capital 3,961,843 3,940,728
Net unrealized gain on securities
available-for-sale, net of deferred
taxes 19,318 13,139
Employee stock ownership debt (308,064) (308,064)
Deferred compensation - Management
Recognition Plan (118,361) (156,047)
Retained earnings, substantially
restricted 3,880,957 3,558,636
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,440,395 7,053,086
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $64,312,981 $60,263,623
=========== ===========
</TABLE>
4
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<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------- -----------------
1997 1996 1997 1996
---- ---- ---- -----
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $1,154,840 $1,127,670 $3,371,414 $3,178,286
Mortgage-backed securities 33,212 46,618 102,950 72,957
Investment securities 40,111 34,261 101,766 98,235
Other interest-earning assets 32,562 38,568 108,239 83,117
---------- ---------- ---------- ----------
Total interest income 1,260,725 1,247,117 3,684,369 3,432,595
INTEREST EXPENSE
Deposits
NOW accounts 24,942 16,721 62,206 51,175
Passbook accounts 72,275 75,572 217,062 223,906
Money market deposit accounts 18,112 21,420 53,061 62,346
Certificates 477,055 417,962 1,339,430 1,237,251
---------- ---------- ---------- ----------
Interest expense on deposits 592,384 531,675 1,671,759 1,574,678
Borrowings 24,932 48,255 124,684 79,401
---------- ---------- ---------- ----------
Total interest expense 617,316 579,930 1,796,443 1,654,079
---------- ---------- ---------- ----------
Net interest income 643,409 667,187 1,887,926 1,778,516
Provision for loan losses 30,500 50,500 66,500 68,500
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 612,909 616,687 1,821,426 1,710,016
NONINTEREST INCOME (LOSS)
Loan service charges 7,766 7,731 25,160 21,199
Dividends on FHLB stock 7,919 7,623 23,225 22,746
Gain on sale of loans 18,728 46,262 41,320 52,313
Other 81,054 39,008 186,474 132,977
---------- ---------- ---------- ----------
Total noninterest income 115,467 100,624 276,179 229,235
NONINTEREST EXPENSE
Compensation and benefits 234,043 216,252 715,957 697,118
Occupancy expense 27,231 26,561 80,962 76,802
Equipment and data processing
expense 48,084 37,649 135,369 117,530
SAIF deposit insurance premium 13,067 301,838 32,786 361,611
Other 104,407 89,400 347,940 276,597
---------- ---------- ---------- ----------
Total noninterest expense 426,832 671,700 1,313,014 1,529,658
---------- ---------- ---------- ----------
Income before income taxes 301,544 45,611 784,591 409,593
INCOME TAXES
Current 133,597 17,427 317,869 142,495
Deferred (138) 29,257 3,511 31,777
---------- ---------- ---------- ----------
Total income taxes 133,459 46,684 321,380 174,272
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 168,085 $ (1,073)$ 463,211 $ 235,321
========== ========== ========== ==========
Earnings per common share and
common share equivalent $ .38 $ (.02)$ 1.05 $ .58
========== ========== ========== ==========
Earnings per common share -
assuming full dilution $ .38 $ (.02)$ 1.06 $ .58
========== ========== ========== ==========
Cash dividends paid per common share $ .10 $ .08 $ .30 $ .26
========== ========== ========== ==========
</TABLE>
5
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on loans
and investments $ 3,865,386 $ 3,556,490
Cash paid to suppliers and employees (1,177,542) (1,141,596)
Proceeds from sale of loans 2,456,236 986,904
Origination of loans held for sale (2,115,800) (2,806,500)
Interest paid (1,796,443) (1,654,079)
Income taxes paid (221,187) (158,507)
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 1,010,650 (1,217,288)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities 3,500,000 2,500,000
Proceeds from maturities of mortgage-backed
securities 215,365 369,595
Purchases of investment securities (4,000,156) (3,233,516)
Purchases of mortgage-backed securities (1,722,837)
Loans originated (13,735,388) (17,266,991)
Principal collected on loans 10,024,051 14,026,309
Proceeds from sale of loans 1,041,000
Purchases of office properties, equipment
and leasehold improvements (201,031) (99,813)
Purchase of real estate owned (173,097)
Purchase of stock in Federal Home Loan
Bank of Atlanta (15,200)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (4,385,456) (4,386,253)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 21,943,100 19,778,449
Proceeds from sales of certificates 6,870,100 9,991,344
Payments of maturing certificates of deposits (23,501,577) (26,447,792)
Decrease in advance payments by borrowers for
property taxes and insurance (264,169) (80,615)
Advances (repayments) from Federal Home Loan
Bank of Atlanta (1,500,000) 2,750,000
Dividends paid (140,890) (122,272)
Proceeds from issuance of common stock 14,626 178,799
Purchase of common stock (352,843)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,421,190 5,695,070
----------- -----------
NET INCREASE IN CASH 46,384 91,529
CASH
BEGINNING OF PERIOD 2,180,622 2,252,544
----------- -----------
END OF PERIOD $ 2,227,006 $ 2,344,073
=========== ===========
</TABLE>
6
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<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Net Income $ 463,211 $ 235,321
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 38,910 36,633
Provision for loan losses 66,500 68,500
Amortization of investment security
premiums (discounts) (8,574) (7,337)
Stock dividends (22,912) (16,288)
Increase in accrued interest receivable (22,356) (29,402)
Increase in deferred tax asset (17,744)
Decrease in prepaid expenses 33,380 6,741
Decrease in other assets 4,596 6,493
Increase in other liabilities 108,418 334,016
(Increase) decrease in loans held for sale 299,116 (1,871,908)
Distribution from MRP Trust 44,184 37,687
Increase in deferred tax liability 6,177
---------- -----------
547,439 (1,452,609)
---------- -----------
$1,010,650 $(1,217,288)
========== ===========
</TABLE>
7<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
SEPTEMBER 30, 1997
------------------
(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, 1996, 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, 1997 and 1996, are not necessarily
indicative of the results to be expected for the full
year.
(2) Earnings per Share
------------------
Earnings per common share 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 and common stock
equivalents was 441,954 for the nine months ended
September 30, 1997. The weighted average number of
shares of common stock and common stock equivalents
for computation of earnings per common shares - fully
diluted was 438,682 for the nine months ended
September 30, 1997.
(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.
(4) Outstanding Shares
------------------
Outstanding shares of Cecil Bancorp increased to
470,182 shares during the quarter ending September 30,
1997 as a result of 824 exercised stock options.
8<PAGE>
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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 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.
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.
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.
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
9
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CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 costs of funds (deposits) are influenced
by interest rates on competing deposits and general market rates
of interest.
FINANCIAL SERVICES
- ------------------
On September 1, 1997, Cecil Financial Services, a service
corporation of Cecil Federal Savings Bank, began offering a full
range of brokerage and investment services in all our branches,
through a partnership with UVEST Investment Services.
With this expansion, Cecil Federal will now offer maximum
convenience in servicing customer needs. Mr Roger L. Owens,
CLU, has been hired as investment representative.
He will seek to provide comprehensive investment products
tailored to meet current and future individual financial needs.
Cecil Financial, Inc. has partnered in this venture with
UVEST Investment Services, a registered broker-dealer and member
of both the National Association of Securities Dealers (NASD)
and the Securities Investment Protection Corporation (SIPC).
Headquartered in Charlotte, NC, UVEST has been providing
bank-based investment services throughout the Southeast since
1982.
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 and 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 is principally the origination of
adjustable-rate mortgages, with an appropriate blend of fixed
rate mortgage loans in its primary market area.
10
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<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Comparison of Financial Condition at September 30, 1997 and
- -----------------------------------------------------------
December 31, 1996.
- -----------------
The Company's total assets at September 30, 1997 increased
$4,049,358 or 6.7% to $64,312,981 from $60,263,623 at December
31, 1996. The increase was primarily the result of an increase
in investments and loans receivable. Total liabilities
increased $3,662,049 or 6.9% to $56,872,586 at September 30,
1997 from $53,210,537 at December 31, 1996. This increase was a
result of an increase in savings deposits. Stockholders'
equity increased $387,309, which included dividend payments of
$0.10 per share during the first, second, and third quarters of
1997.
Cash decreased $345,894 or 20.6% to $1,332,521 at September 30,
1997 from $1,678,415 at December 31, 1996. Interest-bearing
cash increased $392,278, up 78.1% to $894,485 at September 30,
1997 from $502,207 at December 31, 1996.
Loans receivable increased $3,757,899 or 7.5% to $53,537,887 at
September 30, 1997 from $49,779,988 at December 31, 1996. The
increase in loans receivable was a result of increased loan
volumes. The loans held-for-sale portfolio decreased $412,179
or 24.1% to $1,295,704 at September 30, 1997 from $1,707,883 at
December 31, 1996. The decrease was the result of loans sold in
the amount of $742,321 offsetting originations of $609,000 in
fixed rate loans held for sale. Loans held-for-sale will
continually be sold to fund portfolio needs. On June 30, 1997,
the Bank acquired a single-family dwelling through foreclosure.
This property will be marketed for sale.
Total savings deposits increased $5,311,623 or 11.2% to
$52,676,645 at September 30, 1997 from $47,365,022 at December
31, 1996. Increases are attributable to cross selling
and marketing plans. Decreases in the Bank's outstanding
advances from the Federal Home Loan Bank of Atlanta were the
result of excess cash reserves through strong deposit
growth. The outstanding balance decreased by $1,500,000 or
33.3% to $3,000,000 at September 30, 1997 from $4,500,000 at
December 31, 1996.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 1997 Net income for the
three-month period ended September 30, 1997 increased 15765.0%
to $168,085 as compared to net income for the same period in
1996 of $(1,073). The annualized return on average assets and
annualized return on average equity were 1.05% and 9.08%
respectively, for the three-month period ended September 30,
1997. This compares to an annualized return on average assets
and annualized return on average equity of (0.01)% and (0.06)%
respectively, for the same period in 1996.
Net interest income, the Bank's primary source of income,
decreased 3.6% down $23,778 for the three months ended September
30, 1997, over the same period in 1996. The weighted average
yield on interest earning assets decreased from 8.75% for the
three months ended September 30, 1996 to 8.38% for the three
months ended September 30, 1997. The weighted average rate paid
on interest bearing liabilities increased from 3.66% for
the three months ended September 30, 1996 to 4.62% for the three
months ended
11<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1997.
Interest on loans receivable increased by $27,170 or 2.4%, from
$1,127,670 for the three months ended September 30, 1996 to
$1,154,840 for the three months ended September 30, 1997. The
increase is attributable to an increase in the average balance
outstanding of $2,640,963. The weighted average yield decreased
from 8.84% for the three months ended September 30, 1996 to
8.61% for the three months ended September 30, 1997.
Interest on mortgage backed securities decreased $13,406 or
28.8%, from $46,618 for the three months ended September 30,
1996 to $33,212 for the three months ended September 30, 1997.
The decrease was the result of a decrease in the average
outstanding balance and weighted average yield.
Interest on investment securities increased $5,850 or 17.1% from
$34,261 for the three months ended September 30, 1996 to $40,111
for the three months ended September 30, 1997. The average
outstanding balance increased $151,094 from $2,514,840 for the
three months ended September 30, 1996 to $2,665,934 for the
three months ended September 30, 1997. The weighted average
yield increased from 5.45% for the three months ended
September 30, 1996 to 6.02% for the three months ended September
30, 1997. The average outstanding balance and weighted average
yield increased slightly.
Interest on other investments decreased $6,006, or 15.6% from
$38,568 for the three months ended September 30, 1996 to $32,562
for the three months ended September 30, 1997. The average
outstanding balance increased $686,954 from $1,233,940 for the
three months ended September 30, 1996 to $1,920,894 for the
three months ended September 30, 1997. The weighted average
yield decreased from 12.50% for the three months ended
September 30, 1996 to 6.78% for the three months ended September
30, 1997. The average outstanding balance increased due to
excess cash from deposit growth.
Interest on savings deposits increased $60,709, or 11.4% from
$531,675 for the three months ended September 30, 1996 to
$592,384 for the three months ended September 30, 1997. The
average balance outstanding increased $4,679,502 for the period
noted above. The weighted average rate paid on deposits
increased from 3.82% for the three months ended September 30,
1996 to 4.45% for the three months ended September 30, 1997.
Interest expense paid on borrowings decreased $23,323, or 48.3%
from $48,255 for the three months ended September 30, 1996 to
$24,932 for the three months ended September 30, 1997.
Decreases are attributable to a decrease in the average balance
outstanding.
Noninterest income increased 14.8%, up $14,843 for the three
months ended September 30, 1997, over the same period in 1996.
Loan servicing fees increased 0.5%, up $35 for the three months
ended September 30, 1997 over the same period in 1996. There
was a decrease in gains on the sale of loans for the three
months ended September 30, 1997 of $27,534 over the same period
in 1996. Although the Bank continually sells loans on the
secondary market to fund portfolio needs, tighter margins have
reduced gains on the sales of fixed rate mortgages. Other
noninterest income increased 107.8%, up $42,046 for the three
months ended September 30, 1997 over the same period in 1996.
Increases in this area can be primarily attributable to
increased service charges, as a result of steady growth of
demand deposits, and the usage of three ATM machines, which are
primarily used by non-customers. Our third freestanding ATM,
located in Chesapeake
12<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
City, MD, was installed on August 20, 1997.
Noninterest expense decreased 36.5%, down $244,868 for the three
months ended September 30, 1997, over the same period in 1996.
Compensation and benefits increased 8.2% for the three months
ended September 30, 1997 over the same period in 1996, which is
a result of general merit increases. The SAIF deposit premium
decreased 95.7% for the three months ended September 30, 1997
over the same period in 1996, as a result of reduced SAIF
insurance rates. Equipment and data processing expenses
increased by 27.7% up 10,435 for the three months ended
September 30, 1997. Other expenses increased by 16.8% for the
three months ended September 30, 1997 over the same period in
1996, as a result of increased loan expenses, stationary,
printing and supplies expenses, postage expenses, and charitable
contributions.
Income tax expense for the three-month period ended September
30, 1997 and 1996 was $133,459 and $46,684, which equates to
effective rates of 44.3% and 102.4% respectively. During the
September 1996 quarter, the accountants adjusted deferred taxes
to bring to actual.
Nine Months Ended September 30, 1997 Net income for the
nine-month period ended September 30, 1997 increased $227,890 or
96.8% to $463,211, compared to net income of $235,321 for the
same period in 1996. The annualized return on average assets
and annualized return on average equity were 0.99% and 8.51%
respectively, for the nine-month period ended September 30,
1997. This compares to an annualized return on average
assets and annualized return on average equity of 0.56% and
4.49% respectively, for the same period in 1996.
Net interest income, the Bank's primary source of income,
increased 6.2% up $109,410 for the nine months ended September
30, 1997, over the same period in 1996. The weighted
average yield on interest earning assets decreased from 9.94%
for the nine months ended September 30, 1996 to 8.34% for the
nine months ended September 30, 1997. The weighted
average rate paid on interest bearing liabilities increased from
4.28% for the nine months ended September 30, 1996 to 4.64% for
the nine months ended September 30, 1997.
Interest on loans receivable increased by $193,128 or 6.1%, from
$3,178,286 for the nine months ended September 30, 1996 to
$3,371,414 for the nine months ended September 30, 1997. The
increase is attributable to an increase in the average balance
outstanding of $2,833,547. The weighted average yield increased
from 8.55% for the nine months ended September 30, 1996 to 8.57%
for the nine months ended September 30, 1997.
Interest on mortgage backed securities increased $29,993 or
41.1%, from $72,957 for the nine months ended September 30, 1996
to $102,950 for the nine months ended September 30, 1997. The
average outstanding balance increased $582,525 from $1,467,564
for the nine months ended September 30, 1996 to $2,050,089 for
the nine months ended September 30, 1997. The weighted average
yield increased from 6.63% for the nine months ended
September 30, 1996 to 6.70% for the nine months ended September
30, 1997. No new purchases of mortgage backed securities were
made in 1997.
Interest on investment securities increased $3,531 or 3.6% from
$98,235 for the nine months ended September 30, 1996 to $101,766
for the nine months ended September 30,
13<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1997. The average outstanding balance decreased $239,678 from
$2,571,160 for the nine months ended September 30, 1996 to
$2,331,482 for the nine months ended September 30, 1997. The
weighted average yield increased from 5.09% for the nine months
ended September 30, 1996 to 5.82% for the nine months ended
September 30, 1997.
Interest on other investments increased $25,122, or 30.2% from
$83,117 for the nine months ended September 30, 1996 to $108,239
for the nine months ended September 30, 1997. The average
balance outstanding increased $849,503, up from $1,263,286 for
the nine months ended September 30, 1996 to $2,112,789 for the
nine months ended September 30, 1997. The weighted average
yield decreased from 8.77% for the nine months ended September
30, 1996 to 6.83% for the nine months ended September 30, 1997.
The average outstanding balance increased due to excess cash
from deposit growth.
Interest on savings deposits increased $97,081, or 6.2% from
$1,574,678 for the nine months ended September 30, 1996 to
$1,671,759 for the nine months ended September 30, 1997. The
average balance outstanding increased $3,467,649 for the period
noted above. The weighted average rate paid on deposits
decreased from 4.44% for the nine months ended September 30,
1996 to 4.37% for the nine months ended September 30, 1997.
Interest expense paid on borrowings increased $45,283, or 57.0%
from $79,401 for the nine months ended September 30, 1996 to
$124,684 for the nine months ended September 30, 1997.
Increases are attributable to increases in the average balance
outstanding.
Noninterest income increased to $46,944 or 20.5% to $276,179 for
the nine months ended September 30, 1997 from $229,235 for the
same period in 1996. Loan servicing fees increased 18.7%, up
$3,961 for the nine months ended September 30, 1997 over the
same period in 1996. This was a result of the increased
balances in the loan servicing portfolio. Gain on sale of loans
was down $10,993 or 21.0% for the nine months ended September
30, 1997 over the same period in 1996, as a result of decreased
volumes of sales of fixed rate loans in the secondary market.
Other fees increased 40.2% up $53,497 for the nine months ended
September 30, 1997 over the same period in 1996. Increases were
primarily attributable to increases in fee income, from service
charges and additional fees associated with the Bank's three ATM
machines. Our third freestanding ATM, located in Chesapeake
City, MD, was installed on August 20, 1997.
Noninterest expense decreased $216,644 or 14.2% to $1,313,014
for the nine-month period ended September 30, 1997 from
$1,529,658 for the nine months ended September 30, 1996.
The SAIF deposit premium decreased 90.9%, down $328,825 for the
nine months ended September 30, 1997, over the same period in
1996. Decreases were a result of reduced SAIF insurance rates.
Equipment and data processing expenses increased by 15.2% up
$17,839 for the nine months ended September 30, 1997. Other
expenses increased 25.8%, up $71,343 for the nine-month period
ended September 30, 1997, over the same period in 1996. The
increase was attributable to an increase in audit and accounting
fees, loan expense, stationery & office supplies, postage,
meeting expenses, and charitable contributions.
Income tax expense for the nine-month period ended September 30,
1997 and 1996 was $321,380 and $174,272 which equates to
effective rates of 41.0% and 42.5% respectively.
14<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 September 30, 1997:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Nonperforming loans:
Residential mortgage $662,288 $475,252
Consumer and other 80,039 114,981
Assets acquired in settlement of loans:
Real estate held for development and sale -- --
Real estate held for investment and sale -- --
Repossessed assets $173,097 $ 73,000
-------- --------
Total nonperforming assets $915,424 $663,233
======== ========
</TABLE>
Residential mortgages classified consisted of ten loans with
balances ranging from $14,000 to $154,000. Classified consumer
and other loans classified consisted of nine loans with balances
ranging from $300 to $32,000 as of September 30, 1997. The Bank
acquired a single-family dwelling on June 30, 1997, as a result
of a foreclosure. The Bank will market the property for sale.
The provision for losses on loans is determined based on
management's review of the loan portfolio and analysis of
borrowers' ability to repay, past collection experience, and
risk characteristics.
15<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 primary 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, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk Based
- ----------------------------------------------------------------
<S> <C> <C> <C>
Available capital $7,540 $7,540 $7,705
Required capital 965 1,930 3,200
------ ------ ------
Excess $6,575 $5,610 $4,506
====== ====== ======
Available capital 11.72% 11.72% 19.26%
Required capital 1.50% 3.00% 8.00%
------ ------ ------
Excess 10.22% 8.72% 11.26%
====== ====== ======
</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 September 30, 1997, 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.
16<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 -
Exhibits
--------
Exhibit 27 - Financial Data Schedule
Form 8-K
--------
No reports on Form 8-K were filed during the three
months ended September 30, 1997
17<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.
Date: October 31, 1997 By: /s/ Mary Beyer Halsey
----------------------
Mary Beyer Halsey
President
Chief Executive Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,332,521
<INT-BEARING-DEPOSITS> 894,485
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,030,730
<INVESTMENTS-CARRYING> 3,443,266
<INVESTMENTS-MARKET> 3,443,266
<LOANS> 53,537,887
<ALLOWANCE> 165,309
<TOTAL-ASSETS> 64,312,981
<DEPOSITS> 52,676,645
<SHORT-TERM> 3,000,000
<LIABILITIES-OTHER> 1,195,941
<LONG-TERM> 0
<COMMON> 4,702
0
0
<OTHER-SE> 7,440,395
<TOTAL-LIABILITIES-AND-EQUITY> 64,312,981
<INTEREST-LOAN> 1,154,840
<INTEREST-INVEST> 73,323
<INTEREST-OTHER> 32,562
<INTEREST-TOTAL> 1,260,725
<INTEREST-DEPOSIT> 592,384
<INTEREST-EXPENSE> 617,316
<INTEREST-INCOME-NET> 643,409
<LOAN-LOSSES> 30,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 104,407
<INCOME-PRETAX> 301,544
<INCOME-PRE-EXTRAORDINARY> 301,544
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,085
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<YIELD-ACTUAL> 4.27
<LOANS-NON> 699,000
<LOANS-PAST> 144,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 147,645
<CHARGE-OFFS> 19,535
<RECOVERIES> 6,738
<ALLOWANCE-CLOSE> 165,309
<ALLOWANCE-DOMESTIC> 165,309
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
