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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
_________________________________________________________________
FORM 10-QSB
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE EXCHANGE ACT
For the transition period from _____ to _____.
Commission File Number: 0-24926
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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 March 31, 1999
$0.01 par value common stock 607,710 shares
- ---------------------------- --------------
Class Outstanding
1<PAGE>
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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 - March 31, 1999
and December 31, 1998 3-4
Consolidated Condensed Statements of
Operations for the Three Months Ended
March 31, 1999 and 1998 5-6
Consolidated Condensed Statement of
Cash Flows for the Three Months Ended
March 31, 1999 and March 31, 1998 7-8
Notes to Consolidated Condensed
Financial Statements 9
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-19
PART II. OTHER INFORMATION 20-22
ITEM 4. Submission of Matters to a Vote of Security Holders
2<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash $ 4,407,838 $ 2,725,430
Cash - Interest bearing 3,505,775 6,211,760
Federal funds sold 630,000 1,125,000
Investment securities
Securities held-to-maturity, at cost 4,040,482 4,228,742
Securities available-for-sale at
estimated market value 3,182,016 4,091,843
Mortgage-backed securities
Securities held-to-maturity, at cost 1,508,336 2,046,983
Securities available-for-sale at
estimated market value 702,672 863,260
Loans held for sale, at cost 4,018,450 2,515,151
Loans receivable, net 76,544,899 74,545,912
Real estate owned 187,742 187,742
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 1,125,651 1,112,507
Stock in Federal Home Loan Bank of
Atlanta - at cost 685,500 672,300
Accrued interest receivable 605,972 597,922
Mortgage servicing rights 105,937 123,541
Prepaid expenses 156,835 50,040
Deferred taxes 152,513 114,891
Other assets 38,735 11,391
------------ ------------
TOTAL ASSETS $101,599,353 $101,224,415
============ ============
</TABLE>
3<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $ 86,954,578 $ 87,674,802
Advance payments by borrowers for
property taxes and insurance 1,158,496 821,625
Employee stock ownership debt 231,048 231,048
Other liabilities 495,516 629,204
Advances from Federal Home Loan Bank
of Atlanta 2,500,000 1,750,000
------------ ------------
TOTAL LIABILITIES 91,339,638 91,106,679
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 607,731
shares at March 31, 1999 and
606,494 at December 31, 1998 6,077 6,065
Additional paid in capital 4,895,042 4,863,511
Employee stock ownership debt (231,048) (231,048)
Deferred compensation - Management
Recognition Plan (80,676) (80,676)
Retained earnings, substantially
restricted 5,660,939 5,543,960
Accumulated other comprehensive income 9,381 15,924
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,259,715 10,117,736
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $101,599,353 $101,224,415
============ ============
</TABLE>
4<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME (1)
Loans receivable $1,633,336 $1,569,623
Mortgage-backed securities 46,289 65,835
Investment securities 99,500 133,282
Other interest-earning assets 83,863 75,917
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Total interest income 1,862,988 1,844,657
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INTEREST EXPENSE
Interest expense on deposits 942,321 980,872
Borrowing 30,623 31,024
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Total interest expense 972,944 1,011,896
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Net interest income 890,044 832,761
Provision for loan losses 22,500 22,500
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Net interest income after provision
for loan losses 867,544 810,261
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NONINTEREST INCOME
Loan service charges 13,874 16,168
Dividends on FHLB stock 12,621 11,842
Gain on sale of loans 12,885
Gain on sale of investments 4,583
Commission income 13,943 22,584
Checking account fees 37,400 36,513
Other 12,715
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Total noninterest income 77,838 117,290
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NONINTEREST EXPENSE
Compensation and benefits 352,022 345,595
Occupancy 35,152 35,433
Equipment and data processing expense 77,474 62,990
SAIF deposit insurance premium 21,352 20,785
Merger expense 2,726
Other 169,027 158,491
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Total noninterest expense 657,753 623,294
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Income before income taxes 287,629 304,257
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INCOME TAXES
Current 145,452 122,314
Deferred (33,262) (21,499)
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Total income taxes 112,190 100,815
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NET INCOME $ 175,439 $ 203,442
========== ==========
<FN>
(1) Restated due to pooling of interest transaction completed September 30,
1998
</FN>
</TABLE>
5<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------
1999 1998
---------- ---------
<S> <C> <C>
(1)
NET INCOME $ 175,439 $ 203,442
OTHER COMPREHENSIVE LOSS
Unrealized losses on investment
securities, net of deferred taxes (15,469) (5,435)
---------- ----------
TOTAL COMPREHENSIVE INCOME $ 159,970 $ 198,007
========== ==========
Earnings per common share and
common share equivalent $ 0.30 $ 0.36
========== ==========
Earnings per common share -
assuming full dilution $ 0.30 $ 0.35
========== ==========
<FN>
(1) Restated due to pooling of interest transaction completed September 30,
1998
</FN>
</TABLE>
6<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (1)
Interest and fees received on loans
and investments $ 1,947,117 $ 1,948,606
Cash paid to suppliers and employees (893,127) (617,884)
Proceeds from sale of loans 444,206
Origination of loans held for sale (1,581,800) (323,000)
Interest paid (972,944) (1,011,896)
Income taxes paid (145,452) (202,629)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (1,646,206) 237,403
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of
investment securities 3,901,851 4,150,000
Proceeds from maturities of mortgage-backed
securities 703,221 282,949
Purchases of investment securities (2,815,390) (3,935,770)
Loans originated (8,915,487) (6,988,849)
Principal collected on loans 6,972,501 6,481,012
Purchases of office properties, equipment and
leasehold improvements (45,597)
Purchase of real estate owned (146,071)
Purchase of stock in Federal Home Loan
Bank of Atlanta (13,200) (19,600)
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NET CASH USED BY INVESTING ACTIVITIES (212,101) (176,329)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts 9,813,584 13,827,478
Proceeds from sales of certificates 1,809,262 2,374,606
Payments of maturing certificates of
deposits (12,343,070) (13,034,495)
Increase in advance payments by borrowers
for property taxes and insurance 336,871 332,232
Proceeds from issuance of common stock 31,543 10,800
Advances from Federal Home Loan Bank of
Atlanta 750,000
Dividends paid (58,460) (52,105)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 339,730 3,458,516
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,518,577) 3,519,590
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 10,062,190 3,785,459
----------- -----------
END OF PERIOD $ 8,543,613 $ 7,305,049
=========== ===========
<FN>
(1) Restated due to pooling of interest transactions completed September 30, 1998
</FN>
</TABLE>
7<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1999 1998
----------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES (1)
Net Income $ 175,439 $ 203,442
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Gain on sale of investments (4,583)
Depreciation 32,453 21,263
Provision for loan losses 22,500 22,500
Amortization of investment security
premiums and (discounts) 4,230 (1,715)
Net amortization of deferred loan fees (5,641)
Stock dividends (7,493) (7,704)
Increase (decrease) in accrued
interest receivable (8,050) 18,350
Increase in deferred taxes (33,262) (17,516)
Decrease in mortgage servicing rights 17,604 837
Increase in prepaid expenses (106,795) (20,950)
(Increase) decrease in other assets (27,344) 46,807
Decrease in other liabilities (133,688) (126,008)
(Increase) decrease in loans held
for sale (1,581,800) 108,321
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(1,821,645) 33,961
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($1,646,206) $ 237,403
=========== ==========
<FN>
(1) Restated due to pooling of interest transactions completed September 30, 1998
</FN>
</TABLE>
8<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
MARCH 31, 1999
--------------
(1) Basis of Presentation
---------------------
The accompanying unaudited financial statements have been
prepared in accordance with instructions for Form 10-QSB
and therefore, do not include all disclosures necessary
for a complete presentation of the statements of
condition, statements of operations and statements of
cash flows in conformity with GAAP. However, all
adjustments which are in the opinion of management
necessary for the fair presentation of the interim
financial statements have been included. The results of
operations for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be
expected for the entire year.
(2) Earnings per Share
------------------
Earnings per common share were computed by dividing net
income by the weighted average number of shares of common
stock outstanding during the quarter. The weighted
average number of shares of common stock outstanding was
583,833 and 568,173 in 1999 and 1998, respectively. The
weighted average number of shares of common stock for
computation of diluted earnings per common share was
592,177 and 581,808, respectively.
(3) Other Financial Information
---------------------------
Simon, Master & Sidlow, P.A., Cecil Bancorp's independent
certified public accountants, performed a limited review
of the financial data presented on pages 1 through 5
inclusive. The review was performed in accordance with
standards for such reviews established by the American
Institute of Certified Public Accountants. The review
did not constitute an audit; accordingly, Simon, Master &
Sidlow, P.A. did not express an opinion on the
aforementioned data. The financial data include any
material adjustments or disclosures proposed by Simon,
Master & Sidlow, P.A. as a result of their review.
9<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS OF THE COMPANY AND THE BANK
CECIL BANCORP, INC.
Cecil Bancorp, Inc. (the "Company") was incorporated under
the laws of the State of Maryland in July 1994 at the direction
of the Board of Directors of Cecil Federal Savings Bank ("Cecil
Federal") for the purpose of serving as a savings institution
holding company of Cecil Federal upon the acquisition of all of
the capital stock issued by Cecil Federal in its conversion from
mutual to stock form (the "Conversion"). Substantially all of
the Company's assets consists of the outstanding capital stock
of Cecil Federal. On September 30, 1998, the Company completed
its acquisition of Columbian Bank, a Federal Savings Bank
("Columbian") through the exchange of 1.7021 shares of Company
Common Stock for each outstanding shares of Columbian Common
Stock in a transaction valued at approximately $2.8 million.
The Company holds all of the stock of Cecil Federal and
Columbian and operates them as two separate savings
institutions. Together, Cecil Federal and Columbian are
referred to herein as the "Banks". The Company's principal
business is the business of Cecil Federal and its wholly owned
subsidiaries, and of Columbian. Therefore, most of the
discussion in this Annual Report relates to the business of the
Banks rather than the business of the Company.
CECIL FEDERAL SAVINGS BANK
Cecil Federal is a community-oriented financial
institution which commenced operations in 1959 as a Federal
mutual savings and loan association. It converted to a Federal
mutual savings bank in January 1993 and, effective November 10,
1994, Cecil Federal converted from mutual to stock form. Its
deposits have been federally insured up to applicable limits,
and it has been a member of the Federal Home Loan Bank ("FHLB")
system since 1959. Cecil Federal's deposits are currently
insured by the Savings Association Insurance Fund ("SAIF") of
the Federal Deposit Insurance Corporation ("FDIC") and it is a
member of the FHLB of Atlanta.
Cecil Federal's primary business is the origination of
mortgage loans secured by single-family residential real estate
located primarily in Cecil County, Maryland, with funds obtained
through the attraction of deposits, primarily certificate
accounts with terms of 60 months or less, savings accounts and
transaction accounts. To a lesser extent, Cecil Federal also
makes loans on commercial and multi-family real estate,
construction loans on one- to four-family residences, home
equity loans and land loans. Cecil Federal also makes consumer
loans including education loans, personal and commercial lines
of credit, automobile loans and loans secured by deposit
accounts. Cecil Federal purchases mortgage-backed securities
and invests in other liquid investment securities when warranted
by the level of excess funds.
Cecil Federal has two wholly owned subsidiaries, Cecil
Service Corporation and Cecil Financial Services Corporation.
Cecil Service Corporation's primary business is acting as
leasing agent for the North East Plaza Branch and Cecil
Financial Services Corporation's primary business is the
operation, through a partnership with UVEST Investment Services,
of a full range of brokerage and investment services.
10<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cecil Federal's main office is located at 127 North
Street, Elkton, Maryland and its phone number is (410) 398-1650.
COLUMBIAN BANK, A FEDERAL SAVINGS BANK
Columbian was originally chartered by the State of
Maryland in 1893. In October 1985, Columbian became a member of
the FHLB System and obtained federal insurance of its deposits.
In January 1989, Columbian converted to a federally insured,
state chartered capital stock institution through the sale and
issuance of 69,140 shares of common stock. On September 26,
1990, Columbian changed its name to Columbian Bank, A Federal
Savings Bank and became a federally chartered stock savings
bank. Columbian's deposits are also insured by the SAIF of the
FDIC, and it is a member of the FHLB of Atlanta.
Columbian's primary business is the origination of
mortgage loans secured by single-family residential real estate
located primarily in Harford County, Maryland, with funds
obtained through the attraction of deposits, primarily
certificate accounts with terms of 60 months or less and savings
accounts. To a lesser extent, Columbian also makes loans on
commercial and multi-family real estate, construction loans on
one- to four-family residences, home equity loans and land
loans. Columbian purchases mortgage-backed securities and
invests in other liquid investment securities when warranted by
the level of excess funds.
Columbian's office is located at 303-307 St. John Street,
Havre de Grace, Maryland, and its phone number is (410) 939-
2313.
GENERAL
Cecil Federal's primary business is the origination of
mortgage loans secured by single-family residential real estate
located primarily in Cecil County, Maryland, with funds obtained
through the attraction of deposits, primarily certificate
accounts with terms of 60 months or less, savings accounts and
transaction accounts. To a lesser extent, Cecil Federal also
makes loans on commercial and multi-family real estate,
construction loans on one- to four-family residences, home
equity loans and land loans. Cecil Federal also makes consumer
loans including education loans, personal and commercial lines
of credit, automobile loans and loans secured by deposit
accounts. Although consumer loans provide Cecil Federal with
additional interest income, they also involve greater risk.
Cecil Federal purchases mortgage-backed securities and invests
in other liquid investment securities when warranted by the
level of excess funds. Cecil Federal's revenues are derived
principally from interest earned on loans and, to a lesser
extent, from interest earned on investments and mortgage-backed
securities.
The principal business of Columbian is the acceptance of
savings deposits from the general public and the origination of
conventional mortgage loans for the purpose of financing or
refinancing one to four family dwellings. Its income is derived
largely from interest and fees in connection with its lending
activities. Its principal expenses are interest paid on savings
deposits and non-interest expenses. Columbian's operations are
conducted through its office located at 303-307 St. John Street,
Havre de Grace, Maryland.
The Banks' operations are influenced by general economic
conditions and by policies of financial institution regulatory
agencies, including the OTS and the FDIC. The Banks'
11<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
cost of funds are influenced by interest rates on competing
investments and general market interest rates. Lending
activities are affected by the demand for financing of real
estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered.
The Banks' net interest income is dependent primarily upon
the difference or spread between the average yield earned on
loans, investments and mortgage-backed securities and the
average rate paid on deposits and borrowings (if any), as well
as the relative amounts of such assets and liabilities. The
Banks, like other thrift institutions, are subject to interest
rate risk to the degree that its interest-bearing liabilities
mature or reprice at different times, or on a different basis,
than its interest-earning assets.
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.
YEAR 2000 READINESS DISCLOSURE
As the Year 2000 approaches, there is growing concern that
many computers and computer systems could malfunction. Banks,
as with many other industries, could be faced with errors in
their account processing, payment systems, ATM systems, security
systems, or virtually any system controlled by a computer.
The cause is rooted in the programming of the date field
within computer systems and software. For many years, computer
systems were designed to record only the last two digits of the
year in the date field in order to save costly data storage
space. This programming concept works well while we are still
in the 1900's. This concept does not work well for the Year
2000, as that year could be read by a computer to mean 1900.
Bank regulators and computer system experts are
emphasizing systems and software products be implemented and
tested for Year 2000 readiness. This task is a monumental
undertaking for all parties involved from vendor service
providers, computer systems manufacturers, software providers,
and finally the Banks. Cecil Federal and Columbian are
preparing for the millennium.
The Banks have prepared an action plan to begin evaluating
our systems and software products. The Banks plan consists of
the following:
12<PAGE>
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CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Problem Awareness: The Banks are aware of the problems that
- -----------------
could potentially arise with the year 2000 problem. The Banks
have analyzed what systems and software need to be reviewed.
Assessment Phase: The Banks have made contacts with all its
- ----------------
third party vendors to assess exposure to problems. These
include those that provide Account & Item Processing; System
Hardware Setup and ATM Software; General Ledger Software; ATM
Transaction Processing; the ATM Service Provider; ATM Software;
Financial Reporting Software; Fed-Line Software; On-Line Bank
Service Software; Loan Sales Software; Loan Documentation
Software; HMDA/Geocoding Software; Payroll Processing; Computer
Hardware; Spreadsheet Software; and Word Processing Software.
Vendors have been proactive in their response to the Year
2000 problem. The Banks' vendors have in place or will have in
place procedures to minimize risks associated with the of the
Year 2000 problem by December 31, 1998.
Renovation Phase: Initial steps have been completed to assure
- ----------------
compliance with the Year 2000 problem. A new front-end
processing system has been installed in the third quarter of
1998 at Cecil Federal, and was installed at Columbian prior to
January 31, 1999. This system is already Year 2000 compliant.
This system replaces the Banks' previous teller systems which
were not compliant.
Validation Phase: The Banks will validate any decision making by
- ----------------
thoroughly assessing the systems compatibility with the Year
2000 issues. Validations will be recorded and presented to the
Board of Directors. The target date for the validation phase is
March 31, 1999. The Banks will share testing information with
each other to minimize the amount of testing on the same
systems. Software and system testing will be done on an ongoing
basis through the end of March 1999.
Implementation Phase: The Banks will monitor the implementation
- --------------------
of the Year 2000 assessment and report results to the Board of
Directors. The Banks will continue to stress with their vendors
the importance of this project. The Banks will keep in
continual contact with its vendors until a final solution and
implementation has been completed. All plans are to be
completed as outlined above. The implementation phase is to be
completed by March 31, 1999.
Contingency Plan: The Banks have prepared a contingency plan
- ----------------
that allows for the manual processing of transactions and
reporting. The plan designates the training and implementation
of the manual operation in a worst case scenario. The
Contingency Plan is being updated in conjunction with our
Disaster Recovery Plan. The Contingency Plan has been updated
and testing on the plan will take place in the first and second
quarters of 1999.
Customer Awareness: The Banks have also undertaken an effort
- ------------------
to reach all business customers via mail to explain how the Year
2000 issue affects their business. All businesses need to be
aware of the Year 2000 issue and make attempts to correct any
possible problems.
The employees were also made aware of the process and have
been notified regarding the individuals who are responsible for
Year 2000 compliance. A memo was sent to all employees to
assist them with their Year 2000 efforts.
13<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASSET/LIABILITY MANAGEMENT
- --------------------------
The ability to maximize net interest income is largely
dependent upon the achievement of a positive interest rate
spread (the difference between the weighted average interest
yields earned on interest-earning assets and the weighted
average interest rates paid on interest-bearing liabilities)
that can be sustained during fluctuations in prevailing interest
rates. Cecil Federal's asset/liability management policies are
designed to reduce the impact of changes in interest rates
on its net interest income by achieving a more favorable match
between the maturities or repricing dates of its interest-
earning assets and interest-bearing liabilities. The Bank has
implemented these policies by generally emphasizing the
origination of one-year, three-year and five-year adjustable
rate mortgage loans and short-term consumer lending. The bank
now offers an adjustable rate product which remains fixed for
the first ten years and then converts to a one-year adjustable.
Prior to June 1994, most fixed-rate mortgage loans offered by
the Bank were originated for sale in the secondary market. From
July 1, 1994 through June 30, 1995 the bank elected to not sell
fixed rate mortgages that were originated, but chose to maintain
them in its portfolio. Management has been monitoring the
retention of fixed rate loans through its asset/liability
management policy. Beginning July 1, 1995, the bank began
originating fixed rate mortgages for sale in the secondary
market.
Management intends to continue to concentrate on
maintaining its interest rate spread in a manner consistent with
its lending policies, which are principally the origination of
adjustable-rate mortgages, with an appropriate blend of
fixed-rate mortgage loans in its primary market area.
Comparison of Financial Condition at March 31, 1999 and December
- ----------------------------------------------------------------
31, 1998
- --------
The Company's assets increased by $374,938, or 0.4% to
$101,599,353 at March 31, 1999 from $101,224,415 at December 31,
1998. The Company's emphasis on expanding the loans receivable
portfolio continued. The loans receivable portfolio increased
by $1,998,987, or 2.7% to $76,544,899 at March 31, 1999 from
$74,545,912 at December 31, 1998. The loans held for sale
portfolio increased by $1,503,299, or 59.8% to $4,018,450 at
March 31, 1999 from $2,515,151 at December 31, 1998. The
remainder of the Company's interest earning assets, primarily
invested for liquidity, were reduced due to increased loan
demand and a reduction in savings deposits. The Company's stock
investment in Federal Home Loan Bank of Atlanta increased by
$13,200, or 2.0% to $685,500 at March 31, 1999 from $672,300 at
December 31, 1998, as a result of requirements imposed by the
Federal Home Loan Bank of Atlanta. Federal Home Loan Bank of
Atlanta stock is currently paying an annualized dividend rate of
7.50%.
The Company's liabilities increased $232,959, or 0.3% to
$91,339,638 at March 31, 1999 from $91,106,679 at December 31,
1998. During the three months ended March 31, 1999, the
Company's savings deposits decreased due to repositioning of the
savings rates at both Cecil and Columbian Banks. Savings
deposits decreased $720,224, or 0.8% to $86,954,578 at March 31,
1999 from $87,674,802 at December 31, 1998. Advances from the
Federal Home Loan Bank of Atlanta increased by $750,000, or
42.9% to $2,500,000 at March 31, 1999 from $1,750,000 at
December 31, 1998. Escrow payments received in advance for the
payment of taxes and insurance on loans receivable increased
$336,871, or 41.0% to $1,158,496 at March 31, 1999 from $821,625
at December 31, 1998. Other liabilities decreased $133,688,
14<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
or 21.2% from $629,204 at December 31, 1998 to $495,516 at March
31, 1999.
The Company's stockholder's equity increased by $141,979,
or 1.4% to $10,259,715 at March 31, 1999 from $10,117,736 at
December 31, 1998. The increase was primarily due to an
increase in retained earnings of $116,979, or 2.1% to $5,660,939
at March 31, 1999 from $5,543,960 at December 31, 1998. The
Company paid its regular dividend of $.10 per share for the
quarter ended March 31, 1999.
Results of Operations
- ---------------------
Three Months Ended March 31, 1999
- ---------------------------------
Net income decreased $28,003, or 13.8% to $175,439 for the
three months ended March 31, 1999, from $203,442 for the same
period in 1998. The annualized return on average assets and
annualized return on average equity were 0.70% and 6.88%
respectively, for the three months ended March 31, 1999. This
compares to an annualized return on average assets of 0.84% and
8.44% respectively for the same period in 1998.
Net interest income, the Company's primary source of
income, increased $57,283, or 6.9% to $890,044 for the three
months ended March 31, 1999, from $832,761 for the three months
ended March 31, 1998. The weighted average yield on all
interest earning assets decreased from 8.14% for the three
months ended March 31, 1998, to 7.90% for the three months ended
March 31, 1999. The weighted average rate paid on interest
bearing liabilities decreased from 4.72% for the three months
ended March 31, 1998 to 4.33% for the three months ended March
31, 1999. The decrease was a result of a decrease in the average
rate paid on deposits along with a decrease in the average
balance outstanding.
Interest on loans receivable increased by $63,713, or 4.1%
to $1,633,336 for the three months ended March 31, 1999 from
$1,569,623 for the three months ended March 31, 1998. The
increase is attributable to an increase in the average balance
outstanding. The weighted average yield decreased from 8.54%
for the three months ended March 31, 1998 to 8.21% for the three
months ended March 31, 1999. The average balance outstanding
increased $6,099,025, or 8.3% to $79,615,466 for the three
months ended March 31, 1999 from $73,516,441 for the three
months ended March 31, 1998.
Interest on mortgage backed securities decreased $19,546,
or 29.7% to $46,289 for the three months ended March 31, 1999
from $65,835 for the three months ended March 31, 1998. The
decrease is a result of a slight decrease in the average balance
outstanding.
Interest on investment securities decreased $33,782, or
25.3% to $99,500 for the three months ended March 31, 1999 from
133,282 for the three months ended March 31, 1998. The decrease
is a result of an decrease the average balance outstanding and
weighted average yield. Interest on other interest earning
assets increased $7,946, or 10.5% to $83,863 for the three
months ended March 31, 1999 from $75,917 for the three months
ended March 31, 1998. Other investments primarily are short
term liquidity accounts with variable rates.
Interest paid on savings deposits decreased $38,551, or
3.9% to $942,321 for the three months ended March 31, 1999 from
$980,872 for the three months ended March 31, 1998. The
decrease was the result of a decrease in the weighted average
yield on deposits. The
15<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
average balance outstanding increased $4,157,190, or 5.0% to
$86,734,900 for the three months ended March 31, 1999 from
$82,577,710 for the same period in 1998. The weighted average
yield decreased from 4.74% for the three months ended March 31,
1998 to 4.34% for the three months ended March 31, 1999.
Interest expense paid on borrowings remained stable for the
period.
Provision for Loan Losses: Provisions for loan losses remained
- -------------------------
stable for the period.
Noninterest income: Noninterest income decreased $39,452, or
- ------------------
33.6% to $77,838 for the three months ended March 31, 1999 from
$117,290 for the three months ended March 31, 1998. Loan
servicing fees decreased 14.2%, down $2,294 for the three months
ended March 31, 1999 over the same period in 1997. This was a
result of the decrease in the average balance outstanding of the
servicing portfolio. Gains on sale of loans decreased $12,885.
The decrease was attributable to no sales of fixed rate real
estate loans during the quarter. Commission income decreased
$8,641, or 38.3% for the three months ended March 31, 1999 over
the same period in 1997. The decrease was the result of rebate
adjustments to our credit insurance commissions. Other fees
decreased $12,715. Decreases were primarily attributable to the
increase in expenses to other real estate owned properties.
Noninterest Expense. Noninterest expense increased $34,459, or
- -------------------
5.5% to $657,753 for the three months ended March 31, 1999 from
$623,294 for the three months ended March 31, 1998. The Company
experienced an increase in compensation and benefits of $6,427,
or 1.9% to $352,022 for the three months ended March 31, 1999
from $345,595 for the three months ended March 31, 1998. The
increase can be attributable to annual salary increases.
Equipment and data processing expenses increased $14,484, or
23.0% to $77,474 for the three months ending March 31, 1999 from
$62,990 for the three months ending March 31, 1998 as the result
of the Company's year 2000 compliance plan. Other expenses
increased $10,536, or 6.6% to $169,027 for the three months
ending March 31, 1999 from $158,491 for the three months ending
March 31, 1998. The increase is attributable to increases in
loan expenses, accounting and audit expenses, conventions and
meeting expenses, other operating expenses, and an unrealized
loss on mortgage servicing rights.
Income Taxes. Income tax expense for the three months ended
- ------------
March 31, 1999 and March 31, 1998 was $112,190 and $100,815
respectively, which equates to effective rates of 39.0% and
33.1%, respectively.
16<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Nonperforming Assets and Problem Loans
- --------------------------------------
Management reviews and identifies all loans and investments
that require designation as nonperforming assets. These assets
include: (I) loans accounted for on a nonaccrual basis,
consisting of all loans 90 or more days past due; (ii) troubled
debt restructuring; and (iii) assets acquired in settlement of
loans. The following table sets forth certain information with
respect to nonperforming assets at March 31, 1999:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Nonperforming loans:
Residential mortgage $437,915 $ 371,552
Consumer and other 102,347 39,396
Assets acquired in settlement of loans:
Real estate held for development and sale
Real estate held for investment and sale
Repossessed assets 187,742 691,638
-------- ----------
Total Nonperforming Assets $728,004 $1,102,586
======== ==========
</TABLE>
Residential mortgages classified consisted of 16 loans with
balances ranging from $6,000 to $112,000. Classified consumer
loans consisted of 8 loans with balances ranging from $200 to
$69,000 as of March 31, 1999.
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, and
risk characteristics.
17<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
CAPITAL ADEQUACY
The Company Capital adequacy refers to the level of capital
- -----------
required to sustain asset growth and to absorb losses. There
are currently no regulatory capital guidelines or requirements
for the Company.
The Banks' The Office of Thrift Supervision ("OTS"), which is
- ----------
the banks' principle regulator, has established requirements for
tangible, core and risk based measures of capital. As a result,
the three capital measures mentioned above were as follows at
March 31, 1999:
<TABLE>
<CAPTION>
CECIL FEDERAL SAVINGS BANK
Tangible Core Risk Based
- ----------------------------------------------------------------
<S> <C> <C> <C>
Available capital $8,065 $8,065 $8,274
Required capital 1,082 2,886 3,616
------ ------ ------
Excess $6,983 $5,179 $4,658
====== ====== ======
Available capital 11.18% 11.18% 18.30%
Required capital 1.50% 4.00% 8.00%
------ ------ ------
Excess 9.68% 7.18% 10.30%
====== ====== ======
<CAPTION>
COLUMBIAN BANK, F.S.B.
Tangible Core Risk Based
- ----------------------------------------------------------------
<S> <C> <C> <C>
Available capital $2,147 $2,147 $2,250
Required capital 441 1,175 1,042
------ ------ ------
Excess $1,706 $ 972 $1,208
====== ====== ======
Available capital 7.31% 7.31% 17.27%
Required capital 1.50% 4.00% 8.00%
------ ------ ------
Excess 5.81% 3.31% 9.27%
====== ====== ======
</TABLE>
18<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Federal Deposit Improvement Act of 1991 ("FDICIA")
established five capital categories which are used to determine
the rate of deposit insurance premiums paid by insured
institutions, thus introducing the concept of risk adjusted
premiums. This act has the effect of requiring weaker banks to
pay higher insurance premiums while allowing healthier , well
capitalized banks to pay lower premiums. The following table
summarizes the five capital categories and the minimum capital
requirements for each of the three capital requirements:
<TABLE>
<CAPTION>
Tangible Core Risk Based
- ----------------------------------------------------------------
<S> <C> <C> <C>
Well capitalized 5+% 6+% 10+%
Adequately capitalized 4%-4.99% 4%-5.99% 8%-9.99%
Undercapitalized 3%-3.99% 3%-3.99% 6%-7.99%
Significantly undercapitalized 2%-2.99% 2%-2.99% 0%-5.99%
Critically undercapitalized 0%-1.99% - -
________________________________________________________________
</TABLE>
On March 31, 1999, the Banks' capital levels were
sufficient to qualify it as a well capitalized institution, the
most favorable category, allowing the Banks' to pay lower
deposit insurance premiums.
19<PAGE>
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
PAGE
----
PART II. Other Information:
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 21
Item 5. Other Information -
Not Applicable
Item 6. Exhibits and Reports on Form 8-K -
No reports on Form 8-K were filed during the
three months ended March 31, 1999
Exhibit 27 - Financial Data Schedule
20<PAGE>
<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 21, 1999, at 10:00a.m. at the Bentleys
Restaurant, 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 nominee for directors as listed in the
proxy statement were elected with the following vote:
<TABLE>
<CAPTION>
Shares Shares
Voted Shares Not
"For" "Withheld" Voted
<S> <C> <C> <C>
To serve for a three-year term:
Donald F. Angert 469,358 13,868 124,484
Robert L. Johnson 469,957 13,269 124,484
Doris P. Scott 427,108 56,118 124,484
Howard B. Tome 469,957 13,269 124,484
To serve for a two-year term:
Matthew G. Bathon 464,862 18,364 124,484
Charles F. Sposato 466,912 16,314 124,484
</TABLE>
21<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: May 7, 1999 By: /s/ Mary Beyer Halsey
----------------------------
Mary Beyer Halsey
President
Chief Executive Officer
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,404,838
<INT-BEARING-DEPOSITS> 3,505,775
<FED-FUNDS-SOLD> 630,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,884,688
<INVESTMENTS-CARRYING> 5,548,818
<INVESTMENTS-MARKET> 5,548,818
<LOANS> 76,544,899
<ALLOWANCE> 388,863
<TOTAL-ASSETS> 101,599,353
<DEPOSITS> 86,954,578
<SHORT-TERM> 2,500,000
<LIABILITIES-OTHER> 495,516
<LONG-TERM> 0
<COMMON> 6,077
0
0
<OTHER-SE> 10,253,638
<TOTAL-LIABILITIES-AND-EQUITY> 101,599,353
<INTEREST-LOAN> 1,633,336
<INTEREST-INVEST> 145,789
<INTEREST-OTHER> 83,863
<INTEREST-TOTAL> 1,862,988
<INTEREST-DEPOSIT> 942,321
<INTEREST-EXPENSE> 972,944
<INTEREST-INCOME-NET> 890,044
<LOAN-LOSSES> 22,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 169,027
<INCOME-PRETAX> 287,629
<INCOME-PRE-EXTRAORDINARY> 287,629
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,439
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 3.77
<LOANS-NON> 437,915
<LOANS-PAST> 102,347
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 402,309
<CHARGE-OFFS> 41,230
<RECOVERIES> 5,284
<ALLOWANCE-CLOSE> 388,862
<ALLOWANCE-DOMESTIC> 388,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
