SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30,2000
[ ] 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, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Number of shares outstanding of common stock
as of September 30, 2000
$0.01 par value common stock 620,367 shares
---------------------------- --------------------
Class Outstanding
1
<PAGE>
CECIL BANCORP INC., AND SUBSIDIARIES
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION ----
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Financial
Condition - September 30, 2000 and December 31, 1999 3-4
Consolidated Condensed Statements of Income and
Comprehensive Income for Three Months Ended
September 30, 2000 and 1999 5-6
Consolidated Condensed Statements of Cash Flows for Three
Months Ended September 30, 2000 and September 30, 1999 7-8
Notes to Consolidated Condensed Financial Statements 9
ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 10-20
PART II. OTHER INFORMATION 21
Signature 22
2
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Cash $ 1,069,849 $ 2,466,580
Cash - Interest bearing 4,174,407 3,515,501
Federal funds sold 50,000
Investment securities
Securities held-to-maturity, at cost 4,505,629 5,479,757
Securities available-for-sale at estimated
market value 1,229,237 1,328,199
Mortgage-backed securities
Securities held-to-maturity, at cost 887,878 1,071,123
Securities available-for-sale at estimated
market value 1,419,762 1,853,793
Loans receivable, net 103,291,697 92,098,839
Real estate owned 254,994 371,178
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 2,508,078 2,008,791
Stock in Federal Home Loan Bank of
Atlanta - at cost 905,000 657,800
Accrued interest receivable 802,831 618,702
Mortgage servicing rights 90,283 98,575
Prepaid expenses 132,188 145,243
Deferred taxes 318,263 257,337
Goodwill, less accumulated amortization 2,534,103 2,745,278
Other assets 25,585 157,159
------------ ------------
TOTAL ASSETS $124,149,784 $114,923,855
============ ============
</TABLE>
3
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $ 95,845,822 $ 101,217,544
Advance payments by borrowers for
property taxes and insurance 574,379 777,509
Employee stock ownership debt 192,540 192,540
Other liabilities 597,497 529,802
Advances from Federal Home Loan Bank
of Atlanta 15,700,000 1,500,000
------------- -------------
TOTAL LIABILITIES 112,910,238 104,217,395
------------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 620,367 shares
at September 30, 2000 and 615,742 shares
at December 31, 1999 6,204 6,158
Additional paid in capital 4,986,460 4,898,025
Employee stock ownership debt (192,540) (192,540)
Deferred compensation - Management
Recognition Plan (22,565) (45,383)
Retained earnings, substantially
restricted 6,479,785 6,063,589
Accumulated other comprehensive income (17,798) (23,389)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 11,239,546 10,706,460
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 124,149,784 $ 114,923,855
============= =============
</TABLE>
4
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $2,187,425 $1,669,432 $6,250,084 $4,947,631
Mortgage-backed securities 37,923 28,951 122,216 108,654
Investment securities 84,010 93,702 275,157 289,009
Other interest-earning assets 82,162 68,903 211,338 237,502
---------- ---------- ---------- ----------
Total interest income 2,391,520 1,860,988 6,858,795 5,582,796
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest expense on deposits 1,046,172 900,192 3,107,220 2,743,388
Borrowing 267,345 70,325 463,855 131,560
---------- ---------- ---------- ----------
Total interest expense 1,313,517 970,517 3,571,075 2,874,948
---------- ---------- ---------- ----------
Net interest income 1,078,003 890,471 3,287,720 2,707,848
Provision for loan losses 86,500 22,500 223,500 67,500
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 991,503 867,971 3,064,220 2,640,348
---------- ---------- ---------- ----------
NONINTEREST INCOME
Loan service charges 22,214 13,945 60,542 38,561
Dividends on FHLB stock 15,816 12,183 44,435 37,261
Gain on sale of loans 23,971
Unrealized loss on loans
held for sale 47,773
Commission income 21,522 26,222 92,116 77,234
Checking account fees 72,814 49,689 203,257 134,723
Other 48,249 33,710 126,591 59,661
---------- ---------- ---------- ----------
Total noninterest income 180,615 183,522 526,941 371,411
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 444,434 360,421 1,299,276 1,059,192
Occupancy 44,342 33,769 132,334 102,832
Equipment and data processing
expense 103,958 87,805 319,871 248,125
SAIF deposit insurance premium 20,617 21,274 50,418 63,992
Amortization of goodwill 70,392 211,175
Other 200,779 220,983 616,643 615,491
---------- ---------- ---------- ----------
Total noninterest expense 884,522 724,252 2,629,717 2,089,632
---------- ---------- ---------- ----------
Income before income taxes 287,596 327,241 961,444 922,127
---------- ---------- ---------- ----------
INCOME TAXES
Current 119,174 101,818 430,138 376,574
Deferred (9,632) (1,302) (64,445) (55,752)
---------- ---------- ---------- ----------
Total income taxes 109,542 100,516 365,693 320,822
---------- ---------- ---------- ----------
NET INCOME $ 178,054 $ 226,725 $ 595,751 $ 601,305
========== ========== ========== ==========
</TABLE>
5
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME $ 178,054 $ 226,725 $ 595,751 $ 601,305
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on
investment securities,
net of deferred taxes 8,355 (2,260) 5,591 (2,582)
---------- ---------- ---------- ----------
TOTAL COMPREHENSIVE INCOME $ 186,409 $ 224,465 $ 601,342 $ 578,723
========== ========== ========== ==========
Earnings per common share and
common share equivalent $ 0.35 $ 0.39 $ 1.00 $ 1.03
========== ========== ========== ==========
Earnings per common share -
assuming full dilution $ 0.34 $ 0.38 $ 0.98 $ 1.01
========== ========== ========== ==========
</TABLE>
6
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on loans and
investments $ 7,162,990 $ 5,851,338
Cash paid to suppliers and employees (1,953,208) (2,106,873)
Proceeds from sale of loans 1,149,335
Origination of loans held for sale (3,220,300)
Interest paid (3,571,075) (2,874,948)
Income taxes paid (512,841) (501,899)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 1,125,866 (1,703,347)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of investment
securities 2,140,684 4,500,000
Proceeds from maturities of mortgage-backed
securities 603,669 1,116,829
Purchases of investment securities (997,969) (14,546,773)
Loans originated (32,487,038) (29,441,413)
Principal collected on loans 21,070,680 21,148,652
Purchases of office properties, equipment and
leasehold improvements (615,805) (146,988)
Proceeds from sales of real estate owned 223,746 23,425
Purchase of real estate owned (107,562) (90,677)
Proceeds from sale of stock in Federal Home
Loan Bank of Atlanta 27,700
Purchase of stock in Federal Home Loan
Bank of Atlanta (247,200) (13,200)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (10,416,795) (17,422,445)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts 5,035,998 22,605,738
Proceeds from sales of certificates 16,429,075 9,845,821
Payments of maturing certificates of deposits (26,836,795) (36,535,463)
Branch acquisition 18,417,620
Decrease in advance payments by borrowers for
property taxes and insurance (203,130) (341,748)
Proceeds from issuance of common stock 47,300 65,440
Advances from Federal Home Loan Bank of Atlanta 14,200,000
Dividends paid (154,810) (175,852)
Funding of MRP Trust (14,534)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,503,104 13,881,556
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (787,825) (5,244,236)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 6,032,081 10,062,190
------------ ------------
END OF PERIOD $ 5,244,256 $ 4,817,954
============ ============
</TABLE>
7
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES
Net Income $ 595,751 $ 601,305
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Amortization of goodwill 211,175
Depreciation 116,519 99,033
Provision for loan losses 223,500 67,500
Amortization of investment security
premiums (discounts) (14,430) 16,506
Stock dividends (32,479) (22,612)
Increase in accrued interest receivable (184,129) (59,129)
Increase in deferred taxes (64,445) (55,752)
Decrease in mortgage servicing rights 8,292 26,643
(Increase) decrease in prepaid expenses 13,055 (104,753)
(Increase) decrease in other assets 131,574 (137,038)
Increase (decrease) in other liabilities 67,695 (100,355)
Increase in loans held for sale (2,094,936)
Distribution from MRP Trust 53,788 60,241
---------- ----------
530,115 (2,304,652)
---------- ----------
$1,125,866 ($1,703,347)
========== ==========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Cash received in branch acquisition
Assumption of savings deposits liabilities $ $ 22,176,092
Loans receivable obtained (71,690)
Office properties, equipment, and leasehold
Improvements obtained (871,113)
Goodwill obtained (2,815,669)
----------- -----------
Net cash received in branch acquisition $ $18,417,620
=========== ===========
Cash dividends paid
Dividends declared $ 179,555 $ 175,852
Issuance of common stock under the dividend
reinvestment plan (24,745)
----------- -----------
Dividends paid $ 154,810 $ 175,852
=========== ===========
</TABLE>
8
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
SEPTEMBER 30, 2000
------------------
(1) BASIS OF PRESENTATION
---------------------
(1) In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly its financial position as of September 30, 2000 and
the results of its operations for the three months and nine months
ended September 30, 2000 and 1999 and cash flows for the nine months
ended September 30, 2000 and 1999. These statements are condensed
and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. The statements should be read in conjunction
with the consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K for the year ended December
31, 1999. The results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of the results to
be expected for the full 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 598,155 in 2000 and
585,499 in 1999. The weighted average number of shares of common
stock for computation of diluted earnings per common share was
606,572 in 2000 and 596,439 in 1999.
9
<PAGE>
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 consist
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 report
relates to the business of the Banks rather than the business of the Company.
The company provides shareholders of record of at least 50 shares of the
Company's common stock with a way to reinvest, at no cost, all or a portion of
their regular cash dividends and to invest optional cash payments, subject to
minimum and maximum purchase limitations, in additional shares of Company Common
Stock. A Registration Statement and Prospectus on Form S-3 was filed on April
19, 2000 with the Securities and Exchange Commission which describes in more
detail the terms of the plan.
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.
On September 27, 1999, Cecil Federal Savings Bank, a wholly owned
subsidiary of Cecil Bancorp, Inc. closed an agreement with Susquehanna Bank, a
subsidiary of Susquehanna Bancshares, Inc., and acquired Susquehanna's two
branch offices located in Elkton, Maryland. This acquisition represents a
continuation of the growth of our
10
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
existing branch network, and is expected to benefit Cecil Federal's net income
in future periods. We look forward to offering the services of Cecil Federal to
the customers of these branches and welcome them as well as Susquehanna's
employees to the Cecil Federal family. Under the terms of the agreement Cecil
Federal assumed deposits of Susquehanna's two branch offices and certain other
assets. The deposits of these branch offices totaled $22.2 million at September
27, 1999. The transaction resulted in the acquisition of the 200 North Street
office, which was subsequently closed and the assumption of the lease of the Big
Elk Mall office.
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.
Cecil Financial Services also has an agreement with the Winstead Agency to
offer a variety of property and casualty and automobile insurance products to
the customers of Cecil Federal and Columbian. In addition, the Winstead Agency
is leasing an office in Columbian's new Route 40 office.
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 main office is located at 303-307 St. John Street, Havre de
Grace, Maryland, and its phone number is (410) 939-2313. Columbian also opened
its first branch on Route 40 in Havre de Grace in the third quarter.
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,
11
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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' 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
------------------
Since September 1997, Cecil Financial Services, a service corporation of
Cecil Federal Savings Bank, has offered a full range of brokerage and investment
services in all branches, through a partnership with UVEST Investment Services.
Mr. Roger L. Owens, CLU, serves as investment representative. Through UVEST, he
provides 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.
Cecil Financial Services also has an agreement with the Winstead Agency to
offer a variety of property and casualty and automobile insurance products to
the customers of Cecil Federal and Columbian. In addition, the Winstead Agency
will be leasing an office in Columbian's new Route 40 office.
12
<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 also
offers an adjustable rate product which remains fixed for the first ten years
and then converts to a one-year adjustable. Since 1995, Cecil Federal has, from
time to time, originated fixed rate mortgages for sale in the secondary market.
Presently, the Banks are not originating loans for sale in the secondary market,
but are retaining them in portfolio. Management has been monitoring the
retention of fixed rate loans through its asset/liability management policy.
Management intends to continue to concentrate on maintaining its interest rate
spread in a manner consistent with its lending policies, which are principally
the origination of adjustable-rate mortgages, with an appropriate blend of
fixed-rate mortgage loans in its primary market area.
FINANCIAL CONDITION
-------------------
Comparison of financial condition at September 30, 2000 and December 31, 1999.
The Company's total assets at September 30, 2000 increased $9,225,929 or
8.0% to $124,149,784 from $114,923,855 at December 31, 1999. The increase was
primarily the result of an increase in loans receivable. Total liabilities
increased $8,692,843 or 8.3% to $112,910,238 at September 30, 2000 from
$104,217,395 at December 31, 1999. This increase was primarily the result of
increased borrowings from the Federal Home Loan Bank of Atlanta to offset the
decline in savings deposits and increased loan volumes. Stockholder's equity
increased $533,086 or 5.0%.
Cash decreased $1,396,731 or 56.6% to $1,069,849 at September 30, 2000
from $2,466,580 at December 31, 1999. Interest-bearing cash increased $658,906
or 18.7% to $4,174,407 at September 30, 2000 from $3,515,501 at December 31,
1999. The net decrease in cash was primarily due to a decrease in deposits and
increase in loans receivable.
Investments held to maturity decreased $974,128 or 17.8% to $4,505,629 at
September 30, 2000 from $5,479,757 at December 31, 1999. Investments available
for sale decreased $98,962 or 7.5% to $1,229,237 at September 30, 2000 from
$1,328,199 at December 31, 1999. Mortgage backed securities held to maturity
decreased $183,245 or 17.1% to $887,878 at September 30, 2000 from $1,071,123 at
December 31, 1999. Mortgage backed securities available for sale decreased
$434,031 or 23.4% to $1,419,762 at September 30, 2000 from $1,853,793 at
December 31, 1999. Investments have been decreasing as a result of investing
excess cash in loans receivable rather than investment securities.
Loans receivable increased $11,192,859 or 12.2% to $103,291,697 at
September 30, 2000 from $92,098,838 at December 31, 1999. The increase in loans
receivable was a result
13
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
of increased loan originations.
Total savings deposits decreased $5,371,722 or 5.3% to $95,845,822 at
September 30, 2000 from $101,217,544 at December 31, 1999. Decreases are
attributable to conservative pricing of deposit rates. Escrows held for the
payments of taxes and insurances decreased $203,130 or 26.1% to $574,379 at
September 30, 2000 from $777,509 at December 31, 1999. Decreases are
attributable to payments of real estate taxes from the mortgage escrow accounts.
Advances from the Federal Home Loan Bank of Atlanta increased $14,200,000 or
946.7% to $15,700,000 at September 30, 2000 from $1,500,000 at December 31,
1999. Increases were due to increases in loan receivables along with a decline
in savings deposits.
RESULTS OF OPERATIONS
---------------------
Three Months Ended September 30, 2000 Net income for the three month period
-----------------------------------------
ended September 30, 2000 decreased $48,671 or 21.5% to $178,054 as compared to
net income for the same period in 1999 of $226,725. The annualized return on
average assets and annualized return on average equity were 0.57% and 6.35%
respectively, for the three-month period ended September 30, 2000. This compares
to an annualized return on average assets and annualized return on average
equity of 0.89% and 9.04% respectively, for the same period in 1999.
Net interest income, the Bank's primary source of income, increased 21.1%, or
$187,532 for the three months ended September 30, 2000, over the same period in
1999. The weighted average yield on interest earning assets increased from 7.56%
for the three months ended September 30, 1999 to 8.23% for the three months
ended September 30, 2000. The weighted average rate paid on interest bearing
liabilities increased from 4.25% for the three months ended September 30, 1999
to 4.67% for the three months ended September 30, 2000.
Total net interest income after provisions for loan losses increased 14.2% or
123,532 over the same period in 1999. Loan loss reserves have increased $64,000,
or 284.4% over the same period in 1999. Management has determined that reserves
need to increase as a direct result of the increase in loans receivable.
Interest on loans receivable increased by $517,993 or 31.0%, from $1,669,432 for
the three months ended September 30, 1999 to $2,187,425 for the three months
ended September 30, 2000. The increase is attributable to an increase in the
average balance outstanding and an increase in the weighted average yield. The
weighted average yield increased from 7.83% for the three months ended September
30, 1999 to 8.45% for the three months ended September 30, 2000.
Interest on mortgage backed securities increased $8,972 or 31.0%, from $28,951
for the three months ended September 30, 1999 to $37,923 for the three months
ended September 30, 2000. The increase is attributable to an increase in the
average balance outstanding. Interest on investment securities decreased $9,692
or 10.3% from $93,702 for the three months ended September 30, 1999 to $84,010
for the three months ended September 30, 2000. The average outstanding balance
decreased $310,831 for the three months ended September 30, 2000 over the three
months ended September 30, 1999. The weighted average yield increased from 5.18%
for the three months ended September 30, 1999 to 5.78% for the three months
ended September 30, 2000.
14
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest on other interest earning assets increased $13,259, or 19.2% from
$68,903 for the three months ended September 30, 1999 to $82,162 for the three
months ended September 30, 2000. The average outstanding balance increased
$375,627 for the three months ended September 30, 2000 over the three months
ended September 30, 1999. The weighted average yield increased from 6.85% for
the three months ended September 30, 1999 to 7.47% for the three months ended
September 30, 2000.
Interest on savings deposits increased $145,980 or 16.2% from $900,192 for the
three months ended September 30, 1999 to $1,046,172 for the three months ended
September 30, 2000. The average balance outstanding increased $3,596,209 for the
period noted above. The weighted average rate paid on deposits increased from
4.17% for the three months ended September 30, 1999 to 4.37% for the three
months ended September 30, 2000. Interest expense paid on borrowings increased
$197,020, or 280.2% from $70,325 for the three months ended September 30, 1999
to $267,345 for the three months ended September 30, 2000. The average balance
outstanding increased $11,473,407 for the period noted above. The weighted
average yield increased from 5.97% for the three months ended September 30, 1999
from 6.61% for the three months ended September 30, 2000.
Noninterest income decreased 1.6%, down $2,907 for the three months ended
September 30, 1999, over the same period in 1999. Loan servicing fees increased
59.3%, up $8,269 for the three months ended September 30, 2000 over the same
period in 1999. The Bank recognized recovery of loss on loans held for sale of
$47,773 during the three months ended September 30, 1999, which did not occur
during the 2000 quarter. This recovery was the result of reclassifying loans
held for sale to loans held to maturity. Checking account fees increased
$23,125, or 46.5% Increases in this area can be primarily attributable to
increased service charges, as a result of increased charges on demand deposits,
and the activity of three ATM machines, which are primarily used by
non-customers. Commission income decreased $4,700 or 17.9% from $26,222 for the
three months ended September 30, 1999 to $21,522 for the three months ended
September 30, 2000. The decrease is attributable to decreased security and
insurance products sales through the Bank's service corporation, Cecil Financial
Services. Other income increased $14,539 or 43.1% for the period noted.
Noninterest expense increased 22.1%, up $160,270 for the three months ended
September 30, 2000, over the same period in 1999. Compensation and benefits
increased 23.3% for the three months ended September 30, 2000 over the same
period in 1999. The increase can be attributed to the hiring of six additional
employees from the Susquehanna Bancshares branch acquisitions, annual salary
increases and medical premium increases. Occupancy expense increased $10,573, or
31.3% to $44,342 for the three months ended September 30, 2000 from $33,769 for
the three months ended September 30, 1999. The increase is associated with the
lease expense for the additional Big Elk Mall branch location acquired from
Susquehanna Bancshares. Equipment and data processing expenses increased 18.4%
for the three months ended September 30, 2000 over the same period in 1999 as
the result of the Company's acquisition of the two Susquehanna Bancshares
branches. The SAIF deposit premium remained stable for the three months ended
September 30, 2000 in comparison with the same period in 1999. Non-interest
expense was also increased by the amortization of goodwill associated with the
purchase of the two Susquehanna Bancshares branches in the amount of $70,392.
Other expenses remained stable between the two periods.
Income tax expense for the three-month period ended September 30, 2000 and 1999
was $109,542 and $100,516, respectively, which equates to effective rates of
38.1% and 30.7% respectively.
Nine months Ended September 30, 2000 Net income for the six-month period ended
-------------------------------------
September
15
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
30, 2000 decreased $5,554 or 0.9% to $595,751, compared to net income of
$601,305 for the same period in 1999. The decrease is primarily attributable to
increases in loan loss reserves. The annualized return on average assets and
annualized return on average equity were 0.65% and 7.21% respectively, for the
six-month period ended September 30, 2000. This compares to an annualized return
on average assets and annualized return on average equity of 0.78% and 7.72%
respectively, for the same period in 1999.
Net interest income, the Bank's primary source of income, increased 21.4% up
$579,872 for the nine months ended September 30, 2000, over the same period in
1999. The weighted average yield on interest earning assets increased from 7.67%
for the nine months ended September 30, 1999 to 7.98% for the nine months ended
September 30, 2000. The weighted average rate paid on interest bearing
liabilities increased from 4.26% for the nine months ended September 30, 1999 to
4.32% for the nine months ended September 30, 2000.
Total net interest income after provisions for loan losses increased 16.1% or
423,872 over the same period in 1999. Loan loss reserves have increased
$156,000, or 231.1% over the same period in 1999. Management has determined that
reserves need to increase as a direct result of the increase in loans
receivable.
Interest on loans receivable increased by $1,302,453 or 26.3%, from $4,947,631
for the nine months ended September 30, 1999 to $6,250,084 for the nine months
ended September 30, 2000. The average balance outstanding increased $9,741,073.
The weighted average yield increased from 8.06% for the nine months ended
September 30, 1999 to 8.25% for the nine months ended September 30, 2000.
Interest on mortgage backed securities increased $13,562 or 12.5%, from $108,654
for the nine months ended September 30, 1999 to $122,216 for the nine months
ended September 30, 2000. The average outstanding balance increased $566,490, or
25.9%, from $2,187,700 for the nine months ended September 30, 1999 to
$2,754,190 for the nine months ended September 30, 2000. The weighted average
yield decreased from 6.62% for the nine months ended September 30, 1999 to 5.92%
for the nine months ended September 30, 2000.
Interest on investment securities decreased $13,562 or 4.8% from $289,009 for
the nine months ended September 30, 1999 to $275,157 for the nine months ended
September 30, 2000. The average outstanding balance decreased $380,455 for the
nine months ended September 30, 2000 over the nine months ended September 30,
1999. The weighted average yield increased from 4.71% for the nine months ended
September 30, 1999 to 5.74% for the nine months ended September 30, 2000.
Interest on other interest earning assets decreased $26,164, or 11.0%, from
$237,502 for the nine months ended September 30, 1999 to $211,338 for the same
period in 1999. The weighted average yield decreased from 6.54% for the nine
months ended September 30, 1999 to 6.31% for the nine months ended September 30,
2000. The average outstanding balance decreased $428,601 from $4,845,641 for the
nine months ended September 30, 1999 to $4,417,040 for the nine months ended
September 30, 2000.
Interest on savings deposits increased $363,832, or 13.3% from $2,743,388 for
the nine months ended September 30, 1999 to $3,107,220 for the nine months ended
September 30, 2000. The average balance outstanding increased $9,741,073 for the
period noted above. The weighted average rate paid on deposits decreased from
4.24% for the nine months ended September 30, 1999 to 4.23% for the nine months
ended September 30, 2000. Interest expense paid on borrowings increased
$332,295, or 252.6% from $131,560 for the nine months
16
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ended September 30, 1999 to $463,855 for the nine months ended September 30,
2000. Increases are attributable to decreases in the weighted average cost of
funds from 5.91% for the nine months ended September 30, 1999 to 5.38% for the
nine months ended September 30, 2000, which were offset by an increase in the
average balance outstanding from $2,967,003 for the nine months ended September
30, 1999 to $11,489,434 for the nine months ended September 30, 2000.
Noninterest income increased $155,530 or 41.9% to $526,941 for the nine months
ended September 30, 2000 from $371,411 for the same period in 1999. Loan
servicing fees increased 57.0%, up $21,981 for the nine months ended September
30, 2000 over the same period in 1999. Checking account fees increased $68,534,
or 50.9%. Increases in this area can be primarily attributable to increased
service charges, as a result of increased charges on demand deposits, and the
activity of three ATM machines, which are primarily used by non-customers.
Commission income increased $14,882, or 19.3% for the nine months ended
September 30, 2000 over the same period in 1999. The increase was the result of
increased sales of insurance and investments products. Other income increased
$66,930 or 112.2% for the period noted. The increase is due to reclassification
of ATM fee income from a net expense account classification to separate income
and expense classifications.
Noninterest expense increased $540,085 or 25.8% to $2,629,717 for the nine-month
period ended September 30, 2000 from $2,089,632 for the nine months ended
September 30, 1999. Compensation and benefits increased 22.7% or $240,084 for
the nine months ended September 30, 2000 over the same period in 1999. The
increase can be attributed to the hiring of six additional employees from the
Susquehanna Bancshares branch acquisitions, annual salary increases and medical
premium increases. Occupancy expense increased $29,502, or 28.9% to $132,334 for
the nine months ended September 30, 2000 from $102,832 for the nine months ended
September 30, 1999. The increase is associated with the lease expense for the
additional Big Elk Mall branch location acquired from Susquehanna Bancshares.
Equipment and data processing expenses increased 28.9% for the nine months ended
September 30, 2000 over the same period in 1999 as the result of the Company's
acquisition of the two Susquehanna Bancshares branches. The SAIF deposit premium
decreased 13,574 or 21.2% for the nine months ended September 30, 2000 over the
same period in 1999. Non-interest expense was also increased by the amortization
of goodwill associated with the purchase of the two Susquehanna Bancshares
branches in the amount of $211,175. Other expenses remained stable between the
two periods.
Income tax expense for the six-month period ended September 30, 2000 and 1999
was $365,693 and $320,822 which equates to effective rates of 38.0% and 34.8%
respectively.
17
<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 September 30, 2000:
2000 1999
----------- --------
Nonperforming loans:
Residential mortgage $ 644,446 $ 796,492
Consumer and other 200,294 198,884
Assets acquired in settlement of loans:
Real estate held for development and sale
Real estate held for investment and sale
Repossessed assets 254,994 254,994
---------- ----------
Total Nonperforming Assets $1,099,734 $1,250,370
========== ==========
Residential mortgages classified consisted of 13 loans with balances ranging
from $1,000 to $148,000. Classified consumer loans consisted of 23 loans with
balances ranging from $1,000 to $31,000 as of September 30, 2000.
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.
18
<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 September 30, 2000:
CECIL FEDERAL SAVINGS BANK
Tangible Core Risk Based
-----------------------------------------------------------------------------
Available capital $6,530 $6,530 $6,761
Required capital 1,376 3,670 5,472
------ ------ ------
Excess $5,154 $2,860 $1,289
====== ====== ======
Available capital 7.12% 7.12% 9.88%
Required capital 1.50% 4.00% 8.00%
------ ------ -------
Excess 5.62% 3.12% 1.88%
====== ====== =======
COLUMBIAN BANK, F.S.B.
Tangible Core Risk Based
-----------------------------------------------------------------------------
Available capital $2,082 $2,082 $2,218
Required capital 448 1,196 1,329
------ ------ ------
Excess $1,634 $ 886 $ 889
====== ====== ======
Available capital 6.96% 6.96% 13.35%
Required capital 1.50% 4.00% 8.00%
------- ------ -------
Excess 5.46% 2.96% 5.35%
======= ====== =======
19
<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:
Tangible Core Risk-Based
-----------------------------------------------------------------------------
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% -- --
-----------------------------------------------------------------------------
On September 30, 2000, 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.
20
<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 -
No reports on Form 8-K were filed during the
three months ended September 30, 2000
21
<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 hereunto duly authorized.
CECIL BANCORP, INC.
Date: November 15, 2000 By: /s/ Mary Beyer Halsey
----------------------------- -------------------------------
Mary Beyer Halsey
President
Chief Executive Officer
