##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number 0-24926
 CECIL BANCORP, INC.
  Maryland
(State or other jurisdiction of 
incorporation or organization)
    
    52-1883546
(I.R.S. Employer
Identification Number)127 North Street, Elkton, Maryland
(Address of principal executive office)
    
    21921-5547
(Zip Code)
   þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ
  3,684,196 shares outstanding as of November 5, 2008




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##### 



PAGEPART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial Statements (unaudited)Consolidated Balance Sheets 
September 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Income and
Comprehensive Income for the Three and Nine
Months Ended September 30, 2008 and 2007
    
    
    4-5Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
2008 and 2007
    
    
    6-7Notes to Consolidated Financial
Statements
    
    
    8-11ITEM 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12-20ITEM 3.
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    
    20ITEM 4.
    
    Controls and Procedures
    
    
    20ITEM 4T.
    
    Controls and Procedures
    
    
    20PART II.
    
    OTHER INFORMATION
    
    
    21SIGNATURES
    
    
    22CERTIFICATIONS
    
    
    23-26EX-31.A: CERTIFICATIONSEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION
  2




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CECIL BANCORP, INC. AND SUBSIDIARIES
 
  
 
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETS:Cash and due from banks
    
    $
    6,766
    
    
    $
    1,205Interest bearing deposits with banks
    
    
    15,177
    
    
    
    4,306Investment securities:Securities available-for-sale at fair value
    
    
    2,138
    
    
    
    2,470Securities held-to-maturity (fair value of $249
in 2008 and $2,753 in 2007)
    
    
    248
    
    
    
    2,749Restricted investment securities  at cost
    
    
    3,918
    
    
    
    4,750Loans receivable
    
    
    401,577
    
    
    
    358,704Less: allowance for loan losses
    
    
    (3,889
    )
    
    
    (3,109
    )Net loans receivable
    
    
    397,688
    
    
    
    355,595Other real estate owned
    
    
    1,951
    
    
    
    655Premises and equipment, net
    
    
    12,094
    
    
    
    11,997Accrued interest receivable
    
    
    2,142
    
    
    
    2,122Goodwill
    
    
    2,182
    
    
    
    2,182Other intangible assets
    
    
    315
    
    
    
    240Bank owned life insurance
    
    
    7,717
    
    
    
    7,532Other assets
    
    
    4,294
    
    
    
    5,629TOTAL ASSETS
    
    $
    456,630
    
    
    $
    401,432LIABILITIES:Deposits
    
    $
    337,724
    
    
    $
    267,032Other liabilities
    
    
    8,638
    
    
    
    5,659Guaranteed preferred beneficial interest in
junior subordinated debentures
    
    
    17,000
    
    
    
    17,000Advances from Federal Home Loan Bank of Atlanta
    
    
    63,857
    
    
    
    84,499Total liabilities
    
    
    427,219
    
    
    
    374,190STOCKHOLDERS EQUITY:Common stock, $.01 par value; authorized 10,000,000
shares, issued and outstanding 3,684,196 shares in
2008 and 3,678,286 shares in 2007
    
    
    37
    
    
    
    37Additional paid in capital
    
    
    11,481
    
    
    
    11,441Retained earnings
    
    
    18,137
    
    
    
    15,856Accumulated other comprehensive loss
    
    
    (244
    )
    
    
    (92
    )Total stockholders equity
    
    
    29,411
    
    
    
    27,242TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    456,630
    
    
    $
    401,432
 .
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CECIL BANCORP, INC. AND SUBSIDIARIES
 
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOME:Interest and fees on loans
    
    $
    7,323
    
    
    $
    6,979
    
    
    $
    21,454
    
    
    $
    20,388Interest on investment securities
    
    
    62
    
    
    
    67
    
    
    
    185
    
    
    
    217Dividends on FHLB and FRB stock
    
    
    38
    
    
    
    36
    
    
    
    181
    
    
    
    105Other interest income
    
    
    10
    
    
    
    26
    
    
    
    34
    
    
    
    81Total interest income
    
    
    7,433
    
    
    
    7,108
    
    
    
    21,854
    
    
    
    20,791INTEREST EXPENSE:Interest expense on deposits
    
    
    2,366
    
    
    
    2,992
    
    
    
    7,388
    
    
    
    8,572Guaranteed preferred beneficial interest in
junior subordinated debentures
    
    
    282
    
    
    
    282
    
    
    
    842
    
    
    
    840Interest expense on fed funds purchased
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    Interest expense on advances from FHLB
    
    
    767
    
    
    
    413
    
    
    
    2,242
    
    
    
    1,195Total interest expense
    
    
    3,428
    
    
    
    3,687
    
    
    
    10,485
    
    
    
    10,607NET INTEREST INCOME
    
    
    4,005
    
    
    
    3,421
    
    
    
    11,369
    
    
    
    10,184PROVISION FOR LOAN LOSSES
    
    
    330
    
    
    
    195
    
    
    
    930
    
    
    
    585NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    3,675
    
    
    
    3,226
    
    
    
    10,439
    
    
    
    9,599NONINTEREST INCOME:Deposit account fees
    
    
    165
    
    
    
    128
    
    
    
    482
    
    
    
    397ATM fees
    
    
    94
    
    
    
    83
    
    
    
    274
    
    
    
    219Commission income
    
    
    13
    
    
    
    5
    
    
    
    49
    
    
    
    24Gain on sale of loans
    
    
    32
    
    
    
    25
    
    
    
    140
    
    
    
    72Gain on sale of other real estate owned
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    Impairment loss on investment securities
    
    
    (106
    )
    
    
    
    
    
    
    (106
    )
    
    
    Income from bank owned life insurance
    
    
    81
    
    
    
    96
    
    
    
    185
    
    
    
    222Other
    
    
    58
    
    
    
    35
    
    
    
    185
    
    
    
    106Total noninterest income
    
    
    348
    
    
    
    372
    
    
    
    1,220
    
    
    
    1,040NONINTEREST EXPENSE:Salaries and employee benefits
    
    
    1,556
    
    
    
    1,374
    
    
    
    4,754
    
    
    
    4,161Occupancy expense
    
    
    180
    
    
    
    151
    
    
    
    531
    
    
    
    462Equipment and data processing expense
    
    
    354
    
    
    
    311
    
    
    
    1,005
    
    
    
    872Other
    
    
    448
    
    
    
    312
    
    
    
    1,209
    
    
    
    999Total noninterest expense
    
    
    2,538
    
    
    
    2,148
    
    
    
    7,499
    
    
    
    6,494INCOME BEFORE INCOME TAXES
    
    
    1,485
    
    
    
    1,450
    
    
    
    4,160
    
    
    
    4,145INCOME TAX EXPENSE
    
    
    565
    
    
    
    533
    
    
    
    1,603
    
    
    
    1,677NET INCOME
    
    $
    920
    
    
    $
    917
    
    
    $
    2,557
    
    
    $
    2,468
  4




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CECIL BANCORP, INC. AND SUBSIDIARIES
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007NET INCOME
    
    $
    920
    
    
    $
    917
    
    
    $
    2,557
    
    
    $
    2,468OTHER COMPREHENSIVE INCOMEUnrealized losses on
investment securities,
net of deferred taxes
    
    
    (42
    )
    
    
    (3
    )
    
    
    (152
    )
    
    
    (30
    )TOTAL COMPREHENSIVE INCOME
    
    $
    878
    
    
    $
    914
    
    
    $
    2,405
    
    
    $
    2,438Earnings per common share  basic
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.67Earnings per common share  diluted
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.67Dividends declared per common share
    
    $
    0.025
    
    
    $
    0.025
    
    
    $
    0.075
    
    
    $
    0.075
  5




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CECIL BANCORP, INC. AND SUBSIDIARIES
 
 
 For the Nine Months Ended September 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,557
    
    
    $
    2,468Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    438
    
    
    
    351Provision for loan losses
    
    
    930
    
    
    
    585Gain on sale of loans
    
    
    (140
    )
    
    
    (72
    )Gain on sale of other real estate owned
    
    
    (11
    )
    
    
    Gain on disposal of premises and equipment
    
    
    (3
    )
    
    
    Impairment loss on investment securities
    
    
    106
    
    
    
    Increase in cash surrender value of bank owned life insurance
    
    
    (185
    )
    
    
    (222
    )Excess servicing rights
    
    
    (116
    )
    
    
    (62
    )Reinvested dividends on investments
    
    
    (27
    )
    
    
    (28
    )Origination of loans held for sale
    
    
    (7,861
    )
    
    
    (4,478
    )Proceeds from sales of loans held for sale
    
    
    7,928
    
    
    
    4,497Net change in:Accrued interest receivable and other assets
    
    
    1,417
    
    
    
    (802
    )Other liabilities
    
    
    2,979
    
    
    
    2,917Net cash provided by operating activities
    
    
    8,012
    
    
    
    5,154CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of investment securities available-for-sale
    
    
    (2,162
    )
    
    
    Purchases of investment securities held-to-maturity
    
    
    (495
    )
    
    
    (3,719
    )Net redemption (purchases) of restricted investment securities
    
    
    833
    
    
    
    (318
    )Proceeds from sales, maturities, calls and principal payments of
investment securities available-for-sale
    
    
    2,151
    
    
    
    19Proceeds from maturities, calls and principal payments of
investment securities held-to-maturity
    
    
    3,000
    
    
    
    4,750Proceeds from sale of other real estate owned
    
    
    320
    
    
    
    Net increase in loans
    
    
    (44,555
    )
    
    
    (32,082
    )Surrender of bank owned life insurance
    
    
    
    
    
    
    1,863Purchases of bank owned life insurance
    
    
    
    
    
    
    (3,163
    )Proceeds from disposal of premises and equipment
    
    
    5
    
    
    
    Purchases of premises and equipment  net
    
    
    (492
    )
    
    
    (2,373
    )Net cash used in investing activities
    
    
    (41,395
    )
    
    
    (35,023
    )
 6




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CECIL BANCORP, INC. AND SUBSIDIARIES
  For the Nine Months Ended September 30,2008
    
    
    2007CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    70,692
    
    
    
    21,185Net (decrease) increase in advances from Federal Home Loan Bank
    
    
    (20,641
    )
    
    
    7,419Proceeds from issuance of common stock
    
    
    40
    
    
    
    Payments of cash dividends
    
    
    (276
    )
    
    
    (276
    )Net cash provided by financing activities
    
    
    49,815
    
    
    
    28,328INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    16,432
    
    
    
    (1,541
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    5,511
    
    
    
    6,575CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    21,943
    
    
    $
    5,034Supplemental disclosures of cash flows information:Cash paid for income taxes
    
    $
    2,465
    
    
    $
    2,438Cash paid for interest
    
    $
    10,482
    
    
    $
    10,250Transfer of loans to other real estate owned
    
    $
    1,605
    
    
    $
    
  7




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CECIL BANCORP, INC. AND SUBSIDIARIES
       Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Basic:Net income available to common stockholders
    
    $
    920,000
    
    
    $
    917,000
    
    
    $
    2,557,000
    
    
    $
    2,468,000Average common shares outstanding
    
    
    3,683,401
    
    
    
    3,678,286
    
    
    
    3,680,501
    
    
    
    3,678,286Basic earnings per common share
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.67Diluted:Net income available to common stockholders
    
    $
    920,000
    
    
    $
    917,000
    
    
    $
    2,557,000
    
    
    $
    2,468,000Average common shares outstanding
    
    
    3,683,401
    
    
    
    3,678,286
    
    
    
    3,680,501
    
    
    
    3,678,286Stock option adjustment
    
    
    2,549
    
    
    
    5,675
    
    
    
    3,507
    
    
    
    5,855Average common shares outstanding  diluted
    
    
    3,685,950
    
    
    
    3,683,961
    
    
    
    3,684,008
    
    
    
    3,684,141Diluted earnings per common share
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.67
 8




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Nine months ended
    
    
    Year endedSeptember 30, 2008
    
    
    December 31, 2007Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstanding at beginning of period
    
    
    16,032
    
    
    $
    6.00
    
    
    
    16,032
    
    
    $
    6.00Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (4,008
    )
    
    
    6.00
    
    
    
    
    
    
    
    Canceled/expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    12,024
    
    
    $
    6.00
    
    
    
    16,032
    
    
    $
    6.00Options exercisable at end of period
    
    
    12,024
    
    
    $
    6.00
    
    
    
    16,032
    
    
    $
    6.00
  Options Outstanding and ExercisableExercise
    
    Number
    
    LifePrice
    
    Outstanding
    
    (Years)
    
    Intrinsic Value$6.00
    
    12,024
    
    0.5
    
    $15,030
    9




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##### Table of Contents



Fair Value Measurements
 The Fair Value Option for Financial Assets and
Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements.
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
   10




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Fair Value Measurements at Reporting Date UsingQuoted PricesIn Active
    
    SignificantMarkets For
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableCarrying
    
    Assets
    
    Inputs
    
    InputsDescription
    
    Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Investment securities
available-for-sale
    
    $
    2,138
    
    
    $
    2,021
    
    
    $
    117
    
    
    $
    
  Fair Value Measurements at Reporting Date UsingQuoted PricesIn Active
    
    SignificantMarkets For
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableCarrying
    
    Assets
    
    Inputs
    
    InputsDescription
    
    Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Other real estate owned
    
    $
    1,951

    
    
    $
    
    
    
    $
    
    
    
    $
    1,951Impaired loans
    
    
    7,330
    
    
    
    
    
    
    
    
    
    
    
    7,330
  OtherRealEstate
    
    
    ImpairedOwned
    
    
    LoansBalance at December 31, 2007
    
    $
    655
    
    
    $
    5,065Loans put on nonaccrual status
    
    
    
    
    
    
    4,068Loans returned to accrual status
    
    
    
    
    
    
    (1,803
    )Loans transferred to other real estate owned
    
    
    1,605
    
    
    
    Other real estate owned sold
    
    
    (309
    )
    
    
    Balance at September 30, 2008
    
    $
    1,951
    
    
    $
    7,330Net realized gains included in net income
    
    $
    11
    
    
    $
    
 11




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CECIL BANCORP, INC. AND SUBSIDIARIES
 Forward-Looking Statements
   General
     12




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##### Table of Contents



Asset/Liability Management
  Comparison of Financial Condition at September 30, 2008 and December 31, 2007
     13




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##### Table of Contents



Comparison of Results of Operations for the Three Months Ended September 30, 2008 and 2007
        14




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##### Table of Contents



Comparison of Results of Operations for the Nine Months Ended September 30, 2008 and 2007
   15




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16




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##### Table of Contents



Loans Receivable
  September 30, 2008
    
    
    December 31, 2007Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Type of LoanReal estate loans:Construction loans
    
    $
    99,553
    
    
    
    24.79
    %
    
    $
    79,150
    
    
    
    22.07
    %One- to four-family residential and home equity
    
    
    129,481
    
    
    
    32.25
    
    
    
    125,723
    
    
    
    35.05Multi-family residential
    
    
    6,875
    
    
    
    1.71
    
    
    
    7,149
    
    
    
    1.99Land
    
    
    4,422
    
    
    
    1.10
    
    
    
    3,262
    
    
    
    0.91Commercial
    
    
    140,883
    
    
    
    35.08
    
    
    
    126,850
    
    
    
    35.36Commercial business loans
    
    
    15,582
    
    
    
    3.88
    
    
    
    10,206
    
    
    
    2.85Consumer loans
    
    
    4,781
    
    
    
    1.19
    
    
    
    6,364
    
    
    
    1.77Gross loans
    
    
    401,577
    
    
    
    100.00
    %
    
    
    358,704
    
    
    
    100.00
    %Less: allowance for loan losses
    
    
    (3,889
    )
    
    
    
    
    
    
    (3,109
    )Net loans receivable
    
    $
    397,688
    
    
    
    
    
    
    $
    355,595
 17




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##### Table of Contents



Nonperforming Assets
  September 30,
    
    
    December 31,(Dollars in thousands)
    
    2008
    
    
    2007Non-accrual loans and leases
    
    $
    7,330
    
    
    $
    5,065Loans and leases 90 days or more past due
    
    
    0
    
    
    
    0Restructured loans and leases
    
    
    0
    
    
    
    0Total nonperforming loans and leases
    
    
    7,330
    
    
    
    5,065Other real estate owned, net
    
    
    1,951
    
    
    
    655Total nonperforming assets
    
    $
    9,281
    
    
    $
    5,720Nonperforming loans and leases to total loans and leases
    
    
    1.83
    %
    
    
    1.41
    %Nonperforming assets to total assets
    
    
    2.03
    
    
    
    1.42Allowance for loan losses to nonperforming loans and leases
    
    
    53.06
    
    
    
    61.38
 Analysis of Allowance for Loan Losses
     18




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Nine Months Ended
    
    
    Twelve Months EndedSeptember 30, 2008
    
    
    December 31, 2007(In thousands)Balance at beginning of period
    
    $
    3,109
    
    
    $
    2,217Charge-offs:Residential real estate
    
    
    (188
    )
    
    
    0Commercial
    
    
    (47
    )
    
    
    (30
    )Consumer
    
    
    (37
    )
    
    
    (40
    )Total charge-offs
    
    
    (272
    )
    
    
    (70
    )Recoveries:Residential real estate
    
    
    0
    
    
    
    0Commercial
    
    
    110
    
    
    
    0Consumer
    
    
    12
    
    
    
    27Total recoveries
    
    
    122
    
    
    
    27Net charge-offs
    
    
    (150
    )
    
    
    (43
    )Provision for loan losses
    
    
    930
    
    
    
    935Balance at end of period
    
    $
    3,889
    
    
    $
    3,109Net charge-offs to average loans
outstanding during the period (annualized)
    
    
    0.05
    %
    
    
    0.01
    %Allowance for loan losses to loans
    
    
    0.97
    
    
    
    0.87Allowance for loan losses to nonperforming loans
    
    
    53.06
    
    
    
    61.38
 19




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##### Table of Contents



Analysis of Deposits
  Balance at
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    %
    
    
    December 31,
    
    
    %2008
    
    
    Deposits
    
    
    2007
    
    
    Deposits(Dollars in thousands)Regular checking
    
    $
    24,050
    
    
    
    7.12
    %
    
    $
    17,764
    
    
    
    6.65
    %NOW accounts
    
    
    18,801
    
    
    
    5.57
    
    
    
    15,927
    
    
    
    5.96Passbook
    
    
    11,691
    
    
    
    3.46
    
    
    
    11,830
    
    
    
    4.43Statement savings
    
    
    8,284
    
    
    
    2.45
    
    
    
    8,193
    
    
    
    3.07Money market
    
    
    5,129
    
    
    
    1.52
    
    
    
    7,127
    
    
    
    2.67Holiday club
    
    
    302
    
    
    
    0.09
    
    
    
    72
    
    
    
    0.03Certificates of Deposit
    
    
    250,165
    
    
    
    74.07
    
    
    
    186,488
    
    
    
    69.84IRA Certificates of Deposit
    
    
    14,655
    
    
    
    4.34
    
    
    
    14,010
    
    
    
    5.25Money Market Certificates
    
    
    4,647
    
    
    
    1.38
    
    
    
    5,621
    
    
    
    2.10$
    337,724
    
    
    
    100.00
    %
    
    $
    267,032
    
    
    
    100.00
    %
 Capital Adequacy
  Regulatory Minimums2008
    
    2007
    
    Well
    
    AdequatelyActual
    
    Actual
    
    Capitalized
    
    CapitalizedTotal risk-based capital ratio
    
    
    12.22
    %
    
    
    13.05
    %
    
    
    10.00
    %
    
    
    8.00
    %Tier 1 risk-based capital ratio
    
    
    7.94
    %
    
    
    8.41
    %
    
    
    6.00
    %
    
    
    4.00
    %Tier 1 leverage ratio
    
    
    7.02
    %
    
    
    7.34
    %
    
    
    5.00
    %
    
    
    4.00
    %
  
   
   
   20




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##### Table of Contents



Item 1.
    
    Legal Proceedings -Not ApplicableItem 1A.
    
    Risk Factors -Not ApplicableItem 2.
    
    Unregistered Sale of Equity Securities and Use of Proceeds -Not ApplicableItem 3.
    
    Defaults Upon Senior Securities -Not ApplicableItem 4.
    
    Submission of Matters to a Vote of Security Holders -Not ApplicableItem 5.
    
    Other Information -Not ApplicableItem 6.
    
    Exhibits -Exhibit 31(a),(b) Rule 13a-14(a)/15d-14(a) CertificationExhibit 32(a),(b) 18 U.S.C. Section 1350 Certification
 21




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##### Table of Contents



CECIL BANCORP, INC.Date: November 7, 2008
    By:
    /s/ Mary B. HalseyMary B. HalseyPresident and Chief Executive OfficerDate: November 7, 2008
    By:
    /s/ Robert Lee WhiteheadRobert Lee WhiteheadVice President and Chief Financial Officer 22