##### 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 June 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
  3,682,294 shares outstanding as of August 1, 2008




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##### 



PAGEPART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial Statements (unaudited)Consolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    4-5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-10ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11-18ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19ITEM 4.
    
    Controls and Procedures
    
    
    19ITEM 4T.
    
    Controls and Procedures
    
    
    19PART II.
    
    OTHER INFORMATION
    
    
    19SIGNATURES
    
    
    
    
    20CERTIFICATIONS
    
    
    
    
    21-24EX-3.1: AMENDED ARTICLES OF INCORPORATIONEX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION
  Page 2




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CECIL BANCORP, INC. AND SUBSIDIARIES
 
  
 
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETS:Cash and due from banks
    
    $
    7,193
    
    
    $
    1,205Interest bearing deposits with banks
    
    
    190
    
    
    
    4,306Investment securities:Securities available-for-sale at fair value
    
    
    4,408
    
    
    
    2,470Securities held-to-maturity (fair value of $250
in 2008 and $2,753 in 2007)
    
    
    250
    
    
    
    2,749Restricted investment securities  at cost
    
    
    5,353
    
    
    
    4,750Loans receivable
    
    
    392,674
    
    
    
    358,704Less: allowance for loan losses
    
    
    (3,724
    )
    
    
    (3,109
    )Net loans receivable
    
    
    388,950
    
    
    
    355,595Other real estate owned
    
    
    655
    
    
    
    655Premises and equipment, net
    
    
    12,137
    
    
    
    11,997Accrued interest receivable
    
    
    2,145
    
    
    
    2,122Goodwill
    
    
    2,182
    
    
    
    2,182Other intangible assets
    
    
    306
    
    
    
    240Bank owned life insurance
    
    
    7,636
    
    
    
    7,532Other assets
    
    
    3,969
    
    
    
    5,629TOTAL ASSETS
    
    $
    435,374
    
    
    $
    401,432LIABILITIES:Deposits
    
    $
    285,779
    
    
    $
    267,032Other liabilities
    
    
    10,175
    
    
    
    5,659Guaranteed preferred beneficial interest in
junior subordinated debentures
    
    
    17,000
    
    
    
    17,000Advances from Federal Home Loan Bank of Atlanta
    
    
    93,811
    
    
    
    84,499Total liabilities
    
    
    406,765
    
    
    
    374,190STOCKHOLDERS EQUITY:Common stock, $.01 par value; authorized 10,000,000
shares, issued and outstanding 3,682,294 shares in
2008 and 3,678,286 shares in 2007
    
    
    37
    
    
    
    37Additional paid in capital
    
    
    11,465
    
    
    
    11,441Retained earnings
    
    
    17,309
    
    
    
    15,856Accumulated other comprehensive loss
    
    
    (202
    )
    
    
    (92
    )Total stockholders equity
    
    
    28,609
    
    
    
    27,242TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    435,374
    
    
    $
    401,432
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CECIL BANCORP, INC. AND SUBSIDIARIES
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOME:Interest and fees on loans
    
    $
    7,120
    
    
    $
    6,845
    
    
    $
    14,131
    
    
    $
    13,409Interest on investment securities
    
    
    52
    
    
    
    76
    
    
    
    123
    
    
    
    150Dividends on FHLB and FRB stock
    
    
    75
    
    
    
    34
    
    
    
    143
    
    
    
    69Other interest income
    
    
    9
    
    
    
    31
    
    
    
    24
    
    
    
    55Total interest income
    
    
    7,256
    
    
    
    6,986
    
    
    
    14,421
    
    
    
    13,683INTEREST EXPENSE:Interest expense on deposits
    
    
    2,434
    
    
    
    2,916
    
    
    
    5,022
    
    
    
    5,580Guaranteed preferred beneficial interest in
junior subordinated debentures
    
    
    280
    
    
    
    280
    
    
    
    560
    
    
    
    558Interest expense on advances from FHLB
    
    
    779
    
    
    
    361
    
    
    
    1,475
    
    
    
    782Total interest expense
    
    
    3,493
    
    
    
    3,557
    
    
    
    7,057
    
    
    
    6,920NET INTEREST INCOME
    
    
    3,763
    
    
    
    3,429
    
    
    
    7,364
    
    
    
    6,763PROVISION FOR LOAN LOSSES
    
    
    275
    
    
    
    195
    
    
    
    600
    
    
    
    390NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    3,488
    
    
    
    3,234
    
    
    
    6,764
    
    
    
    6,373NONINTEREST INCOME:Checking account fees
    
    
    165
    
    
    
    131
    
    
    
    317
    
    
    
    269ATM fees
    
    
    97
    
    
    
    86
    
    
    
    180
    
    
    
    136Commission income
    
    
    33
    
    
    
    14
    
    
    
    36
    
    
    
    19Gain on sale of loans
    
    
    64
    
    
    
    39
    
    
    
    108
    
    
    
    47Income from bank owned life insurance
    
    
    59
    
    
    
    74
    
    
    
    104
    
    
    
    126Other
    
    
    72
    
    
    
    30
    
    
    
    127
    
    
    
    71Total noninterest income
    
    
    490
    
    
    
    374
    
    
    
    872
    
    
    
    668NONINTEREST EXPENSE:Salaries and employee benefits
    
    
    1,678
    
    
    
    1,497
    
    
    
    3,198
    
    
    
    2,787Occupancy expense
    
    
    163
    
    
    
    150
    
    
    
    351
    
    
    
    311Equipment and data processing expense
    
    
    333
    
    
    
    312
    
    
    
    651
    
    
    
    561Other
    
    
    379
    
    
    
    377
    
    
    
    761
    
    
    
    687Total noninterest expense
    
    
    2,553
    
    
    
    2,336
    
    
    
    4,961
    
    
    
    4,346INCOME BEFORE INCOME TAXES
    
    
    1,425
    
    
    
    1,272
    
    
    
    2,675
    
    
    
    2,695INCOME TAX EXPENSE
    
    
    552
    
    
    
    476
    
    
    
    1,038
    
    
    
    1,144NET INCOME
    
    $
    873
    
    
    $
    796
    
    
    $
    1,637
    
    
    $
    1,551
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CECIL BANCORP, INC. AND SUBSIDIARIES
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007NET INCOME
    
    $
    873
    
    
    $
    796
    
    
    $
    1,637
    
    
    $
    1,551OTHER COMPREHENSIVE INCOMEUnrealized losses on
investment securities,
net of deferred taxes
    
    
    (77
    )
    
    
    (29
    )
    
    
    (110
    )
    
    
    (27
    )TOTAL COMPREHENSIVE INCOME
    
    $
    796
    
    
    $
    767
    
    
    $
    1,527
    
    
    $
    1,524Earnings per common share  basic
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.44
    
    
    $
    0.42Earnings per common share  diluted
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.44
    
    
    $
    0.42Dividends declared per common share
    
    $
    0.025
    
    
    $
    0.025
    
    
    $
    0.05
    
    
    $
    0.05
  Page 5




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CECIL BANCORP, INC. AND SUBSIDIARIES
 For the Six Months Ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,637
    
    
    $
    1,551Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    295
    
    
    
    223Provision for loan losses
    
    
    600
    
    
    
    390Gain of sale of loans
    
    
    (108
    )
    
    
    (47
    )Gain on disposal of premises and equipment
    
    
    (3
    )
    
    
    Increase in cash surrender value of bank owned life insurance
    
    
    (104
    )
    
    
    (126
    )Excess servicing rights
    
    
    (92
    )
    
    
    (40
    )Reinvested dividends on investments
    
    
    (10
    )
    
    
    (26
    )Origination of loans held for sale
    
    
    (6,145
    )
    
    
    (2,926
    )Proceeds from sales of loans held for sale
    
    
    6,198
    
    
    
    2,938Net change in:Accrued interest receivable and other assets
    
    
    1,711
    
    
    
    (65
    )Other liabilities
    
    
    4,515
    
    
    
    2,612Net cash provided by operating activities
    
    
    8,494
    
    
    
    4,484CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of investment securities held-to-maturity
    
    
    (247
    )
    
    
    (3,719
    )Purchases of investment securities available-for-sale
    
    
    (2,162
    )
    
    
    Net (purchase) redemption of restricted investment securities
    
    
    (603
    )
    
    
    202Proceeds from sales, maturities, calls and principal
payments of investment securities available-for-sale
    
    
    43
    
    
    
    9Proceeds from maturities, calls and principal
payments of investment securities held-to-maturity
    
    
    2,750
    
    
    
    3,750Net increase in loans
    
    
    (33,901
    )
    
    
    (19,738
    )Surrender of bank owned life insurance
    
    
    
    
    
    
    1,863Purchases of bank owned life insurance
    
    
    
    
    
    
    (3,163
    )Proceeds on disposal of premises and equipment
    
    
    5
    
    
    
    Purchases of premises and equipment  net
    
    
    (406
    )
    
    
    (1,879
    )Net cash used in investing activities
    
    
    (34,521
    )
    
    
    (22,675
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    18,747
    
    
    
    24,811Net increase (decrease) in advances from Federal Home Loan Bank
    
    
    9,312
    
    
    
    (3,246
    )Proceeds from exercise of stock options
    
    
    24
    
    
    
    Payments of cash dividends
    
    
    (184
    )
    
    
    (184
    )Net cash provided by financing activities
    
    
    27,899
    
    
    
    21,381INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    1,872
    
    
    
    3,190CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    5,511
    
    
    
    6,575CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    7,383
    
    
    $
    9,765Supplemental disclosure of cash flows information:Cash paid for income taxes
    
    $
    1,514
    
    
    $
    1,815Cash paid for interest
    
    $
    7,032
    
    
    $
    6,701
  Page 6




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CECIL BANCORP, INC. AND SUBSIDIARIES
       Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic:Net income available to common stockholders
    
    $
    873,000
    
    
    $
    796,000
    
    
    $
    1,637,000
    
    
    $
    1,551,000Average common shares outstanding
    
    
    3,679,783
    
    
    
    3,678,286
    
    
    
    3,679,035
    
    
    
    3,678,286Basic earnings per common share
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.44
    
    
    $
    0.42Diluted:Net income available to common stockholders
    
    $
    873,000
    
    
    $
    796,000
    
    
    $
    1,637,000
    
    
    $
    1,551,000Average common shares outstanding
    
    
    3,679,783
    
    
    
    3,678,286
    
    
    
    3,679,035
    
    
    
    3,678,286Stock option adjustment
    
    
    3,759
    
    
    
    6,138
    
    
    
    3,920
    
    
    
    5,943Average common shares outstanding  diluted
    
    
    3,683,542
    
    
    
    3,684,424
    
    
    
    3,682,955
    
    
    
    3,684,229Diluted earnings per common share
    
    $
    0.24
    
    
    $
    0.22
    
    
    $
    0.44
    
    
    $
    0.42
 Page 7




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Six months ended
    
    
    Year endedJune 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 ExercisableRemainingExercise
    
    Number
    
    LifePrice
    
    Outstanding
    
    (Years)
    
    Intrinsic Value$6.00
    
    
    12,024
    
    
    
    0.8
    
    
    $
    26,693
    Page 8




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Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements.
 Disclosures about Derivative Instruments and
Hedging Activities,
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
 Page 9




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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
    
    $
    4,408
    
    
    $
    2,164
    
    
    $
    2,244
    
    
    $
    0
  SignificantOther
    
    SignificantQuoted
    
    Observable
    
    UnobservableCarrying
    
    Prices
    
    Inputs
    
    InputsValue
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Other real estate owned
    
    $
    655
    
    
    $
    0
    
    
    $
    0
    
    
    $
    655Impaired loans
    
    
    8,036
    
    
    
    0
    
    
    
    0
    
    
    
    8,036
 Page 10




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##### Table of Contents



CECIL BANCORP, INC. AND SUBSIDIARIES
 Forward-Looking Statements
  General
     Asset/Liability Management
  Page 11




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##### Table of Contents



Comparison of Financial Condition at June 30, 2008 and December 31, 2007
      Comparison of Results of Operations for the Three Months Ended June 30, 2008 and 2007
   Page 12




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Page 13




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Comparison of Results of Operations for the Six Months Ended June 30, 2008 and 2007
         Page 14




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Loans Receivable
  June 30,
    
    
    December 31,2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Type of LoanReal estate loans:Construction loans
    
    $
    100,564
    
    
    
    25.61
    %
    
    $
    79,150
    
    
    
    22.07
    %One- to four-family residential and home equity
    
    
    127,203
    
    
    
    32.39
    
    
    
    125,723
    
    
    
    35.05Multi-family residential
    
    
    6,793
    
    
    
    1.73
    
    
    
    7,149
    
    
    
    1.99Land
    
    
    3,511
    
    
    
    0.90
    
    
    
    3,262
    
    
    
    0.91Commercial
    
    
    137,996
    
    
    
    35.14
    
    
    
    126,850
    
    
    
    35.36Commercial business loans
    
    
    11,668
    
    
    
    2.97
    
    
    
    10,206
    
    
    
    2.85Consumer loans
    
    
    4,939
    
    
    
    1.26
    
    
    
    6,364
    
    
    
    1.77Gross loans
    
    
    392,674
    
    
    
    100.00
    %
    
    
    358,704
    
    
    
    100.00
    %Less: allowance for loan losses
    
    
    (3,724
    )
    
    
    
    
    
    
    (3,109
    )Net loans receivable
    
    $
    388,950
    
    
    
    
    
    
    $
    355,595
 Page 15




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##### Table of Contents



Nonperforming Assets
  June 30,
    
    
    December 31,(Dollars in thousands)
    
    2008
    
    
    2007Non-accrual loans and leases
    
    $
    8,036
    
    
    $
    5,065Loans and leases 90 days or more past due
    
    
    0
    
    
    
    0Restructured loans and leases
    
    
    0
    
    
    
    0Total nonperforming loans and leases
    
    
    8,036
    
    
    
    5,065Other real estate owned, net
    
    
    655
    
    
    
    655Total nonperforming assets
    
    $
    8,691
    
    
    $
    5,720Nonperforming loans and leases to total loans and leases
    
    
    2.05
    %
    
    
    1.41
    %Nonperforming assets to total assets
    
    
    2.00
    
    
    
    1.42Allowance for loan losses to non-performing loans and leases
    
    
    46.34
    
    
    
    61.38
 Analysis of Allowance for Loan Losses
      Page 16




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6 Months Ended
    
    
    12 Months EndedJune 30, 2008
    
    
    December 31, 2007(In thousands)Balance at beginning of period
    
    $
    3,109
    
    
    $
    2,217Loans charged-off:Residential real estate
    
    
    (35
    )
    
    
    0Commercial
    
    
    (47
    )
    
    
    (30
    )Consumer
    
    
    (22
    )
    
    
    (40
    )Total charge-offs
    
    
    (104
    )
    
    
    (70
    )Recoveries:Residential real estate
    
    
    0
    
    
    
    0Commercial
    
    
    110
    
    
    
    0Consumer
    
    
    9
    
    
    
    27Total recoveries
    
    
    119
    
    
    
    27Net recoveries (charge-offs)
    
    
    15
    
    
    
    (43
    )Provision for loan losses
    
    
    600
    
    
    
    935Balance at end of period
    
    $
    3,724
    
    
    $
    3,109Net recoveries (charge-offs) to average loans
outstanding during the period (annualized)
    
    
    0.01
    %
    
    
    (0.01
    )%Allowance for loan losses to loans
    
    
    0.95
    
    
    
    0.87Allowance for loan losses to nonperforming loans
    
    
    46.34
    
    
    
    61.38
 Page 17




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##### Table of Contents



Analysis of Deposits
  Balance at
    
    
    
    
    
    
    Balance atJune 30,
    
    
    %
    
    
    December 31,
    
    
    %2008
    
    
    Deposits
    
    
    2007
    
    
    Deposits(Dollars in thousands)Regular checking
    
    $
    22,709
    
    
    
    7.94
    %
    
    $
    17,764
    
    
    
    6.65
    %NOW accounts
    
    
    20,769
    
    
    
    7.27
    
    
    
    15,927
    
    
    
    5.96Passbook
    
    
    11,769
    
    
    
    4.12
    
    
    
    11,830
    
    
    
    4.43Statement savings
    
    
    8,685
    
    
    
    3.04
    
    
    
    8,193
    
    
    
    3.07Money market
    
    
    6,790
    
    
    
    2.37
    
    
    
    7,127
    
    
    
    2.67Holiday club
    
    
    237
    
    
    
    0.08
    
    
    
    72
    
    
    
    0.03Certificates of Deposit
    
    
    194,033
    
    
    
    67.90
    
    
    
    186,488
    
    
    
    69.84IRA Certificates of Deposit
    
    
    15,224
    
    
    
    5.33
    
    
    
    14,010
    
    
    
    5.25Money Market Certificates
    
    
    5,563
    
    
    
    1.95
    
    
    
    5,621
    
    
    
    2.10$
    285,779
    
    
    
    100.00
    %
    
    $
    267,032
    
    
    
    100.00
    %
 Capital Adequacy
  Regulatory Minimums2008
    
    
    2007
    
    
    Well
    
    
    AdequatelyActual
    
    
    Actual
    
    
    Capitalized
    
    
    CapitalizedTotal risk-based capital ratio
    
    
    12.27
    %
    
    
    13.05
    %
    
    
    10.00
    %
    
    
    8.00
    %Tier 1 risk-based capital ratio
    
    
    7.92
    %
    
    
    8.41
    %
    
    
    6.00
    %
    
    
    4.00
    %Tangible capital ratio
    
    
    7.06
    %
    
    
    7.34
    %
    
    
    5.00
    %
    
    
    4.00
    %
  Page 18




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##### Table of Contents



Item 3.
    
    Qualitative and Quantitative Disclosures about Market Risk -
  
 Item 4.
    
    Controls and Procedures -
  
 Item 4T.
    
    Controls and Procedures
  
               Exhibit 3.1
      
    Cecil Bancorp, Inc. Amended Articles of Incorporation.Exhibit 31(a),(b)
        
    Rule 13a-14(a)/15d-14(a) CertificationExhibit 32(a),(b)
     
    18 U.S.C. Section 1350 Certification
 Page 19




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##### Table of Contents



CECIL BANCORP, INC.Date:      August 1, 2008
    By:
    /s/ Mary B. HalseyMary B. HalseyPresident and Chief Executive OfficerDate:      August 1, 2008
    By:
    /s/ Robert Lee WhiteheadRobert Lee WhiteheadVice President and Chief Financial Officer Page 20