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 June 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 executive office) (Zip Code)
410 398-1650
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(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 June 30, 2000
$0.01 par value common stock 618,992 shares
---------------------------- --------------------
Class Outstanding
<PAGE>
CECIL BANCORP INC., AND SUBSIDIARIES
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Financial
Condition - June 30, 2000 and December 31, 1999 3-4
Consolidated Condensed Statements of Income and
Comprehensive Income for Three Months Ended
June 30, 2000 and 1999 5-6
Consolidated Condensed Statements of Cash Flows for
Three Months Ended June 30, 2000 and June 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
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Cash $ 856,347 $ 2,466,580
Cash - Interest bearing 4,889,742 3,515,501
Federal funds sold 50,000
Investment securities
Securities held-to-maturity, at cost 4,504,405 5,479,757
Securities available-for-sale at estimated
market value 1,279,689 1,328,199
Mortgage-backed securities
Securities held-to-maturity, at cost 941,145 1,071,123
Securities available-for-sale at estimated
market value 1,514,744 1,853,793
Loans receivable, net 103,429,279 92,098,839
Real estate owned 379,056 371,178
Office properties, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization 2,205,133 2,008,791
Stock in Federal Home Loan Bank of
Atlanta - at cost 815,000 657,800
Accrued interest receivable 727,628 618,702
Mortgage servicing rights 92,905 98,575
Prepaid expenses 187,514 145,243
Deferred taxes 313,937 257,337
Goodwill, less accumulated amortization 2,604,495 2,745,278
Other assets 6,555 157,159
------------ ------------
TOTAL ASSETS $124,747,574 $114,923,855
============ ============
</TABLE>
3
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ----------
(Unaudited)
<S> <C> <C>
LIABILITIES
Savings deposits $ 96,466,633 $ 101,217,544
Advance payments by borrowers for
property taxes and insurance 1,413,478 777,509
Employee stock ownership debt 192,540 192,540
Other liabilities 536,322 529,802
Advances from Federal Home Loan Bank
of Atlanta 15,050,000 1,500,000
------------- -------------
TOTAL LIABILITIES 113,658,973 104,217,395
------------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: 618,992 shares
at June 30, 2000 and 615,742 shares at
December 31, 1999 6,190 6,158
Additional paid in capital 4,961,931 4,898,025
Employee stock ownership debt (192,540) (192,540)
Deferred compensation - Management
Recognition Plan (22,565) (45,383)
Retained earnings, substantially
restricted 6,361,738 6,063,589
Accumulated other comprehensive income (26,153) (23,389)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 11,088,601 10,706,460
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 124,747,574 $ 114,923,855
============= =============
</TABLE>
4
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ---------- -------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $2,092,410 $1,644,863 $4,062,659 $3,278,199
Mortgage-backed securities 39,636 33,413 84,293 79,702
Investment securities 95,572 95,807 191,148 195,307
Other interest-earning assets 67,544 84,735 129,176 168,599
---------- ---------- ---------- ----------
Total interest income 2,295,162 1,858,818 4,467,276 3,721,807
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest expense on deposits 1,036,101 900,874 2,061,048 1,843,195
Borrowing 148,203 30,612 196,510 61,235
---------- ---------- ---------- ----------
Total interest expense 1,184,304 931,486 2,257,558 1,904,430
---------- --------- ---------- ----------
Net interest income 1,110,858 927,332 2,209,718 1,817,377
Provision for loan losses 81,500 22,500 137,000 45,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,029,358 904,832 2,072,718 1,772,377
---------- --------- ---------- ----------
NONINTEREST INCOME
Loan service charges 19,612 10,743 38,329 24,617
Dividends on FHLB stock 15,769 12,457 28,619 25,078
Gain on sale of loans 23,971 23,971
Unrealized loss on loans
held for sale (47,773) (47,773)
Commission income 46,264 37,069 70,595 51,011
Checking account fees 72,315 47,633 130,442 85,034
Other 19,552 2,077 39,243 1,106
---------- ---------- ---------- ----------
Total noninterest income 173,512 86,177 307,228 163,044
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 406,956 351,233 854,842 698,771
Occupancy 44,274 33,910 87,992 69,062
Equipment and data processing
expense 112,131 82,847 215,913 160,321
SAIF deposit insurance premium 14,736 21,365 29,801 42,718
Amortization of goodwill 70,392 140,783
Other 202,783 198,882 376,766 369,663
---------- ---------- ---------- ----------
Total noninterest expense 851,272 688,237 1,706,097 1,340,535
---------- ---------- ---------- ----------
Income before income taxes 351,598 302,772 673,849 594,886
---------- ---------- ---------- ----------
INCOME TAXES
Current 160,463 127,779 310,964 274,756
Deferred (27,946) (21,188) (54,813) (54,450)
---------- ---------- ---------- ----------
Total income taxes 132,517 106,591 256,151 220,306
---------- ---------- ---------- ----------
NET INCOME $ 219,081 $ 196,181 $ 417,698 $ 374,580
========== ========== ========== ==========
</TABLE>
5
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME $ 219,081 $ 196,181 $ 417,698 $ 374,580
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on
investment securities,
net of deferred taxes 3,253 (4,853) (2,764) (20,322)
---------- --------- ---------- ----------
TOTAL COMPREHENSIVE INCOME $ 222,334 $ 191,328 $ 414,934 $ 354,258
========== ========= ========== ==========
Earnings per common share and
common share equivalent $ 0.37 $ 0.34 $ 0.70 $ 0.64
========== ========== ========== ==========
Earnings per common share -
assuming full dilution $ 0.36 $ 0.33 $ 0.69 $ 0.63
========== ========== ========== ==========
</TABLE>
6
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received on loans and
investments $ 4,632,725 $ 3,914,561
Cash paid to suppliers and employees (1,221,529) (1,377,575)
Proceeds from sale of loans 1,149,335
Origination of loans held for sale (3,060,300)
Interest paid (2,257,558) (1,904,430)
Income taxes paid (408,548) (409,740)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 745,090 (1,688,149)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of investment
securities 2,069,217 3,000,000
Proceeds from maturities of mortgage-backed
securities 455,612 909,239
Purchases of investment securities (997,969) (4,796,726)
Proceeds from sales of investment securities
available-for-sale 2,784,584
Loans originated (23,020,051) (18,220,598)
Principal collected on loans 11,552,611 16,160,660
Purchases of office properties, equipment and
leasehold improvements (273,902) (84,265)
Proceeds from sales of real estate owned 99,684 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 (157,200) (13,200)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (10,379,560) (299,858)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts 3,608,518 19,972,192
Proceeds from sales of certificates 11,153,402 5,728,887
Payments of maturing certificates of deposits (19,512,831) (28,774,177)
Increase in advance payments by borrowers for
property taxes and insurance 635,969 616,997
Proceeds from issuance of common stock 36,000 36,292
Advances from Federal Home Loan Bank of Atlanta 13,550,000 1,750,000
Dividends paid (108,046) (116,921)
Funding of MRP Trust (14,534)
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES 9,348,478 (786,730)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (285,992) (2,774,737)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 6,032,081 10,062,190
------------ ------------
END OF PERIOD $ 5,746,089 $ 7,287,453
============ ============
</TABLE>
7
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES
Net Income $ 417,698 $ 374,580
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Amortization of goodwill 140,783
Depreciation 77,559 65,640
Provision for loan losses 137,000 45,000
Amortization of investment security
premiums (discounts) (17,722) 11,639
Stock dividends (20,801) (15,025)
Increase in accrued interest receivable (108,926) (10,458)
Increase in deferred taxes (54,812) (54,450)
Decrease in mortgage servicing rights 5,670 19,752
Increase in prepaid expenses (42,271) (123,617)
(Increase) decrease in other assets 150,604 (6,643)
Increase (decrease) in other liabilities 6,520 (167,645)
Increase in loans held for sale (1,887,163)
Distribution from MRP Trust 53,788 60,241
---------- -----------
327,392 (2,062,729)
---------- -----------
$ 745,090 ($1,688,149)
========== ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Cash dividends paid
Dividends declared $ 119,548 $ 116,921
Issuance of common stock under the
dividend reinvestment plan (11,502)
---------- -----------
Dividends paid $ 108,046 $ 116,921
========== ==========
</TABLE>
8
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
JUNE 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 June 30,
2000 and the results of its operations for the three months and
six months ended June 30, 2000 and 1999 and cash flows for the six
months ended June 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 six months ended June 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 597,238 in 2000
and 596,489 in 1999. The weighted average number of shares of
common stock for computation of diluted earnings per common share
was 606,472 in 2000 and 606,105 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
will be leasing an office in Columbian's new Route 40 office upon its
completion.
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,
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 upon its
completion.
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 June 30, 2000 and December 31, 1999.
The Company's total assets at June 30, 2000 increased $9,823,719 or 8.5% to
$124,747,574 from $114,923,855 at December 31, 1999. The increase was primarily
the result of an increase in loans receivable. Total liabilities increased
$9,441,578 or 9.1% to $113,658,973 at June 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
$382,141 or 3.6%.
Cash decreased $1,610,233 or 65.3% to $856,347 at June 30, 2000 from
$2,466,580 at December 31, 1999. Interest-bearing cash increased $1,374,241 or
39.1% to $4,889,742 at June 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 $975,352 or 17.8% to $4,504,405 at
June 30, 2000 from $5,479,757 at December 31, 1999. Investments available for
sale decreased $48,510 or 3.7% to $1,279,689 at June 30, 2000 from $1,328,199 at
December 31, 1999. Mortgage backed securities held to maturity decreased
$129,978 or 12.1% to $941,145 at June 30, 2000 from $1,071,123 at December 31,
1999. Mortgage backed securities available for sale decreased $339,049 or 18.3%
to $1,514,744 at June 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 $11,330,441 or 12.3% to $103,429,279 at June 30,
2000 from $92,098,838 at December 31, 1999. The increase in loans receivable was
a result of
13
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
increased loan originations.
Total savings deposits decreased $4,750,911 or 4.7% to $96,466,633 at
June 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 increased $635,969 or 81.8% to $1,413,478 at June 30, 2000 from
$777,509 at December 31, 1999. Increases are attributable to changes in the
calculation of reserves on mortgage escrow accounts. Advances from the Federal
Home Loan Bank of Atlanta increased $13,550,000 or 903.3% to $15,050,000 at June
30, 2000 from $1,500,000 at December 31, 1999. Increases were due to general
funding needs.
RESULTS OF OPERATIONS
---------------------
Three Months Ended June 30, 2000 Net income for the three month period ended
----------------------------------
June 30, 2000 increased $22,900 or 11.7% to $219,081 as compared to net income
for the same period in 1999 of $196,181. The annualized return on average assets
and annualized return on average equity were 0.71% and 7.97% respectively, for
the three-month period ended June 30, 2000. This compares to an annualized
return on average assets and annualized return on average equity of 0.74% and
7.28% respectively, for the same period in 1999.
Net interest income, the Bank's primary source of income, increased 19.8%, or
$183,526 for the three months ended June 30, 2000, over the same period in 1999.
The weighted average yield on interest earning assets increased from 7.89% for
the three months ended June 30, 1999 to 7.95% for the three months ended June
30, 2000. The weighted average rate paid on interest bearing liabilities
decreased from 4.26% for the three months ended June 30, 1999 to 4.21% for the
three months ended June 30, 2000.
Interest on loans receivable increased by $447,547 or 27.2%, from $1,644,863 for
the three months ended June 30, 1999 to $2,092,410 for the three months ended
June 30, 2000. The increase is attributable to an increase in the average
balance outstanding. The weighted average yield increased from 8.14% for the
three months ended June 30, 1999 to 8.17% for the three months ended June 30,
2000.
Interest on mortgage backed securities increased $6,223 or 18.6%, from $33,413
for the three months ended June 30, 1999 to $39,636 for the three months ended
June 30, 2000. The increase is attributable to an increase in the average
balance outstanding. Interest on investment securities decreased $235 or 0.2%
from $95,807 for the three months ended June 30, 1999 to $95,572 for the three
months ended June 30, 2000. The average outstanding balance decreased $2,262,714
for the three months ended June 30, 2000 over the three months ended June 30,
1999. The weighted average yield increased from 5.05% for the three months ended
June 30, 1999 to 5.70% for the three months ended June 30, 2000.
Interest on other interest earning assets decreased $17,191, or 20.3% from
$84,735 for the three months ended June 30, 1999 to $67,544 for the three months
ended June 30, 2000. The average outstanding balance increased $1,749,677 for
the three months ended June 30, 2000 over the three months ended June 30, 1999.
The weighted average yield decreased from 8.62% for the three months ended June
30, 1999 to 6.28% for the three
14
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
months ended June 30, 2000. The average outstanding balance increased, which was
offset by a decrease in the average yield.
Interest on savings deposits increased $135,227 or 15.0% from $900,874 for the
three months ended June 30, 1999 to $1,036,101 for the three months ended June
30, 2000. The average balance outstanding increased $12,693,078 for the period
noted above. The weighted average rate paid on deposits increased from 4.21% for
the three months ended June 30, 1999 to 4.22% for the three months ended June
30, 2000. Interest expense paid on borrowings increased $117,591, or 384.1% from
$30,612 for the three months ended June 30, 1999 to $148,203 for the three
months ended June 30, 2000. The average balance outstanding increased
$10,691,684 for the period noted above. The weighted average yield decreased
from 5.07% for the three months ended June 30, 1999 from 4.52% for the three
months ended June 30, 2000.
Noninterest income increased 101.3%, up $87,335 for the three months ended June
30, 1999, over the same period in 1999. Loan servicing fees increased 82.6%, up
$8,869 for the three months ended June 30, 2000 over the same period in 1999.
Checking account fees increased $24,682, or 51.8% 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 $9,195 or 24.8%
from $37,069 for the three months ended June 30, 1999 to $46,264 for the three
months ended June 30, 2000. The increase is attributable to increased security
and insurance products sales through the Bank's service corporation, Cecil
Financial Services. Other income increased $17,475 or 841.4% for the period
noted.
Noninterest expense increased 23.7%, up $163,035 for the three months ended June
30, 2000, over the same period in 1999. Compensation and benefits increased
15.9% for the three months ended June 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 $10,364, or 30.6% to $44,274 for
the three months ended June 30, 2000 from $33,910 for the three months ended
June 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 35.3% for the three months
ended June 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 $6,629 or 31.0% for the three months ended June 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 $70,392. Other expenses remained stable between the two
periods.
Income tax expense for the three-month period ended June 30, 2000 and 1999 was
$132,517 and $106,591, respectively, which equates to effective rates of 37.7%
and 35.2% respectively.
Six Months Ended June 30, 2000 Net income for the six-month period ended June
-------------------------------
30, 2000 increased $43,118 or 11.5% to $417,698, compared to net income of
$374,580 for the same period in 1999. The annualized return on average assets
and annualized return on average equity were 0.69% and 7.65% respectively, for
the six-month period ended June 30, 2000. This compares to an annualized return
on average assets and annualized return on average equity of 0.74% and 7.28%
respectively, for the same period in 1999.
15
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net interest income, the Bank's primary source of income, increased 21.6% up
$392,341 for the six months ended June 30, 2000, over the same period in 1999.
The weighted average yield on interest earning assets decreased from 7.89% for
the six months ended June 30, 1999 to 7.87% for the six months ended June 30,
2000. The weighted average rate paid on interest bearing liabilities decreased
from 4.26% for the six months ended June 30, 1999 to 4.14% for the six months
ended June 30, 2000.
Interest on loans receivable increased by $784,460 or 23.9%, from $3,278,199 for
the six months ended June 30, 1999 to $4,062,659 for the six months ended June
30, 2000. The average balance outstanding increased $19,622,290. The weighted
average yield decreased from 8.18% for the six months ended June 30, 1999 to
8.14% for the six months ended June 30, 2000.
Interest on mortgage backed securities increased $4,591 or 5.8%, from $79,702
for the six months ended June 30, 1999 to $84,293 for the six months ended June
30, 2000. The average outstanding balance increased $407,341 for the six months
ended June 30, 2000 from the same period ended 1999, with the weighted average
yield decreasing from 7.04% for the six months ended June 30, 1999 to 6.31% for
the six months ended June 30, 2000. Interest on investment securities decreased
$4,159 or 2.1% from $195,307 for the six months ended June 30, 1999 to $191,148
for the six months ended June 30, 2000. The average outstanding balance
decreased $2,239,560 for the six months ended June 30, 2000 over the six months
ended June 30, 1999. The weighted average yield increased from 5.11% for the six
months ended June 30, 1999 to 5.66% for the six months ended June 30, 2000.
Interest on other interest earning assets decreased $39,423, or 23.4%, from
$168,599 for the six months ended June 30, 1999 to $129,176 for the same period
in 1999. The weighted average yield decreased from 7.96% for the six months
ended June 30, 1999 to 6.31% for the six months ended June 30, 2000. The average
outstanding balance increased $1,323,341 from $4,237,836 for the six months
ended June 30, 1999 to $5,561,177 for the six months ended June 30, 2000.
Interest on savings deposits increased $217,853, or 11.8% from $1,834,195 for
the six months ended June 30, 1999 to $2,061,048 for the six months ended June
30, 2000. The average balance outstanding increased $12,813,504 for the period
noted above. The weighted average rate paid on deposits decreased from 4.27% for
the six months ended June 30, 1999 to 4.16% for the six months ended June 30,
2000. Interest expense paid on borrowings increased $135,275, or 220.9% from
$61,235 for the six months ended June 30, 1999 to $196,510 for the six months
ended June 30, 2000. Increases are attributable to decreases in the weighted
average cost of funds from 5.55% for the six months ended June 30, 1999 to 4.30%
for the six months ended June 30, 2000, which were offset by an increase in the
average balance outstanding from $2,208,333 for the six months ended June 30,
1999 to $9,140,824 for the six months ended June 30, 2000.
Noninterest income increased $144,184 or 88.4% to $307,228 for the six months
ended June 30, 2000 from $163,044 for the same period in 1999. Loan servicing
fees increased 55.7%, up $13,712 for the six months ended June 30, 2000 over the
same period in 1999. Checking account fees increased $45,408, or 53.4%.
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 $19,584, or 38.4% for the six months ended June 30, 2000 over
the same period in 1999. The increase was the result of increased
16
<PAGE>
CECIL BANCORP, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
sales of insurance and investments products. Other income increased $38,137 or
3448.2% for the period noted.
Noninterest expense increased $365,562 or 27.3% to $1,706,097 for the six-month
period ended June 30, 2000 from $1,340,535 for the six months ended June 30,
1999. Compensation and benefits increased 22.3% or $156,071 for the six months
ended June 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 $18,930, or 27.4% to $87,992 for the six months ended June 30,
2000 from $69,062 for the six months ended June 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 34.7% for the six months ended June 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 12,917 or 30.2% for the
six months ended June 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 $140,783.
Other expenses remained stable between the two periods.
Income tax expense for the six-month period ended June 30, 2000 and 1999 was
$256,151 and $220,306 which equates to effective rates of 38.0% and 37.0%
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 June 30, 2000:
<TABLE>
<CAPTION>
2000 1999
----------- --------
Nonperforming loans:
<S> <C> <C>
Residential mortgage $ 836,228 $ 821,136
Consumer and other 264,041 128,147
Assets acquired in settlement of loans:
Real estate held for development and sale
Real estate held for investment and sale
Repossessed assets 379,056 254,994
----------- ----------
Total Nonperforming Assets $1,479,325 $1,204,277
=========== ==========
</TABLE>
Residential mortgages classified consisted of 14 loans with balances ranging
from $5,000 to $148,000. Classified consumer loans consisted of 19 loans with
balances ranging from $1,000 to $31,000 as of June 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 June 30, 2000:
CECIL FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
Tangible Core Risk Based
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Available capital $6,259 $6,259 $6,502
Required capital 1,390 3,708 5,316
------ ------ ------
Excess $4,869 $2,551 $1,186
====== ====== ======
Available capital 6.75% 6.75% 9.79%
Required capital 1.50% 4.00% 8.00%
------- ------- --------
Excess 5.25% 2.75% 1.79%
======= ======= =======
<CAPTION>
COLUMBIAN BANK, F.S.B.
Tangible Core Risk Based
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Available capital $2,191 $2,191 $2,327
Required capital 433 1,181 1,299
------ ------ ------
Excess $1,748 $1,010 $1,028
====== ====== ======
Available capital 7.42% 7.42% 14.33%
Required capital 1.50% 4.00% 8.00%
------- ------ -------
Excess 5.92% 3.42% 6.33%
======= ====== =======
</TABLE>
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:
<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 June 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 June 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: August 7, 2000 By: /s/ Mary Beyer Halsey
------------------------------ ------------------------
Mary Beyer Halsey
President
Chief Executive Officer
22
