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                                   FORM 10-KSB
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the Year Ended December 31, 2004

                         Commission File Number 0-24926

                               CECIL BANCORP, INC.
             (Exact name of registrant as specified in its charter)

           Maryland                                     52-1883546
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


   127 North Street, Elkton, Maryland                     21921-5547
(Address of principal executive office)                   (Zip Code)

       Registrant's telephone number, including area code: (410) 398-1650.

        Securities registered pursuant to Section 12(b) of the Act: None.

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

State issuer's revenues for its most recent fiscal year:  $11,432,756

As of March 25, 2005, the registrant had 1,634,054 shares of Common Stock issued
and outstanding. The aggregate market value of shares held by nonaffiliates on
such date was $16,924,106 based on the closing sale price of $18.75 per share of
the Registrant's Common Stock on March 25, 2005. For purposes of this
calculation, it is assumed that the 731,435 shares held by directors and
officers of the Registrant, are shares held by affiliates.

Documents Incorporated by Reference: Parts II and III.: Portions of the
registrants definitive proxy statement for the 2005 Annual Meeting.

Transitional small business disclosure format (check one):  Yes |_|  No |X|


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                    CAUTION ABOUT FORWARD-LOOKING STATEMENTS

Cecil Bancorp, Inc. ("Cecil Bancorp" or the "Company") makes forward-looking
statements in this Form 10-KSB that are subject to risks and uncertainties.
These forward-looking statements include:

     o    Statements of goals, intentions, and expectations;

     o    Estimates of risks and of future costs and benefits;

     o    Assessments of loan quality, probable loan losses, liquidity,
          off-balance sheet arrangements, and interest rate risks; and

     o    Statements of Cecil Bancorp's ability to achieve financial and other
          goals.

These forward-looking statements are subject to significant uncertainties
because they are based upon or are affected by:

     o    Management's estimates and projections of future interest rates and
          other economic conditions;

     o    Future laws and regulations; and

     o    A variety of other matters.

Because of these uncertainties, the actual future results may be materially
different from the results indicated by these forward-looking statements. In
addition, Cecil Bancorp's past results of operations do not necessarily indicate
its future results.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

Cecil Bancorp, Inc. (the "Company") is the holding company for Cecil Federal
Bank ("Cecil Federal" or the "Bank"). The Company is a bank holding company
subject to regulation by the Federal Reserve System. The Bank is a Maryland
chartered commercial bank, is a member of the Federal Reserve System and the
Federal Home Loan Bank ("FHLB") of Atlanta, and is an Equal Housing Lender. Its
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC"). The Bank commenced operations in
1959 as a Federal savings and loan association. On October 1, 2002, the Bank
converted from a stock federal savings bank to a commercial bank. Its deposits
have been federally insured up to applicable limits, and it has been a member of
the FHLB system since 1959.

Cecil Federal conducts it business through its main office in Elkton, Maryland,
branches in Elkton, Rising Sun, Cecilton, and North East, Maryland, and through
the Columbian Bank division's main office and a branch office in Havre de Grace,
Maryland.

Cecil Federal's business strategy is to operate as an independent
community-oriented commercial bank dedicated to real estate, commercial, and
consumer lending, funded primarily by retail deposits. Cecil Federal has sought
to implement this strategy by (1) continuing to emphasize residential mortgage
lending through the origination of adjustable-rate mortgage loans while
increasing its commercial and consumer lending portfolios; (2) investing in
adjustable-rate and short-term liquid investments; (3) controlling interest rate
risk exposure; (4) maintaining asset quality; (5) containing operating expenses;
and (6) maintaining "well capitalized" status. Cecil Federal offers a full range
of brokerage and investment services through a relationship with UVEST
Investment Services.

The Company's and the Bank's principal executive office is at 127 North Street,
Elkton, Maryland 21921, and its telephone number is (410) 398-1650.

Regulation, Supervision, and Governmental Policy

Following is a brief summary of certain statutes and regulations that
significantly affect the Company and the Bank. A number of other statutes and
regulations affect the Company and the Bank but are not summarized below.

Bank Holding Company Regulation. The Company is registered as a bank holding
company under the Holding Company Act and, as such, is subject to supervision
and regulation by the Federal Reserve. As a bank holding company, The Company is
required to furnish to the Federal Reserve annual and quarterly reports of its
operations and additional information and reports. The Company is also subject
to regular examination by the Federal Reserve.

Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of any class of voting securities of any bank or bank
holding company if, after the acquisition, the bank holding company would
directly or indirectly own or control more than 5% of the class; (2) acquiring
all or substantially all of the assets of another bank or bank holding company;
or (3) merging or consolidating with another bank holding company.


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Under the Holding Company Act, any company must obtain approval of the Federal
Reserve prior to acquiring control of the Company or the Bank. For purposes of
the Holding Company Act, "control" is defined as ownership of 25% or more of any
class of voting securities of the Company or the Bank, the ability to control
the election of a majority of the directors, or the exercise of a controlling
influence over management or policies of the Company or the Bank.

The Change in Bank Control Act and the related regulations of the Federal
Reserve require any person or persons acting in concert (except for companies
required to make application under the Holding Company Act), to file a written
notice with the Federal Reserve before the person or persons acquire control of
the Company or the Bank. The Change in Bank Control Act defines "control" as the
direct or indirect power to vote 25% or more of any class of voting securities
or to direct the management or policies of a bank holding company or an insured
bank.

The Holding Company Act also limits the investments and activities of bank
holding companies. In general, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of a company that is not a bank or a bank holding company or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, providing services for its subsidiaries, non-bank
activities that are closely related to banking, and other financially related
activities. The activities of the Company are subject to these legal and
regulatory limitations under the Holding Company Act and Federal Reserve
regulations. In general, bank holding companies that qualify as financial
holding companies under federal law may engage in an expanded list of non-bank
activities some of which are subject to regulation and oversight by regulators
other than the Federal Reserve.

The Federal Reserve has the power to order a holding company or its subsidiaries
to terminate any activity, or to terminate its ownership or control of any
subsidiary, when it has reasonable cause to believe that the continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that holding
company.

The Federal Reserve has adopted guidelines regarding the capital adequacy of
bank holding companies, which require bank holding companies to maintain
specified minimum ratios of capital to total assets and capital to risk-weighted
assets. See "Regulatory Capital Requirements."

The Federal Reserve has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve has issued a policy statement on the payment of cash dividends by bank
holding companies, which expresses the Federal Reserve's view that a bank
holding company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with the company's capital
needs, asset quality, and overall financial condition.

Bank Regulation. The Bank became a Maryland chartered bank on October 1, 2002.
The Bank is a member of the Federal Reserve System and is subject to supervision
by the Federal Reserve and the State of Maryland. Deposits of the Bank are
insured by the FDIC to the legal maximum of $100,000 for each insured depositor.
Deposits, reserves, investments, loans, consumer law compliance, issuance of
securities, payment of dividends, establishment of branches, mergers and
acquisitions, corporate activities, changes in control, electronic funds
transfers, responsiveness to community needs, management practices, compensation
policies, and other aspects of operations are subject to regulation by the
appropriate federal and state supervisory authorities. In addition, the Bank is
subject to numerous federal, state and local laws and regulations which set
forth specific restrictions and procedural requirements with respect to
extensions of credit (including to insiders), credit practices, disclosure of
credit terms and discrimination in credit transactions.

The Federal Reserve regularly examines the operations and condition of the Bank,
including, but not limited to, its capital adequacy, reserves, loans,
investments, and management practices. These examinations are for the protection
of the Bank's depositors and the federal deposit insurance funds. In addition,
the Bank is required to furnish quarterly and annual reports to the Federal
Reserve. The Federal Reserve's enforcement authority includes the power to
remove officers and directors and the authority to issue cease-and-desist orders
to prevent a bank from engaging in unsafe or unsound practices or violating laws
or regulations governing its business.


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The Federal Reserve has adopted regulations regarding the capital adequacy,
which require member banks to maintain specified minimum ratios of capital to
total assets and capital to risk-weighted assets. See "Regulatory Capital
Requirements." Federal Reserve and State regulations limit the amount of
dividends that the Bank may pay to the Company.

The Bank is subject to restrictions under federal law which limit the transfer
of funds by the Bank to Bancorp and its non-banking subsidiaries, whether in the
form of loans, extensions of credit, investments, asset purchases, or otherwise.
Such transfers by the Bank to Bancorp or any of Bancorp's non-banking
subsidiaries are limited in amount to 10% of the Bank's capital and surplus and,
with respect to Bancorp and all such non-banking subsidiaries, to an aggregate
of 20% of the Bank's capital and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified amounts.

The Bank is subject to restrictions imposed by federal law on extensions of
credit to, and certain other transactions with, the Company and other
affiliates, and on investments in their stock or other securities. These
restrictions prevent the Company and the Bank's other affiliates from borrowing
from the Bank unless the loans are secured by specified collateral, and require
those transactions to have terms comparable to terms of arms-length transactions
with third persons. In addition, secured loans and other transactions and
investments by the Bank are generally limited in amount as to the Company and as
to any other affiliate to 10% of the Bank's capital and surplus and as to the
Company and all other affiliates together to an aggregate of 20% of the Bank's
capital and surplus. Certain exemptions to these limitations apply to extensions
of credit and other transactions between the Bank and its subsidiaries. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions and for
payment of dividends, interest, and operating expenses.

Under Federal Reserve regulations, banks must adopt and maintain written
policies that establish appropriate limits and standards for extensions of
credit secured by liens or interests in real estate or are made for the purpose
of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards; prudent underwriting
standards, including loan-to-value limits, that are clear and measurable; loan
administration procedures; and documentation, approval, and reporting
requirements. A bank's real estate lending policy must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") adopted by the federal bank regulators. The Interagency Guidelines,
among other things, call for internal loan-to-value limits for real estate loans
that are not in excess of the limits specified in the Guidelines. The
Interagency Guidelines state, however, that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits.

The FDIC has established a risk-based deposit insurance premium assessment
system for insured depository institutions. Under the system, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, based upon the
institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well-capitalized, adequately
capitalized, or undercapitalized -- based on the data reported to regulators.
Well-capitalized institutions are institutions satisfying the following capital
ratio standards: (i) total risk-based capital ratio of 10.0% or greater; (ii)
Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) Tier 1 leverage
ratio of 5.0% or greater. Adequately capitalized institutions are institutions
that do not meet the standards for well-capitalized institutions but that
satisfy the following capital ratio standards: (i) total risk-based capital
ratio of 8.0% or greater; (ii) Tier 1 risk-based capital ratio of 4.0% or
greater; and (iii) Tier 1 leverage ratio of 4.0% or greater. Institutions that
do not qualify as either well-capitalized or adequately capitalized are deemed
to be undercapitalized. Within each capital group, institutions are assigned to
one of three subgroups on the basis of supervisory evaluations by the
institution's primary supervisory authority and such other information as the
FDIC determines to be relevant to the institution's financial condition and the
risk it poses to the deposit insurance fund. Subgroup A consists of financially
sound institutions with only a few minor weaknesses. Subgroup B consists of
institutions with demonstrated weaknesses that, if not corrected, could result
in significant deterioration of the institution and increased risk of loss to
the deposit insurance fund. Subgroup C consists of institutions that pose a
substantial probability of loss to the deposit insurance fund unless effective
corrective action is taken. The Bank has been informed that it is in the least
costly assessment category for the first assessment period of 2005. Deposit
insurance rates may be increased during 2005 or later years.

Regulatory Capital Requirements. The Federal Reserve has established guidelines
for maintenance of appropriate levels of capital by bank holding companies and
member banks. The regulations impose two sets of capital adequacy requirements:
minimum leverage rules, which require bank holding companies and banks to
maintain a specified minimum ratio of capital to total assets, and risk-based
capital rules, which require the maintenance of specified minimum ratios of
capital to "risk-weighted" assets.


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The regulations of the Federal Reserve require bank holding companies with
assets of $150 million or more and member banks to maintain a minimum leverage
ratio of "Tier 1 capital" (as defined in the risk-based capital guidelines
discussed in the following paragraphs) to total assets of 3.0%. The Company
became subject to the holding company risk-based capital rules when its
consolidated assets exceeded $150,000,000, which occurred during 2004. The
capital regulations state, however, that only the strongest bank holding
companies and banks, with composite examination ratings of 1 under the rating
system used by the federal bank regulators, would be permitted to operate at or
near this minimum level of capital. All other bank holding companies and banks
are expected to maintain a leverage ratio of at least 1% to 2% above the minimum
ratio, depending on the assessment of an individual organization's capital
adequacy by its primary regulator. A bank or bank holding company experiencing
or anticipating significant growth is expected to maintain capital well above
the minimum levels. In addition, the Federal Reserve has indicated that it also
may consider the level of an organization's ratio of tangible Tier 1 capital
(after deducting all intangibles) to total assets in making an overall
assessment of capital.

In general, the risk-based capital rules of the Federal Reserve requires bank
holding companies with assets of $150 million or more and member banks to
maintain minimum levels based upon a weighting of their assets and off-balance
sheet obligations according to risk. The risk-based capital rules have two basic
components: a core capital (Tier 1) requirement and a supplementary capital
(Tier 2) requirement. Core capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (noncumulative perpetual preferred
stock with respect to banks), and minority interests in the equity accounts of
consolidated subsidiaries; less all intangible assets, except for certain
mortgage servicing rights and purchased credit card relationships. Supplementary
capital elements include, subject to certain limitations, the allowance for
losses on loans and leases; perpetual preferred stock that does not qualify as
Tier 1 capital; long-term preferred stock with an original maturity of at least
20 years from issuance; hybrid capital instruments, including perpetual debt and
mandatory convertible securities; subordinated debt, intermediate-term preferred
stock, and up to 45% of pre-tax net unrealized gains on available for sale
equity securities.

The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50%, and 100%. These computations result in the total
risk-weighted assets.

The risk-based capital regulations require all commercial banks to maintain a
minimum ratio of total capital to total risk-weighted assets of 8%, with at
least 4% as core capital. For the purpose of calculating these ratios: (i)
supplementary capital is limited to no more than 100% of core capital; and (ii)
the aggregate amount of certain types of supplementary capital is limited. In
addition, the risk-based capital regulations limit the allowance for credit
losses that may be included in capital to 1.25% of total risk-weighted assets.

The federal bank regulatory agencies have established a joint policy regarding
the evaluation of commercial banks' capital adequacy for interest rate risk.
Under the policy, the Federal Reserve's assessment of a bank's capital adequacy
includes an assessment of the bank's exposure to adverse changes in interest
rates. The Federal Reserve has determined to rely on its examination process for
such evaluations rather than on standardized measurement systems or formulas.
The Federal Reserve may require banks that are found to have a high level of
interest rate risk exposure or weak interest rate risk management systems to
take corrective actions. Management believes its interest rate risk management
systems and its capital relative to its interest rate risk are adequate.

Federal banking regulations also require banks with significant trading assets
or liabilities to maintain supplemental risk-based capital based upon their
levels of market risk. The Bank did not have significant levels of trading
assets or liabilities during 2004, and was not required to maintain such
supplemental capital.

The Federal Reserve has established regulations that classify banks by capital
levels and provide for the Federal Reserve to take various "prompt corrective
actions" to resolve the problems of any bank that fails to satisfy the capital
standards. Under these regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has a total risk-based capital ratio of 10% or more, a Tier 1
risk-based capital ratio of 6% or more, and a leverage ratio of 5% or more. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements: a total risk-based capital
ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of
either (i) 4% or (ii) 3% if the bank has the highest composite examination
rating. A bank that does not meet these standards is categorized as
undercapitalized, significantly undercapitalized, or critically
undercapitalized, depending on its capital levels. A bank that falls within any
of the three undercapitalized categories established by the prompt corrective
action regulation is subject to severe regulatory sanctions. As of December 31,
2004, the Bank was adequately capitalized as defined in the Federal Reserve's
regulations.


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For additional information regarding the Company's and the Bank's compliance
with their respective regulatory capital requirements, see Note 12, "Regulatory
Matters," to the consolidated financial statements.

Supervision and Regulation of Mortgage Banking Operations. The Company's
mortgage banking business is subject to the rules and regulations of the U.S.
Department of Housing and Urban Development ("HUD"), the Federal Housing
Administration ("FHA"), the Veterans' Administration ("VA"), and FNMA with
respect to originating, processing, selling, and servicing mortgage loans. Those
rules and regulations, among other things, prohibit discrimination and establish
underwriting guidelines, which include provisions for inspections and
appraisals, require credit reports on prospective borrowers, and fix maximum
loan amounts. Lenders such as the Company are required annually to submit to
FNMA, FHA and VA audited financial statements, and each regulatory entity has
its own financial requirements. The Company's affairs are also subject to
examination by the Federal Reserve, FNMA, FHA and VA at all times to assure
compliance with the applicable regulations, policies, and procedures. Mortgage
origination activities are subject to, among others, the Equal Credit
Opportunity Act, Federal Truth-in-Lending Act, Fair Housing Act, Fair Credit
Reporting Act, the National Flood Insurance Act and the Real Estate Settlement
Procedures Act and related regulations that prohibit discrimination and require
the disclosure of certain basic information to mortgagors concerning credit
terms and settlement costs. The Company's mortgage banking operations also are
affected by various state and local laws and regulations and the requirements of
various private mortgage investors.

The Holding Company Act permits the Federal Reserve to approve an application of
an adequately capitalized and adequately managed bank holding company to acquire
control of, or acquire all or substantially all of the assets of, a bank located
in a state other than that holding company's home state. The Federal Reserve may
not approve the acquisition of a bank that has not been in existence for the
minimum time period (not exceeding five years) specified by the statutory law of
the host state. The Holding Company Act also prohibits the Federal Reserve from
approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Holding Company
Act does not affect the authority of states to limit the percentage of total
insured deposits in the state which may be held or controlled by a bank or bank
holding company to the extent such limitation does not discriminate against
out-of-state banks or bank holding companies. The State of Maryland allows
out-of-state financial institutions to establish branches in Maryland, subject
to certain limitations.

Markets

The Company's primary market area comprises Cecil and Harford Counties in
northeastern Maryland.

Cecil Federal's home office, two branches, and financial and loan centers are in
Elkton, Maryland, and additional Cecil County branches are located in Rising
Sun, Cecilton, and North East, Maryland. Elkton is the county seat, and has a
population of approximately 12,000. The population of the Cecil County is
approximately 86,000. Cecil County is located in the extreme northeast of the
Chesapeake Bay, at the crux of four states - Maryland, Delaware, Pennsylvania,
and New Jersey. Elkton is located about 50 miles from Philadelphia and
Baltimore. One-fifth of the U.S. population resides within 300 miles of the
County. Interstate I-95, the main north-south East Coast artery, bisects the
County. In addition, the four lane U.S. 40 parallels the Interstate. Cecil
County has over 200 miles of waterfront between five rivers and the Chesapeake
Bay. Major employers in Cecil County include W.L. Gore & Associates, Perry Point
VA Hospital, Union Hospital of Cecil County, Terumo Medical, ATK Elkton,
Bassell, Wal-Mart, Moon Nurseries of Maryland, Performance Food Group, and Acme
Markets, as well as State, County and Local Governments.

Cecil Federal also operates two banking offices in Havre de Grace, Maryland, in
Harford County. Harford County is twenty-three miles from Baltimore and twenty
miles from Wilmington Delaware. The county is a major transportation link;
Interstate 95 and mainlines for CSX Railroad and Conrail run through the County.
The County's major industrial centers along the I-95 Corridor are Aberdeen,
Belcamp, Edgewood and Havre de Grace. Major private employers in Harford County
are Upper Chesapeake Health Systems, Inc., Rite Aid MidAtlantic, Sverdrup
Technology, Inc., Bechtel National, Inc., Saks Fifth Avenue, SAIC, Frito-Lay,
Inc., EAI Corporation, Custom Direct, Inc., and Cy-tec Industries. The U.S. Army
Aberdeen Proving Ground is the major government employer in the county.


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Loans and Mortgage Backed Securities

One to Four Family Residential Real Estate Lending. The primary emphasis of
Cecil Federal's lending activity is the origination of conventional mortgage
loans on one- to four-family residential dwellings. Most loans are originated in
amounts up to $150,000, on single-family properties located in Cecil Federal's
primary market area of Cecil County, Maryland. Cecil Federal makes conventional
mortgage loans, as well as loans guaranteed by the Rural Development (USDA
Housing Loans). Cecil Federal's mortgage loan originations are generally for
terms of 15, 20 and 30 years, amortized on a monthly basis with interest and
principal due each month. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms as borrowers may
refinance or prepay loans at their option, without penalty. Conventional
residential mortgage loans granted by Cecil Federal customarily contain
"due-on-sale" clauses that permit Cecil Federal to accelerate the indebtedness
of the loan upon transfer of ownership of the mortgaged property. Cecil Federal
uses standard Federal Home Loan Mortgage Corporation ("FHLMC") documents, to
allow for the sale of loans in the secondary mortgage market. Cecil Federal's
lending policies generally limit the maximum loan-to-value ratio on mortgage
loans secured by owner-occupied properties to 95% of the lesser of the appraised
value or purchase price of the property, with the condition that private
mortgage insurance is required on loans with a loan-to-value ratio in excess of
80%. Loans originated under Rural Development programs have loan-to-value ratios
of up to 100% due to the guarantees provided by those agencies. The substantial
majority of loans in Cecil Federal's loan portfolio have loan-to-value ratios of
80% or less.

Cecil Federal offers adjustable-rate mortgage loans with terms of up to 30
years. Adjustable-rate loans offered by Cecil Federal include loans which
reprice every one, three or five years and provide for an interest rate which is
based on the interest rate paid on U.S. Treasury securities of a corresponding
term.

Cecil Federal retains all adjustable-rate mortgages it originates, which are
designed to reduce Cecil Federal's exposure to changes in interest rates. Cecil
Federal's residential adjustable rate mortgages include caps on increases or
decreases of 2% per year, and 6% over the life of the loan. The retention of
adjustable-rate mortgage loans in Cecil Federal's loan portfolio helps reduce
Cecil Federal's exposure to increases in interest rates. However, there are
unquantifiable credit risks resulting from potential increased costs to the
borrower as a result of repricing of adjustable-rate mortgage loans. It is
possible that during periods of rising interest rates, the risk of default on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest cost to the borrower.

Cecil Federal also originates conventional fixed-rate mortgages with terms of
15, 20 or 30 years. Cecil Federal has originated all fixed-rate mortgage loans
in recent years for sale in the secondary mortgage market, and a substantial
majority of all fixed-rate loans originated since 1990 have been sold, primarily
to the Federal Home Loan Mortgage Corporation ("FHLMC"), with servicing retained
by Cecil Federal. Management assesses its fixed rate loan originations on an
ongoing basis to determine whether Cecil Federal's portfolio position warrants
the loans being sold or held in Cecil Federal's portfolio.

During the year ended December 31, 2004, Cecil Federal originated $20.5 million
in adjustable-rate mortgage loans and $8.5 million in fixed-rate mortgage loans.
Cecil Federal also offers second mortgage loans. These loans are secured by a
junior lien on residential real estate. The total of first and second liens may
not exceed a 90% loan to value ratio. Loans have terms of 5, 10 and 15 years and
have fixed rates. Cecil Federal offers home equity lines of credit, which are
secured by a junior lien on residential real estate. Customers are approved for
a line of credit that provides for an interest rate, which varies monthly, and
customers pay 2% of the balance per month.

Construction Lending. Cecil Federal's construction lending has primarily
involved lending to individuals for construction of single-family residences,
although Cecil Federal does lend funds for the construction of commercial
properties and multi-family real estate. All loans for the construction of
speculative sale homes have a loan value ratio of not more than 80%.
Substantially all construction loans originated convert to a permanent loan.
Cecil Federal has financed the construction of non-residential properties on a
case by case basis. A substantial majority of Cecil Federal's construction loans
(except loans to builders) are structured to convert to permanent loans upon
completion of construction, and usually have an initial construction loan term
of six months prior to converting to a permanent loan. Loan proceeds are
disbursed during the construction phase according to a draw schedule based on
the stage of completion. Construction projects are inspected by Cecil Federal's
officers. Construction loans are underwritten on the basis of the estimated
value of the property as completed and loan-to-value ratios must conform to the
requirements for the permanent loan.


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Land Loans. Cecil Federal also, from time to time, originates loans secured by
raw land. Land loans originated to individuals have a term of up to 10 years and
interest rates adjust every one, three or five years. Land loans originated to
developers have terms of up to three years. All land loans have a loan-to-value
ratio not exceeding 75%. Cecil Federal may expand its lending on raw land, as
market conditions allow, to qualified borrowers experienced in the development
and sale of raw land. Loans involving construction financing and loans on raw
land have a higher level of risk than loans for the purchase of existing homes
since collateral values, land values, development costs and construction costs
can only be estimated at the time the loan is approved. Cecil Federal has sought
to minimize its risk in construction lending and in lending for the purchase of
raw land by offering such financing primarily to builders and developers to whom
Cecil Federal has loaned funds in the past and to persons who intend to occupy
the completed structure. Cecil Federal also limits construction lending and
loans on raw land to its market area, with which management is familiar.

Multi-Family and Commercial Real Estate Lending. Loans secured by multi-family
and commercial real estate generally are larger and involve greater risks than
one- to four-family residential mortgage loans. Because payments on loans
secured by such properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
Cecil Federal seeks to minimize these risks in a variety of ways, including
limiting the size and loan-to-value ratios of its multi-family and commercial
real estate loans and restricting such loans to its primary market area. Cecil
Federal's permanent multi-family and commercial real estate loans are secured by
improved property such as office buildings, apartment buildings, and retail
establishments that are located in Cecil Federal's primary market area.
Multi-family and commercial real estate loans generally have terms of 20 years,
are either tied to the prime rate or have interest rate adjustments every one,
three or five years, or amortize on the basis of a 30 year period and generally
require a balloon payment after three years. Multi-family and commercial
mortgages are generally made in amounts not exceeding 80% of the lesser of the
appraised value or purchase price of the property. All of Cecil Federal's
multi-family and commercial property loans require regular payments of principal
and interest. The interest rates on commercial real estate loans are negotiated
on a loan-by-loan basis.

Commercial Business Loans. Cecil Federal offers commercial business loans and
both secured and unsecured loans and letters of credit, or lines of credit for
businesses located in its primary market area. Most business loans have a six
month term, while lines of credit can remain open for longer periods. All
owners, partners, and officers must sign the loan agreement. The security for a
business loan depends on the amount borrowed, the business involved, and the
strength of the borrower's firm and position. Commercial business lending
entails significant risk, as the payments on such loans may depend upon the
successful operation or management of the business involved. Although Cecil
Federal attempts to limit its risk of loss on such loans by limiting the amount
and the term, and by requiring personal guarantees of principals of the business
(when additional guarantees are deemed necessary by management and such
guarantees are allowed by regulation), the risk of loss on commercial business
loans is substantially greater than the risk of loss from residential real
estate lending.

Consumer Lending. Consumer loans generally involve more risk than first mortgage
loans. Repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of damage, loss,
or depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered. These loans may also give rise to claims and defenses by
a borrower against Cecil Federal, and a borrower may be able to assert against
Cecil Federal claims and defenses that it has against the seller of the
underlying collateral.

Cecil Federal's consumer loans consist of automobile loans, savings account
loans, education loans, home improvement loans, and other consumer loans.
Consumer loans are generally offered for terms of up to five years at fixed
interest rates. Management expects to continue to promote consumer loans as part
of its strategy to provide a wide range of personal financial services to its
customers and as a means to increase the yield on Cecil Federal's loan
portfolio. Cecil Federal makes loans for automobiles and recreational vehicles,
both new and used, directly to the borrowers. The loans can be for up to 100% of
the purchase price or the retail value listed by the National Automobile Dealers
Association. The terms of the loans are determined by the condition of the
collateral. Collision insurance policies are required on all these loans, unless
the borrower has substantial other assets and income. Cecil Federal makes
savings account loans for up to 90% of the amount of the depositor's savings
account balance. The maximum amount of the loan takes into consideration the
amount of interest due. The term of the loan is either interest due monthly on
demand, or a term loan not to exceed 5 years. The interest rate is 2% higher
than the rate being paid on the savings account. Cecil Federal's education loans
are made to existing deposit customers, in amounts of up to $10,000, and are
paid out over four years, with $2,500 disbursed per year. Interest is payable
annually until the student leaves school and amortization over an eight year
period then begins. Cecil Federal also makes other consumer loans, which may or
may not be secured. The term of the loans usually depends on the collateral.
Unsecured loans usually do not exceed $100,000 and have a term of no longer than
12 months. Consumer loans are generally originated at higher interest rates than
residential mortgage loans but also tend to have a higher risk than residential
loans due to the loan being unsecured or secured by rapidly depreciable assets.


                                       7
<PAGE>

Loan Solicitation and Processing. Cecil Federal's lending activities are subject
to written, non-discriminatory underwriting standards and loan origination
procedures outlined in loan policies established by its board of directors.
Detailed loan applications are obtained to determine the borrower's ability to
repay, and the more significant items on these applications are verified through
the use of credit reports, financial statements, and confirmations. Property
valuations required by policy are performed by independent outside appraisers
approved by the board of directors. With certain limited exceptions, the maximum
amount that Cecil Federal may lend to any borrower (including certain related
entities of the borrower) at any one time may not exceed 15% of the unimpaired
capital and surplus of the institution, plus an additional 10% of unimpaired
capital and surplus for loans fully secured by readily marketable collateral.
Under these limits, at December 31, 2004, Cecil Federal's loans-to-one borrower
cannot exceed $2,558,550.

Loan Originations and Sales. Loan originations are derived from a number of
sources. Residential mortgage loan originations primarily come from walk-in
customers and referrals by realtors, depositors, and borrowers. Applications are
taken at all offices, but are processed by Cecil Federal and submitted for
approval, as noted above. Cecil Federal has not purchased loans in the secondary
mortgage market. All fixed-rate loans are originated according to FHLMC
guidelines and, depending on market conditions, may be sold to FHLMC after
origination. Cecil Federal retains servicing on all loans sold.

Interest Rates and Loan Fees. Interest rates charged by Cecil Federal on
mortgage loans are primarily determined by competitive loan rates offered in its
market area. Mortgage loan interest rates reflect factors such as general market
interest rate levels, the supply of money available to the financial
institutions industry and the demand for such loans. These factors are in turn
affected by general economic conditions, the monetary policies of the Federal
government, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), and general supply of money in the economy. In addition to
interest earned on loans, Cecil Federal receives fees in connection with loan
commitments and originations, loan modifications, late payments and for
miscellaneous services related to its loans. Income from these activities varies
from period to period with the volume and type of loans originated, which in
turn is dependent on prevailing mortgage interest rates and their effect on the
demand for loans in the markets served by Cecil Federal. Cecil Federal also
receives servicing fees on the loan amount of the loans that it services. At
December 31, 2004, Cecil Federal was servicing $18.8 million in loans for other
financial institutions. For the years ended December 31, 2004 and 2003, Cecil
Federal recognized gross servicing income of $60,000 and $42,000, respectively,
and total loan fee income of $236,000 and $118,000, respectively.

Mortgage-Backed Securities. Cecil Federal maintains a portfolio of
mortgage-backed securities in the form of Government National Mortgage
Association ("GNMA"), FNMA and FHLMC participation certificates and securities
issued by other nonagency organizations. GNMA certificates are guaranteed as to
principal and interest by the full faith and credit of the United States, while
FNMA and FHLMC certificates are each guaranteed by their respective agencies.
Mortgage-backed securities generally entitle Cecil Federal to receive a pro rata
portion of the cash flows from an identified pool of mortgages. Although
mortgage-backed securities yield from 30 to 100 basis points less than the loans
that are exchanged for such securities, they present substantially lower credit
risk and are more liquid than individual mortgage loans and may be used to
collateralize obligations of Cecil Federal. Because Cecil Federal receives
regular payments of principal and interest from its mortgage-backed securities,
these investments provide more consistent cash-flows than investments in other
debt securities, which generally only pay principal at maturity.


                                       8
<PAGE>

Mortgage-backed securities, however, entail certain unique risks. In a declining
rate environment, accelerated prepayments of loans underlying these securities
expose Cecil Federal to the risk that they will be unable to obtain comparable
yields upon reinvestment of the proceeds. In the event the mortgage-backed
security has been funded with an interest-bearing liability with a maturity
comparable to the original estimated life of the mortgage-backed security, Cecil
Federal's interest rate spread could be adversely affected. Conversely, in a
rising interest rate environment, Cecil Federal may experience a lower than
estimated rate of repayment on the underlying mortgages, effectively extending
the estimated life of the mortgage-backed security and exposing Cecil Federal to
the risk that it may be required to fund the asset with a liability bearing a
higher rate of interest. Cecil Federal seeks to minimize the effect of extension
risk by focusing on investments in adjustable-rate and/or relatively short-term
(seven years or shorter maturity) mortgage-backed securities.

Cecil Federal has historically invested in mortgage-backed securities as an
alternative to supplement its lending efforts and maintain compliance with
certain regulatory requirements. At December 31, 2004, Cecil Federal had no
mortgage derivative products that met the definition of high risk mortgage
securities.

Deposits and Borrowings

Deposits. Deposits are attracted principally from Cecil Federal's market area
through the offering of a variety of deposit instruments, including savings
accounts and certificates of deposit ranging in term from 91 days to 60 months,
as well as regular checking, NOW, passbook and money market deposit accounts.
Deposit account terms vary, principally on the basis of the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate. Cecil Federal also offers individual retirement accounts ("IRAs"). Cecil
Federal's policies are designed primarily to attract deposits from local
residents. Cecil Federal does not accept deposits from brokers due to the
volatility and rate sensitivity of such deposits. Interest rates, maturity
terms, service fees and withdrawal penalties are established by Cecil Federal on
a periodic basis. Determination of rates and terms are predicated upon funds
acquisition and liquidity requirements, rates paid by competitors, growth goals
and federal regulations.

Borrowings. Deposits historically have been the primary source of funds for
Cecil Federal's lending and investment activities and for its general business
activities. Cecil Federal is authorized, however, to use advances from the FHLB
of Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB typically are secured by Cecil
Federal's stock in the FHLB and a portion of Cecil Federal's loan portfolio.
Cecil Federal utilized advances from FHLB during the year. The FHLB of Atlanta
functions as a central reserve bank providing credit for member financial
institutions. As a member, Cecil Federal is required to own capital stock in the
FHLB and is authorized to apply for advances on the security of such stock and
certain of its loans and other assets (principally, securities which are
obligations of, or guaranteed by, the United States) provided certain standards
related to creditworthiness have been met.

Competition

The Company offers a wide range of lending and deposit services in its market
area. In addition, the Company offers a full range of brokerage and investment
services through its relationship with UVEST Investment Services. The Company
experiences substantial competition both in attracting and retaining deposits,
in making loans, and in providing investment, insurance, and other services.
Management believes the Bank is able to compete effectively in its primary
market area.

The primary factors in competing for loans are interest rates, loan origination
fees, and the range of services offered by lenders. Competitors for loan
originations include other commercial banks, savings associations, mortgage
bankers, mortgage brokers, and insurance companies. The Bank's principal
competitors for deposits are other financial institutions, including other
banks, savings associations, and credit unions located in the Bank's primary
market area of Cecil and Harford Counties in Maryland or doing business in the
market area through the internet, by mail, or by telephone. Competition among
these institutions is based primarily on interest rates and other terms offered,
service charges imposed on deposit accounts, the quality of services rendered,
and the convenience of banking facilities. Additional competition for
depositors' funds comes from U.S. Government securities, private issuers of debt
obligations and suppliers of other investment alternatives for depositors, such
as securities firms. Competition from credit unions has intensified in recent
years as historical federal limits on membership have been relaxed. Because
federal law subsidizes credit unions by giving them a general exemption from
federal income taxes, credit unions have a significant cost advantage over banks
and savings associations, which are fully subject to federal income taxes.
Credit unions may use this advantage to offer rates that are highly competitive
with those offered by banks and thrifts.


                                       9
<PAGE>

The banking business in Maryland generally, and the Bank's primary service areas
specifically, is highly competitive with respect to both loans and deposits. The
Bank competes with many larger banking organizations that have offices over a
wide geographic area. These larger institutions have certain inherent
advantages, such as the ability to finance wide-ranging advertising campaigns
and promotions and to allocate their investment assets to regions offering the
highest yield and demand. They also offer services, such as international
banking, that are not offered directly by the Bank (but are available indirectly
through correspondent institutions), and, by virtue of their larger total
capitalization, such banks have substantially higher legal lending limits, which
are based on bank capital, than does the Bank. The Bank can arrange loans in
excess of its lending limit, or in excess of the level of risk it desires to
take, by arranging participations with other banks. Other entities, both
governmental and in private industry, raise capital through the issuance and
sale of debt and equity securities and indirectly compete with the Bank in the
acquisition of deposits.

In addition to competing with other commercial banks, savings associations, and
credit unions, commercial banks such as Cecil Federal compete with nonbank
institutions for funds. For instance, yields on corporate and government debt
and equity securities affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for available funds with mutual funds.
These mutual funds have provided substantial competition to banks for deposits,
and it is anticipated they will continue to do so in the future.

Employees

As of January 31, 2005, the Company and the Bank employed 64 persons. None of
the Company's or the Bank's employees is represented by a union or covered under
a collective bargaining agreement. Management of the Company and the Bank
consider their employee relations to be excellent.



ITEM 2. DESCRIPTION OF PROPERTY

         Following are the locations of Cecil Federal at December 31, 2004. The
Company has no other locations.

Popular Name                 Location
--------------------------   --------------------------------------------------
Main Office                  127 North Street, Elkton, MD 21921
*Cecil Financial Center      135 North Street, Elkton, MD  21921
*North East                  108 North East Plaza, North East, MD 21901
*Rising Sun                  56 Rising Sun Towne Centre, Rising Sun, MD  21911
*Crossroads                  114 E. Pulaski Hwy, Elkton, MD  21921
Loan Center                  200 North Street, Elkton, MD  21921
Turkey Point                 1223 Turkey Point Road, North East, MD 21901
Cecilton                     122 West Main Street, Cecilton, MD 21913
Downtown Havre de Grace      303-307 St John Street, Havre de Grace, MD 21078
Route 40 Havre de Grace      1609 Pulaski Highway, Havre de Grace, MD 21078
*Leased.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, Cecil Bancorp is often subject to various
pending and threatened legal actions. The relief or damages sought in some of
these actions may be substantial. After reviewing pending and threatened actions
with counsel, management considers that the outcome of such actions will not
have a material adverse effect on Cecil Bancorp's financial position; however,
Cecil Federal is not able to predict whether the outcome of such actions may or
may not have a material adverse effect on results of operations in a particular
future period as the timing and amount of any resolution of such actions and
relationship to the future results of operations are not known.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter
of 2004, through solicitation of proxies or otherwise.


                                       10
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASE OF EQUITY SECURITIES

Common shares of Cecil Bancorp are traded over the counter under the symbol
CECB. Shareholders received quarterly cash dividends totaling $0.20 per share in
both 2004 and 2003. The ratio of dividends per share to diluted net income per
share was 21.1% in 2004, compared to 25.0% for 2003. The dividend amount is
established by the Board of Directors each quarter. In making its decision on
dividends, the Board considers operating results, financial condition, capital
adequacy, regulatory requirements, shareholder returns and other factors. Shares
issued under the dividend reinvestment plan totaled 4,976 in 2004 and 5,858 in
2003. All EPS amounts have been adjusted to give retroactive affect for the
two-for-one stock split approved by the Board of Directors on February 2004.

The number of common shareholders of record was approximately 613 as of March
25, 2005, excluding shareholders who hold in nominee or "street name."

Quarterly Stock Information

                           2004                                  2003
-------------------------------------------------------------------------------
             Stock Price Range                   Stock Price Range
             -----------------      Per Share   -------------------   Per Share
Quarter         Low      High        Dividend    Low         High      Dividend
-------------------------------------------------------------------------------
1st          $11.64     $13.25       $.05     $ 9.26       $11.50         $.05
2nd           13.00      16.05        .05      10.00        11.50          .05
3rd           16.05      18.85        .05      10.25        11.00          .05
4th           17.75      20.00        .05      10.68        12.38          .05
                                      ---                                  ---
   Total                             $.20                                 $.20
                                     ====                                 ====

(1) Quotations reflect inter-dealer price, without retail mark-up, mark-down
    or commissions, and may not represent actual transactions.

         The following table presents disclosure regarding equity compensation
plans in existence at December 31, 2004, consisting only of the stock option
plan (expired but having outstanding options that may still be exercised) which
was approved by shareholders (described further under the caption "Stock Based
Compensation Plan" in Note 13 to the consolidated financial statements).

                      Equity Compensation Plan Information
<TABLE>
<CAPTION>

------------------------------- ---------------------------- ---------------------------- ----------------------------
        Plan category           Number of securities to be    Weighted average exercise      Number of securities
                                  issued upon exercise of       price of outstanding        remaining available for
                                   outstanding options,         options, warrants and        future issuance under
                                    warrants and rights                rights              equity compensation plans
                                            (a)                          (b)                 excluding securities
                                                                                             reflected in column (a)
                                                                                                      (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
  Equity compensation plans
 approved by security holders              9,878                       $10.96                          0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
 approved by security holders                0                            0                            0
------------------------------- ---------------------------- ---------------------------- ----------------------------
            Total                          9,878                       $10.96                          0
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

The above table does not include shares issued under the Management Recognition
Plan, for which no additional shares are available for issuance, or shares
acquired by the Employee Stock Ownership Plan.



                                       11
<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

You should read this Management's Discussion and Analysis of the Company's
consolidated financial condition and results of operations in conjunction with
the Company's consolidated financial statements and the accompanying notes.

Five Year Summary of Selected Financial Data

<TABLE>
<CAPTION>

(Dollars in thousands, except per share data)           2004        2003         2002         2001            2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>          <C>          <C>             <C>
RESULTS OF OPERATIONS:
Interest Income                                      $10,427       $8,369       $8,385       $9,336          $9,363
Interest Expense                                       3,116        2,649        3,191        4,729           4,875
    Net Interest Income                                7,311        5,720        5,194        4,607           4,488
Provision for Loan Losses                                370          220          569          190             305
Net Interest Income after Provision
    for Loan Losses                                    6,941        5,500        4,626        4,417           4,183
Noninterest Income                                     1,005          805          691          588             573
Noninterest Expenses                                   5,466        4,321        3,709        3,733           3,570
Income before Income Taxes                             2,480        1,984        1,608        1,232           1,186
Income Tax Expense                                       948          749          613          471             467
Net Income                                             1,532        1,235          995          761             719

PER SHARE DATA: (3)
Basic Net Income Per Share                              $.95         $.81         $.79         $.62            $.60
Diluted Net Income Per Share                             .95          .80          .78          .61             .59
Dividends Declared                                       .20          .20          .20          .20             .20
Book Value (at year end)                               11.21        10.41        10.30         9.64            9.19
Tangible Book Value (at year end) (1)                   9.79         8.98         8.54         7.86            7.21

FINANCIAL CONDITION (at year end):
Assets                                              $200,380     $149,600     $123,120     $127,498        $121,961
Deposits                                             140,841      118,164       99,831      104,035          95,913
Loans, net                                           173,790      126,887      101,571      101,393         102,582
Investment Securities                                  5,748        5,770       10,488       13,817           7,948
Stockholders' Equity                                  18,317       16,714       13,186       12,197          11,416

PERFORMANCE RATIOS (for the year):
Return on Average Assets                                 .89%         .91%         .81%         .61%            .59%
Return on Average Equity                                8.70         7.79         7.86         6.41            6.48
Net Interest Margin                                     4.61         4.51         4.43         4.01            3.89
Efficiency Ratio (2)                                   65.73        66.22        63.02        72.63           70.54
Dividends Declared Per Share
  to Diluted Net Income Per Share                      21.05        25.00        25.48        32.79           33.90

CAPITAL AND CREDIT QUALITY RATIOS:
Average Equity to Average Assets                       10.23%       11.72%       10.25%        9.48%           9.09%
Allowance for Loan Losses to Loans                       .68          .61          .60          .32             .41
Nonperforming Assets to Total Assets                    1.06          .84          .50          .54             .73
Net Recoveries (Charge-offs) to Average Loans            .02         (.04)        (.28)        (.28)           (.31)

</TABLE>

(1) Total stockholders' equity, net of goodwill and other intangible assets,
divided by the number of shares of common stock outstanding at year end.
(2) The Efficiency Ratio equals noninterest expenses as a percentage of net
interest income plus noninterest income. In this ratio, noninterest expenses for
years prior to 2002 include amortization of the intangible asset related to the
September 27, 1999, acquisition of two branch offices from an unaffiliated
financial institution.
(3) All EPS amounts have been adjusted to give retroactive effect for the
two-for-one stock split approved by the Board of Directors on February 24, 2004.


                                       12
<PAGE>

Summary

Cecil Bancorp, Inc. (the "Company") is the bank holding company for Cecil
Federal Bank ("Cecil Federal" or the "Bank"). The Bank is a community-oriented
commercial bank chartered under the laws of the State of Maryland and is a
member of the Federal Reserve System.

Cecil Federal is a community-oriented financial institution which commenced
operations in 1959 as a Federal mutual savings and loan association. Cecil
Federal conducts its business through its main office in Elkton, Maryland,
branches in Elkton, Rising Sun, Cecilton, and North East, Maryland, and through
the Columbian Bank Division's main office and a branch office in Havre de Grace,
Maryland. Cecil Service Corporation, a subsidiary of the Bank acts as leasing
agent for the leased branches. The Bank offers a full range of brokerage and
investment services through a relationship with UVEST Investment Services. Cecil
Federal's business strategy is to operate as an independent community-oriented
financial institution funded primarily by retail deposits.

Consolidated Average Balances, Yields and Rates (1)


<TABLE>
<CAPTION>

(Dollars in thousands)                2004                                2003                               2002
-----------------------------------------------------------------------------------------------------------------------------------
                          Average                   Yield/     Average                 Yield/      Average                  Yield/
                          Balance     Interest       Rate      Balance   Interest       Rate       Balance     Interest      Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>            <C>            <C>    <C>           <C>           <C>     <C>            <C>           <C>
Assets

Loans                  $  148,588     $ 10,246       6.90%  $ 112,486     $8,096        7.20%   $  100,324     $ 7,847       7.82%
Investment securities       5,768          107       1.85       9,772        212        2.17        12,927         447       3.46
Other earning assets        4,269           75       1.77       4,684         61        1.30         4,017          91       2.27
                       -----------------------              --------------------                ----------------------
Total earning assets   $  158,265     $ 10,428       6.57   $ 126,942     $8,369        6.59    $  117,268     $ 8,385       7.15
Other assets               13,653                               8,318                                6,213
                       ----------                           ---------                           ----------
     Total assets      $  172,278                           $ 135,260                           $  123,481
                       ==========                           =========                           ==========
Liabilities and
  Stockholders'
  Equity:
Deposits                  129,623        2,405       1.86     108,155      2,212        2.05       100,355       2,755       2.75
FHLB advances              23,019          710       3.09       9,624        434        4.50         9,220         432       4.68
Long-term borrowings          221            1        .50         691          3         .43           678           4        .59
                       -----------------------              --------------------                ----------------------
Total
  interest-bearing
  liabilities             152,863        3,116       2.04     118,470      2,649        2.23       110,253       3,191       2.90
                                      --------              --------------------                ----------------------
  Net interest
     income and
     spread                           $  7,312       4.53%                $5,720        4.36%                  $ 5,194       4.25%
                                      ========                            ======                               =======
Noninterest-bearing
  liabilities               1,795                                 942                                  571
                       ----------                           ---------                           ----------
Total                     154,658                             119,412                              110,824
  liabilities
  Stockholders'
  equity                   17,620                              15,848                               12,657
                       ----------                           ---------                           ----------
Total liabilities
  and stockholders'
  equity               $  172,278                           $ 135,260                           $  123,481
                       ==========                           =========                           ==========
Net Interest Margin                                  4.61%                              4.51%                                4.43%
Average interest
  earning assets
  to interest
  bearing
  liabilities                                      103.53                             107.15                               106.36

</TABLE>

(1) Average balances are based upon month-end balances, which are not believed
to be materially different from daily averages.
(2) Non-accrual loans are included in the average balances.



                                       13
<PAGE>


Comparison of Results of Operations
2004 versus 2003

Net income increased $297,400, or 24.1% to $1,532,210 for the year ended
December 31, 2004, from $1,234,810 for the same period in 2003. The increase in
net income is the result of a $1,591,887, or 27.8%, increase in net interest
income due mainly to increasing loan volumes and declining rates on interest
bearing liabilities; a $200,199, or 24.9%, increase in noninterest income, due
mainly to a $185,152 increase in income from bank owned life insurance; offset
by a $150,000 increase in the provision for loan losses and a $1,145,095
increase in noninterest expense, due mainly to the increase in compensation and
benefits of new sales staff, equipment and data processing, occupancy expenses,
and professional fees, partially offset by a decrease in ATM expenses. Basic and
diluted net income per share for 2004 were both $0.95, up $0.14 and $0.15, or
approximately 17.3% and 18.8%, over corresponding 2003 earnings per share
amounts of $0.81 and $0.80. The annualized return on average assets and
annualized return on average equity were 0.89% and 8.70% respectively, for the
year ended December 31, 2004. This compares to an annualized return on average
assets and the annualized return on average equity of 0.91% and 7.79%,
respectively for the same period in 2003.

Net interest income, the Company's primary source of income, increased
$1,591,887, or 27.8% to $7,311,485 for the year ended December 31, 2004, from
$5,719,598 for the year ended December 31, 2003. The weighted average yield on
all interest-earning assets decreased to 6.57% for the year ended December 31,
2004 from 6.59% for the year ended December 31, 2003. The weighted average rate
paid on interest bearing liabilities decreased to 2.04% for the year ended
December 31, 2004 from 2.23% for the year ended December 31, 2003. The weighted
average yield and weighted average rate have continued to decrease in 2004, as
the general market rates have remained low. The weighted average yield earned on
interest earning assets has decreased less rapidly, as the assets have been
repricing more quickly than the liabilities as market rates increased during the
second half of 2004. As a result, the net interest spread increased to 4.53% for
2004 from 4.36% for 2003 and the net interest margin increased by 10 basis
points to 4.61% for 2004 from 4.51% for 2003.

Interest and fees on loans receivable increased by $2,149,398, or 26.5% to
$10,245,533 for the year ended December 31, 2004 from $8,096,135 for the year
ended December 31, 2003. The increase is attributable to an increase in average
balance outstanding offset, in part, by a decrease in the average yield. The
average outstanding balance increased $36,101,354, or 32.1%, to $148,587,725 for
the year ended December 31, 2004 from $112,486,371 for the year ended December
31, 2003. The weighted average yield decreased to 6.90% for the year ended
December 31, 2004 from 7.20% for the year ended December 31, 2003.

Interest on investment securities decreased $105,201, or 49.7% to $106,525 for
the year ended December 31, 2004 from $211,726 for the year ended December 31,
2003. The decrease is a result of a decrease in the weighted average yield and a
decrease in the average balance. The weighted average yield decreased to 1.85%
for the year ended December 31, 2004 from 2.17% for the year ended December 31,
2003. The average outstanding balance decreased $4,003,278, or 41.0%, to
$5,768,294 for the year ended December 31, 2004 from $9,771,572 for the year
ended December 31, 2003.

Other earning assets primarily are Federal Home Loan Bank stock, Federal Reserve
Bank stock, and short-term liquidity accounts with variable rates. Dividends on
Federal Home Loan and Federal Reserve Bank stock increased $19,362, or 55.8% to
$54,083 for the year ended December 31, 2004 from $34,721 for the year ended
December 31, 2003 as a result of an increase in the average balance outstanding
offset in part by a decrease in the weighted average yield. Interest on the
remaining other earning assets decreased $4,618, or 17.8% to $21,366 for the
year ended December 31, 2004 from $25,984 for the year ended December 31, 2003
as a result of a decrease in the average balance outstanding offset by an
increase in the weighted average yield. The average outstanding balance
decreased $937,192, or 24.4%, to $2,905,593 for the year ended December 31, 2004
from $3,842,785 for the year ended December 31, 2003. The weighted average yield
increased to 0.74% for the year ended December 31, 2004 from 0.68% for the year
ended December 31, 2003.


                                       14
<PAGE>

Interest expense on deposits increased $191,069, or 8.6% to $2,405,695 for the
year ended December 31, 2004 from $2,214,626 for the year ended December 31,
2003. The increase was the result of an increase in the average balance offset
in part by a decrease in the average cost of funds. The average outstanding
balance increased $21,468,241, or 19.8%, to $129,622,827 for the year ended
December 31, 2004 from $108,154,586 for the year ended December 31, 2003. The
weighted average rate decreased to 1.86% for the year ended December 31, 2004
from 2.05% for the year ended December 31, 2003. During 2004, the Company
discontinued its escrow collection services for advance payments of taxes and
insurance by loan customers. Interest expense on borrowings increased $275,985,
or 63.5% to $710,327 for the year ended December 31, 2004 from $434,342 for the
year ended December 31, 2003. The increase was a result of an increase in the
average balance outstanding offset by a decrease in the average cost of funds.
The average outstanding balance increased $13,394,953, or 139.2%, to $23,018,926
for the year ended December 31, 2004 from $9,623,973 for the year ended December
31, 2003. The weighted average rate decreased to 3.09% for the year ended
December 31, 2004 from 4.50% for the year ended December 31, 2003.

Effect of Volume and Rate Changes on Net Interest Income

<TABLE>
<CAPTION>

                                                           2004 vs. 2003                   2003 vs. 2002
----------------------------------------------------------------------------------------------------------------
                                                 Increase       Due to Change     Increase       Due to Change
                                                    Or          in Average:*          or         in Average:*
(Dollars in thousands)                          (Decrease)    Volume       Rate   (Decrease)   Volume       Rate
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>         <C>     <C>        <C>        <C>
Interest income from earning assets:
    Loans                                         $ 2,150      2,502       (352)   $   249    $   905    $  (656)
    Investment securities                            (105)       (78)       (27)      (235)       (93)      (142)
    Other interest-earning assets                      14         (6)        20        (30)        13        (43)
                                                  -------                          -------
   Total Interest Income                            2,059      2,083        (24)       (16)       664       (680)
                                                  -------                          -------
Interest expense:
    Interest-bearing deposits                         193        411       (218)      (543)       201       (744)
    FHLB advances                                     276        448       (172)         2         19        (17)
    Advances from borrowers for taxes
       and insurance                                   (2)        (2)         0         (1)         0         (1)
                                                  -------                          -------
        Total Interest Expense                        467        717       (250)      (542)       224       (766)
                                                  -------                          -------
            Net Interest Income                   $ 1,592      1,366        226    $   526        440         86
                                                  =======                          =======
</TABLE>

----------------
* Variances are computed line-by-line and do not add to the totals shown.
Changes in rate-volume (changes in rate multiplied by the changes in volume) are
allocated between changes in rate and changes in volume in proportion to the
relative contribution of each.

The allowance for loan losses is increased by provisions charged to expense.
Charge-offs of loan amounts determined by management to be uncollectible
decrease the allowance, and recoveries of previous charge-offs are added to the
allowance. The Company makes provisions for loan losses in amounts necessary to
maintain the allowance for loan losses at an appropriate level, based upon
management's reviews of probable losses inherent in the loan portfolio. The
provision for loan losses increased $150,000, or 68.2% to $370,000 for the year
ended December 31, 2004 from $220,000 for the year ended December 31, 2003 as a
result of this analysis. (See "Allowance for Loan Losses.")

Non-interest income increased $200,199, or 24.9% to $1,005,249 for the year
ended December 31, 2004 from $805,050 for the year ended December 31, 2003.
Checking account fees increased $21,958 or 7.0% to $335,223 for the year ended
December 31, 2004 from $313,265 for the year ended December 31, 2003 due to an
increase in the volume of deposit accounts. ATM fees decreased $55,834 or 45.3%
to $67,353 for the year ended December 31, 2004 from $123,187 for the year ended
December 31, 2003. The decrease is a result of a change in the ATM network used
by the Bank during the third quarter of 2003. The new network nets the income
earned with the expenses incurred. Commission income on alternative investment
products decreased $5,169, or 6.2% to $78,857 for the year ended December 31,
2004 from $84,026 for the year ended December 31, 2003. Gains on the sale of
real estate owned were $16,774.There were no sales of other real estate owned
for the year ended December 31, 2003. Loss on the sale of investments decreased
100%, as there were no sales of investments for the year ended December 31,
2004. Gain on the sale of loans decreased $11,781 or 6.1% to $182,375 for the
year ended December 31, 2004 from $194,156 for the year ended December 31, 2003.
This decrease is the result of a decrease in the volume of loans originated and
sold in the secondary market. Income from bank owned life insurance increased
$185,152, or 363.4%, to $236,103 for the year ended December 31, 2004 from
$50,951 for the year ended December 31, 2003. The insurance was purchased in the
third quarter of 2003, and thus only earned income for one quarter in 2003,
compared to a full year of income earned during 2004. Other income increased
$33,746 or 61.6% to $88,564 for the year ended December 31, 2004 from $54,818
for the year ended December 31, 2003 as a result of insurance proceeds received
as settlement of a claim filed in 2003.


                                       15
<PAGE>

Non-interest expense increased $1,145,095, or 26.5% to $5,466,195 for the year
ended December 31, 2004 from $4,321,100 for the year ended December 31, 2003.
The Company experienced an increase in salaries and employee benefits of
$988,416, or 41.3% to $3,383,672 for the year ended December 31, 2004 from
$2,395,256 for the year ended December 31, 2003. The increase can be attributed
to an increased number of employees due to increased sales and back office staff
and personnel needed at the new Turkey Point and Cecilton offices, as well as
annual merit increases, and the funding of the Company's supplemental executive
retirement plan created during the third quarter of 2003. Occupancy expense
increased $36,695, or 12.2% to $336,283 for the year ended December 31, 2004
from $299,588 for the year ended December 31, 2003 due to the branch expansion
that has taken place during 2004. Equipment and data processing increased
$50,280, or 8.8%, to $622,673 for the year ended December 31, 2004 from $572,393
for the year ended December 31, 2003 due to increased expense relating to
equipment purchases to fill the new branches and the related depreciation of
this equipment. Professional fees increased $108,712, or 206.3%, to $161,418 for
the year ended December 31, 2004 from $52,706 for the year ended December 31,
2003. This increase is due to an increase in legal fees, primarily from the
final allocation of the ESOP shares and other employee benefit plan matters.
Accounting and audit fees also increased during 2004, as the Company received a
third party information technology audit during the year. ATM expenses decreased
88.7% to $14,215 for the year ended December 31, 2004 from $126,310 for the same
period in 2003. The decrease is a result of a change in the ATM network used by
the Bank during the third quarter of 2003. The new network nets the income
earned with the expenses incurred. Other expenses increased $71,931, or 12.2% to
$661,945 for the year ended December 31, 2004 from $590,014 for the year ended
December 31, 2003, primarily due to increases in advertising, telephone, and
insurance expenses.

Income tax expense for the year ended December 31, 2004 and December 31, 2003
was $948,329 and $748,738, respectively, which equates to effective rates of
38.2% and 37.7%, respectively.

Comparison of Results of Operations
2003 versus 2002

Net income increased $240,288, or 24.2% to $1,234,810 for the year ended
December 31, 2003, from $994,522 for the same period in 2002. The increase in
net income is the result of a $525,266, or 10.1%, increase in net interest
income due mainly to increasing loan volumes and declining rates on interest
bearing liabilities; a $348,667 decrease in the provision for loan losses; a
$114,077, or 16.5%, increase in noninterest income, due mainly to a $122,477
increase in the gain on sale of loans and a $39,735 increase in commission
income; offset by a $612,277 increase in noninterest expense, due mainly to the
increase in compensation and benefits of new sales staff, equipment and data
processing, and occupancy expenses. Basic and diluted net income per share for
2003 were, $.81 and $.80, respectively, each up $0.02, or approximately 2.5%,
over corresponding 2002 earnings per share amounts, as the increase in net
income more than offset the effects of the greater number of shares issued in
the Company's 2003 private placement. The annualized return on average assets
and annualized return on average equity were 0.91% and 7.79% respectively, for
the year ended December 31, 2003. This compares to an annualized return on
average assets and the annualized return on average equity of 0.81% and 7.86%,
respectively for the same period in 2002.

Net interest income, the Company's primary source of income, increased $525,266,
or 10.1% to $5,719,598 for the year ended December 31, 2003, from $5,194,332 for
the year ended December 31, 2002. The weighted average yield on all
interest-earning assets decreased to 6.59% for the year ended December 31, 2003
from 7.15% for the year ended December 31, 2002. The weighted average rate paid
on interest bearing liabilities decreased to 2.23% for the year ended December
31, 2003 from 2.90% for the year ended December 31, 2002. As a result, the net
interest spread increased to 4.36% for 2003 from 4.25% for 2002. The net
interest margin increased by 8 basis points to 4.51% from 4.43%.


                                       16
<PAGE>

Interest and fees on loans receivable increased by $248,895, or 3.2% to
$8,096,135 for the year ended December 31, 2003 from $7,847,240 for the year
ended December 31, 2002. The increase is attributable to an increase in average
balance outstanding offset, in part, by a decrease in the average yield. The
average outstanding balance increased $12,162,028, or 12.1%, to $112,486,371 for
the year ended December 31, 2003 from $100,324,343 for the year ended December
31, 2002. The weighted average yield decreased to 7.20% for the year ended
December 31, 2003 from 7.82% for the year ended December 31, 2002.

Interest on investment securities decreased $234,918, or 52.6% to $211,726 for
the year ended December 31, 2003 from $446,644 for the year ended December 31,
2002. The decrease is a result of a decrease in the weighted average yield and a
decrease in the average balance. The weighted average yield decreased to 2.17%
for the year ended December 31, 2003 from 3.46% for the year ended December 31,
2002. The average outstanding balance decreased $3,155,729, or 24.4%, to
$9,771,572 for the year ended December 31, 2003 from $12,927,301 for the year
ended December 31, 2002.

Other earning assets primarily are Federal Home Loan Bank stock, Federal Reserve
Bank stock, and short-term liquidity accounts with variable rates. Dividends on
Federal Home Loan and Federal Reserve Bank stock decreased $20,749, or 37.4% to
$34,721 for the year ended December 31, 2003 from $55,470 for the year ended
December 31, 2002 as a result of a decrease in the weighted average yield offset
in part by an increase in the average balance outstanding. Interest on the
remaining other earning assets decreased $9,497, or 26.8% to $25,984 for the
year ended December 31, 2003 from $35,481 for the year ended December 31, 2002
as a result of a decrease in the weighted average yield offset by an increase in
the average balance outstanding. The average outstanding balance increased
$806,997, or 26.6%, from $3,035,788 for the year ended December 31, 2002 to
$3,842,785 for the year ended December 31, 2003. The weighted average yield
decreased from 1.17% for the year ended December 31, 2002 to 0.68% for the year
ended December 31, 2003.

Interest paid on deposits decreased $543,987, or 19.7% to $2,214,626 for the
year ended December 31, 2003 from $2,758,613 for the year ended December 31,
2002. The decrease was the result of a decrease in the average cost of funds,
offset in part by an increase in average balance. The weighted average rate
decreased to 2.05% for the year ended December 31, 2003 from 2.75% for the year
ended December 31, 2002. The average outstanding balance increased $7,799,441,
or 7.8%, to $108,154,586 for the year ended December 31, 2003 from $100,355,145
for the year ended December 31, 2002. Interest expense paid on borrowings
increased $2,452, or 0.6% to $434,342 for the year ended December 31, 2003 from
$431,890 for the year ended December 31, 2002. The increase was a result of
increases in the average balance outstanding offset by a decrease in the average
cost of funds. The average outstanding balance increased $403,425, or 4.4%, to
$9,623,973 for the year ended December 31, 2003 from $9,220,548 for the year
ended December 31, 2002. The weighted average rate decreased to 4.51% for the
year ended December 31, 2003 from 4.68% for the year ended December 31, 2002.

The allowance for loan losses is increased by provisions charged to expense.
Charge-offs of loan amounts determined by management to be uncollectible
decrease the allowance, and recoveries of previous charge-offs are added to the
allowance. The Company makes provision for loan losses in amounts necessary to
maintain the allowance for loan losses at an appropriate level, based upon
management's reviews of probable losses inherent in the loan portfolio. The
provision for loan losses decreased $348,667, or 61.3% to $220,000 for the year
ended December 31, 2003 from $568,667 for the year ended December 31, 2002 as a
result of this analysis. (See "Allowance for Loan Losses.")

Non-interest income increased $114,078, or 16.5% to $805,050 for the year ended
December 31, 2003 from $690,972 for the year ended December 31, 2002. Checking
account fees increased $25,825 or 9.0% to $313,265 for the year ended December
31, 2003 from $287,440 for the year ended December 31, 2002. ATM fees increased
$15,941 or 14.9% to $123,187 for the year ended December 31, 2003 from $107,245
for the year ended December 31, 2002. Gain on the sale of loans increased
$122,477 or 170.9%. There were no gains on the sale of real estate as of
December 31, 2002. Commission income on alternative investment products
increased $39,735, or 89.7% to $84,026 for the year ended December 31, 2003 from
$44,291 for the year ended December 31, 2002. Other income increased $25,773 or
32.2% to $105,769 for the year ended December 31, 2004 from $79,996 for the year
ended December 31, 2002.


                                       17
<PAGE>

Non-interest expense increased $612,277, or 16.5% to $4,321,100 for the year
ended December 31, 2003 from $3,708,823 for the year ended December 31, 2002.
The Company experienced an increase in salaries and employee benefits of
$497,365, or 26.2% to $2,395,256 for the year ended December 31, 2003 from
$1,897,891 for the year ended December 31, 2002. The increase can be
attributable to increased number of employees due to increased sales staff, back
office staff, and personnel needed at the new Rising Sun office along with
increases in other personnel and annual merit increases. Occupancy expense
increased $74,697, or 33.2% to $299,588 for the year ended December 31, 2003
from $224,891 for the year ended December 31, 2002. The increase is attributable
to the addition of the lease for the new Rising Sun office. The Company's SAIF
premium decreased $40,942, or 71.7% to $16,126 for the year ended December 31,
2004 as compared to $57,068 for the year ended December 31, 2002. Other expenses
decreased $55,799, or 5.8% to $903,490 for the year ended December 31, 2003 from
$959,289 for the year ended December 31, 2002.

Income tax expense for the year ended December 31, 2003 and December 31, 2002
was $748,738 and $613,293, respectively, which equates to effective rates of
37.7% and 38.1%, respectively.

Comparison of Financial Condition.
2004 versus 2003

The Company's assets increased by $50,780,248, or 33.9% to $200,380,043 at
December 31, 2004 from $149,599,795 at December 31, 2003. The loans receivable
portfolio, net of the allowance for loan losses, increased by $46,903,572, or
37.0% to $173,790,127 at December 31, 2004 from $126,886,555 at December 31,
2003. Cash and interest-bearing deposits with banks decreased $1,459,292 or
25.6% to $4,233,996 at December 31, 2004 from $5,693,288 at December 31, 2003 in
order to fund growth in the loan portfolio and the expenditure of funds for
future expansion, offset partially by increases in deposits and advances from
the Federal Home Loan Bank of Atlanta. The Company's investments held to
maturity and investments available for sale remained stable at December 31, 2004
in comparison with the prior year. Premises and equipment, net of accumulated
depreciation, increased by $2,691,486, or 78.1% to $6,138,579 at December 31,
2004 from $3,447,093 at December 31, 2003. The increase was the result of the
Bank adding new branch locations on Turkey Point Road, North East, MD and Main
Street, Cecilton, MD, as well as the allocation of funds for future expansion.
Restricted investment securities, which consist of Federal Home Loan and Federal
Reserve Bank stock increased $1,406,400 or 161.3% to $2,278,300 at December 31,
2004 from $871,900 at December 31, 2003. Cecil Federal was required to increase
its investment in the Federal Home Loan Bank as part of an ongoing review of the
Bank's stock level by the FHLB. Accrued interest receivable increased by
$117,003, or 18.3%, to $755,145 at December 31, 2004 from $638,142 at December
31, 2003 due to growth in the loan portfolio. Other intangible assets,
consisting entirely of mortgage servicing rights, increased by $41,105, or
40.5%, to $142,710 at December 31, 2004 from $101,605 at December 31, 2003,
primarily due to the continued sale of loans with servicing retained during
2004. Bank owned life insurance increased $886,102, or 27.3% to $4,137,053 at
December 31, 2004 from $3,250,951 at December 31, 2003 due to an additional
investment of $650,000 and a full year of income earned on the investment. Other
assets increased $215,849 or 28.5% to $974,207 at December 31, 2004 from
$758,358 at December 31, 2003.

The Company's liabilities increased $49,178,079, or 37.0% to $182,063,517 at
December 31, 2004 from $132,885,438 at December 31, 2003. Deposits increased
$22,677,132, or 19.2% to $140,840,908 at December 31, 2004 from $118,163,776 at
December 31, 2003. Advance payments by borrowers for property taxes and
insurance decreased by $450,615, or 100%, at December 31, 2004 from the same
period in 2003 due to the discontinuation of escrow collection services for loan
customers. Employee stock ownership plan debt decreased by $38,508, or 100%, due
to the final payment on the loan to the ESOP in December 2004. Other liabilities
increased $882,927, or 183.0%, to $1,365,466 at December 31, 2004 from $482,539
at December 31, 2003, primarily due to an increase in income taxes payable and
an increase in the liability to fund the supplement executive retirement plan
instituted in the fourth quarter of 2003. Advances from the Federal Home Loan
Bank of Atlanta increased $26,107,143 or 189.9% to $39,857,143 at December 31,
2004 from $13,750,000 and at December 31, 2003, primarily to fund growth in the
loan portfolio.

The Company's stockholders' equity increased by $1,602,169, or 9.6% to
$18,316,526 at December 31, 2004 from $16,714,357 at December 31, 2003. The
increase was primarily due to an increase in retained earnings and an increase
in additional paid in capital. Retained earnings increased by $1,207,963, or
13.9%, as a result of 2004 earnings of $1,532,210, net of dividends of $0.20 per
share, or $324,247. Additional paid in capital increased by $362,498, or 4.5%,
primarily due to ESOP shares released during 2004, stock options exercised
during the year, ESOP activity, and issuance of shares under the dividend
investment plan.


                                       18
<PAGE>

Comparison of Financial Condition.
2003 versus 2002

The Company's assets increased by $26,480,181, or 21.5% to $149,599,795 at
December 31, 2003 from $123,119,614 at December 31, 2002. The loans receivable
portfolio, net of the allowance for loan losses, increased by $25,315,680, or
24.9% to $126,886,555 at December 31, 2003 from $101,570,875 at December 31,
2002. Cash and interest-bearing deposits with banks increased $1,168,329 or
25.8% to $5,693,288 at December 31, 2003 from $4,524,959 at December 31, 2002.
The Company's investments held to maturity remained stable at December 31, 2003
in comparison with the prior year. Investments available for sale decreased
$4,719,999 or 67.5% to $2,274,387 at December 31, 2003 from $6,994,386 at
December 31, 2002. Premises and equipment net of accumulated depreciation
increased by $1,244,587, or 56.5% to $3,447,093 at December 31, 2003 from
$2,202,506 at December 31, 2002. The increase was the result of Bank's system
conversion to FiServ Vision which generated the need for all new computer
equipment. In addition, the Bank added a new branch location in Rising Sun and
purchased property on Turkey Point Road, North East, MD. Restricted investment
securities, which consist of Federal Home Loan and Federal Reserve Bank stock
decreased $200,950 or 18.7% to $871,900 at December 31, 2003 from $1,072,850 at
December 31, 2002. Cecil Federal was required to reduce its investment in the
Federal Home Loan Bank upon acceptance as a Federal Reserve System member. Other
assets increased $3,517,979 or 716.0% to $4,009,309 at December 31, 2003 from
$491,330 at December 31, 2002. The increase is attributable to the bank
purchasing $3,250,000 of bank-owned life insurance in order to fund employee
benefit programs which are included in other assets.

The Company's liabilities increased $22,952,131, or 20.9% to $132,885,438 at
December 31, 2003 from $109,933,307 at December 31, 2002. Deposits increased
$18,332,365, or 18.4% to $118,163,776 at December 31, 2003 from $99,831,411 at
December 31, 2002. Advances from the Federal Home Loan Bank of Atlanta increased
$4,750,000 or 52.8% to $13,750,000 at December 31, 2003 from $9,000,000 and at
December 31, 2002. Other liabilities remained stable in comparison with the
prior year.

The Company's stockholders' equity increased by $3,528,050, or 26.8% to
$16,714,357 at December 31, 2003 from $13,186,307 at December 31, 2002. The
increase was primarily due to a private placement of common stock and to an
increase in retained earnings of $917,525, or 11.8%, as a result of 2003
earnings, net of dividends. The Company completed a private placement of 158,735
shares of newly issued common stock for net proceeds of $2,488,035. For the year
ended December 31, 2003, the Company paid an annualized dividend of $.20 per
share.

Loans

Cecil Federal's total loans grew $47.3 million, or 37.1% during 2004. Cecil
Federal's construction loans increased $4.4 million, or 43.0% over the same
period in 2003, and accounted for 8% of the Banks total portfolio. Cecil
Federal's one to four family residential and home equity loans increased $9.7
million, or 16.4% over the same period in 2003, and accounted for 39% of the
Banks total portfolio. Cecil Federal's commercial real estate loans increased by
$4.4 million, or 20.3%, and accounted for approximately 15% of the total
portfolio and commercial business loans increased by almost $26 million, or
107.4%, and accounted for approximately 28% of the portfolio, up from
approximately 19% at year-end 2003. Multi-Family Residential and Personal Loans
also increased during 2004, while other categories decreased. The following
table shows the composition of the loan portfolio at December 31.


                                       19
<PAGE>

<TABLE>
<CAPTION>

                                                                     2004                             2003
-------------------------------------------------------------------------------------------------------------------
                                                                       Percentage                       Percentage
(Dollars in thousands)                                      Amount       of Total           Amount       of Total
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>               <C>           <C>
Real estate loans:
  Construction loans                                          $14,556       8.32             $ 10,177       7.97%
  One- to four-family residential and home equity              69,012      39.44               59,272      46.43
  Multi-family residential                                      4,422       2.53                1,481       1.16
  Land                                                          2,182       1.25                4,021       3.15
  Commercial                                                   26,174      14.96               21,760      17.04
                                                              -------      -----             --------     ------
  Total real estate loans                                     116,346      66.50               96,711      75.75
                                                              -------      -----             --------     ------
Commercial business loans                                      49,474      28.27               23,858      18.69
                                                              -------      -----             --------     ------
Consumer loans:
  Automobile loans                                                745       0.42                  893        .70
  Education loans                                                  18       0.01                   19        .01
  Savings account loans                                           730       0.42                1,059        .83
  Personal loans                                                7,666       4.38                5,132       4.02
                                                              -------    -------             --------     ------
  Total consumer loans                                          9,159       5.23                7,103       5.56
                                                              -------    -------             --------     ------
  Gross loans                                                 174,979     100.00              127,672     100.00
                                                                          ======                          ======
Less: Allowance for Loan Losses                                (1,189)                           (786)
                                                            ---------                        --------
    Total loans                                              $173,790                        $126,886
                                                            =========                        ========

</TABLE>


                                       20
<PAGE>

The following table presents the composition of the loan and lease portfolio at
December 31 for the past five years.

<TABLE>
<CAPTION>

(In thousands)                                             2004         2003          2002          2001          2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>           <C>           <C>
Real estate loans:
   Construction                                        $  14,556     $  10,177     $   5,871     $   6,496     $   4,716
   1-4 family residential and home equity                 69,012        59,272        61,026        69,347        73,579
   Multi-family residential                                4,422         1,481         2,559         1,854           962
   Land                                                    2,182         4,021         1,781         2,626         3,906
   Commercial                                             26,174        21,760        14,803         8,593         6,268
                                                       ---------     ---------     ---------     ---------     ---------
     Total real estate loans                             116,346        96,711        86,040        88,916        89,431
                                                       ---------     ---------     ---------     ---------     ---------
Commercial business loans                                 49,474        23,858         9,783         5,831         5,335
                                                       ---------     ---------     ---------     ---------     ---------
Consumer loans
   Automobile loans                                          745           893         1,528         2,204         3,236
   Education loans                                            18            19            18            30            41
   Savings account loans                                     730         1,059           928           759           883
   Personal loans                                          7,666         5,132         3,887         3,979         4,074
                                                       ---------     ---------     ---------     ---------     ---------
     Total consumer loans                                  9,159         7,103         6,361         6,972         8,234
                                                       ---------     ---------     ---------     ---------     ---------
     Gross loans                                         174,979       127,672       102,184       101,719       103,000
Less allowance for loan losses                            (1,189)         (786)         (613)         (326)      213,841
                                                       ---------     ---------     ---------     ---------     ---------
   Total loans                                         $ 173,790     $ 126,886     $ 101,571     $ 101,393     $ 967,817
                                                       =========     =========     =========     =========     =========
</TABLE>

The following table shows the remaining maturities or next repricing date of
outstanding loans at December 31, 2004. Balances are not reduced for loans in
process or discounts.

<TABLE>
<CAPTION>

                                                                        At December 31, 2004
                                                           Remaining Maturities of Selected Credits in Years
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                               1 or Less          Over 1-5          Over 5             Total
--------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>               <C>              <C>
Real estate:
   Mortgage                                          $ 48,281            51,346            11,321           110,948
   Home equity and second
      mortgages                                         2,017               536             2,845             5,398
   Commercial                                          46,803             1,385             1,286            49,474
   Consumer                                             6,753             1,872               534             9,159
                                                     --------------------------------------------------------------
        Total                                        $103,854            55,139            15,986           174,979

Rate Terms:
    Fixed                                            $  9,111             6,464            15,880            31,455
    Variable or adjustable                             94,743            48,675               106           143,524
                                                     --------------------------------------------------------------
        Total                                        $103,854            55,139            15,986           174,979
                                                     ==============================================================
</TABLE>

Allowance for Loan Losses

The Bank records provisions for loan losses in amounts necessary to maintain the
allowance for loan losses at the level deemed appropriate. An allowance for loan
losses is provided through charges to income in an amount that management
believes will be adequate to absorb losses on existing loans that may become
uncollectible, based upon evaluations of the collectibility of loans and prior
loan loss experience. The allowance is based on careful, continuous review and
evaluation of the loan portfolio and ongoing, quarterly assessments of the
probable losses inherent in the loan portfolio. The Bank employs a systematic
methodology for assessing the appropriateness of the allowance, which includes
determination of specific allowances and a formula allowance. Specific
allowances are established in cases where management has identified significant
conditions or circumstances related to a credit that management believes
indicate the probability that a loss may be incurred in an amount different from
the amount determined by application of the formula allowance. The formula
allowance is calculated by applying loss factors to corresponding categories of
outstanding loans and leases, excluding loans for which specific allocations
have been made. Allowances are established for credits that do not have specific
allowances according to the application of these credit loss factors to



                                       21
<PAGE>


groups of loans based upon (a) their credit risk grading, for loans categorized
as substandard or doubtful either by the Bank in its ongoing reviews or by
examiners in their periodic examinations, or (b) by type of loans, for other
credits without specific allocations credits. These factors are set by
management to reflect its assessment of the relative level of risk inherent in
each grade or category of loans, based primarily on the credit risk factors
employed by examiners at their most recent periodic examination of the Bank.
Examinations usually occur each year. In these examinations, the examiners
review the loan portfolio, establish credit risk ratings for loans, identify
charge offs, and perform their own calculation of the allowance for loan losses.
The use of these credit risk factors based primarily upon periodic examinations
is intended to provide a self-correcting mechanism to reduce differences between
estimated and actual observed losses. Management adjusts the credit risk factors
from time to time, however, based upon current conditions, which may include the
nature and volume of the loan portfolio, overall portfolio quality, and current
economic conditions that may affect the borrowers' ability to pay. Management
has adjusted the risk factor for land acquisition and development loans, as well
as construction speculation loans, with the identification of these loans as
higher risk due to economic factors. Management also may establish an
unallocated allowance based upon its evaluation of various conditions that are
not directly measured in the formula and specific allowances. All of the
allowance for loan losses was allocated at year-end 2004 and 2003. Determining
the amount of the allowance for loan losses requires the use of estimates and
assumptions, which is permitted under accounting principles generally accepted
in the United States of America. Actual results could differ significantly from
those estimates. While management uses available information to estimate losses
on loans, future additions to the allowances may be necessary based on changes
in economic conditions. In addition, as noted above, federal and state financial
institution examiners, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses, and may require the
Bank to recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. During 2004,
there were no changes in the Bank's methodology for assessing the
appropriateness of the allowance. Management determined that the appropriate
allowance for loan losses at December 31, 2004 was $1,189,208, (0.68% of total
loans), an increase of $403,394 from the $785,814 allowance (0.61% of loans) at
December 31, 2003. Annual net recoveries were 0.02% of average loans in 2004,
while annual net charge-offs were 0.04% of average loans in 2003. Total
non-performing loans at December 31, 2004 were $2,120,000, up $868,000 (69.3%)
from year-end 2003. At December 31, 2004, one-to-four family residential and
home equity loans, which generally are assigned the lowest credit risk factors,
comprise 39.44% of the portfolio, compared to 46.43% at December 31, 2003, while
commercial business loans, which generally are assigned higher risk factors,
comprise 28.27% of the portfolio, compared to 18.69% at December 31, 2003. The
provision for loans losses required for 2004 was $370,000, up $150,000, from
2003.

A summary of activity in the allowance is shown below.

<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
(Dollars in thousands)                                         2004       2003        2002        2001       2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>         <C>         <C>         <C>
Balance of  allowance, January 1                            $   786     $   613     $   326     $   419     $   434
                                                            -------     -------     -------     -------     -------
Loan and lease charge-offs:
   Residential real estate                                        0           0           0         (55)          0
   Commercial loans                                              (9)          0         (49)        (68)        (39)
   Consumer                                                     (63)       (147)       (271)       (214)       (295)
                                                            -------     -------     -------     -------     -------
     Total charge-offs                                          (72)       (147)       (320)       (337)       (334)
Loan and lease recoveries:                                        0
   Residential real estate                                        0           0           0           0           0
   Commercial loans                                               0           0           0           0           0
   Consumer                                                     105         100          38          55          14
                                                            -------     -------     -------     -------     -------
       Total recoveries                                         105         100          38          55          14
                                                            -------     -------     -------     -------     -------
Net recoveries (charge-offs)                                     33         (47)       (282)       (282)       (320)
Provision for loan losses                                       370         220         569         189         305
                                                            -------     -------     -------     -------     -------
Balance of allowance, December 31                           $ 1,189     $   786     $   613     $   326     $   419
                                                            =======     =======     =======     =======     =======

Net recoveries (charge-offs) to average                        0.02%      (0.04)%     (0.28)%     (0.28)%     (0.31)%
   loans and leases
Allowance to total loans and leases                            1.01%        .61%        .60%        .32%        .41%

</TABLE>
                                       22
<PAGE>

The following table presents a five year history of the allocation of the
allowance for loan losses, reflecting the methodology described above, along
with the percentage of total loans in each category. The increase in the
allowance for 2004 was primarily the result of larger reserves for construction,
speculation home, and commercial business loans, reflecting growth in that loan
category, and for automobile and personal loans, primarily reflecting loss
history.

<TABLE>
<CAPTION>

                                                                   December 31,
-------------------------------------------------------------------------------------------------------------------------------
                                         2004              2003               2002               2001               2000
-------------------------------------------------------------------------------------------------------------------------------
                                            Credit            Credit              Credit             Credit              Credit
(Dollars in thousands)            Amount     Mix    Amount     Mix     Amount      Mix     Amount      Mix    Amount      Mix
-------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>
Amount applicable to:
Real estate loans:
  Construction/
     Speculation loans           $  216       18%   $    0        8%   $    0        6%   $    0        6%   $   44        5%
  1-4 family residential
     and home equity                170       14        39       46        41       60        50       68       128       71
  Multi-family residential            0       --         0        1         0        3         0        2         4        1
  Land                               78        7         0        3         0        2         0        3         7        4
  Commercial                         94        8        34       17        20       14        19        8        32        6
                                 -------------------------------------------------------------------------------------------
    Total Real Estate Loans         558       47        73       76        61       84        69       87       215       87
                                 -------------------------------------------------------------------------------------------
Commercial business loans           424       36       162       19       123       10        55        6        74        5
                                 -------------------------------------------------------------------------------------------
Consumer loans:
  Automobile loans                   16        1       255        1       278        2       126        2        69        3
  Education loans                     0       --         0       --         0       --         0       --         0       --
  Savings account loans               0       --         0        1         0       --         0        1         0        1
  Personal                          191       16       296        4       151        4        76        4        61        4
                                 -------------------------------------------------------------------------------------------
  Total Consumer Loans              207       17       551        6     2,191        6       202        7       130        8
                                 -------------------------------------------------------------------------------------------
     Total allowance             $1,189      100%   $  786      100%   $  613      100%   $  326      100%   $  419      100%
                                 ===========================================================================================
</TABLE>

Nonperforming Assets

Management reviews and identifies loans and investments that require designation
as nonperforming assets. Nonperforming assets are: loans accounted for on a
nonaccrual basis; loans past due by 90 days or more but still accruing; troubled
debt restructurings; and other real estate (assets acquired in settlement of
loans). The following tables set forth certain information with respect to
nonperforming assets at December 31:

<TABLE>
<CAPTION>

                                                                              Years Ended December 31,
(Dollars in thousands)                                        2004         2003         2002         2001        2000
----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Non-accrual loans and leases (1)                             $2,092       $  806       $  578       $  460       $  395
Loans and leases 90 days past due                                28          446           35          230          239
Restructured loans and leases                                     0            0            0            0            0
                                                             ------       ------       ------       ------       ------
   Total non-performing loans and leases (2)                  2,120        1,252          613          690          634
Other real estate owned, net                                      0            0            0            0          255
                                                             ------       ------       ------       ------       ------
   Total non-performing assets                               $2,120       $1,252       $  613       $  690       $  889
                                                             ======       ======       ======       ======       ======

Non-performing loans and leases to total
   loans                                                       1.22%        0.99%        0.60%        0.68%        0.61%
Non-performing assets to total assets                          1.06%        0.84%        0.50%        0.54%        0.73%
Allowance for loan and lease loss to
non-performing loans and leases                               56.08%       62.78%       99.82%       47.25%       66.09%

</TABLE>

   (1) Gross interest income that would have been recorded in 2004 if
non-accrual loans and leases had been current and in accordance with their
original terms was $165,240, while interest actually recorded on such loans was
$56,483.
   (2) Performing loans considered potential problem loans, as defined and
identified by management, amounted to $432,251 at December 31, 2004. Although
these are loans where known information about the borrowers' possible credit
problems causes management to have doubts as to the borrowers' ability to comply
with the present loan repayment terms, most are well collateralized and are not
believed to present significant risk of loss. Loans classified for regulatory
purposes not included in nonperforming loans consist only of "other loans
especially mentioned" and do not, in management's opinion, represent or result
from trends or uncertainties reasonably expected to materially affect future
operating results, liquidity or capital resources or represent material credits
where known information about the borrowers' possible credit problems causes
management to have doubts as to the borrowers' ability to comply with the loan
repayment terms.


                                       23
<PAGE>

Investment Securities

The composition of investment securities at December 31 is shown below.

(Dollars in thousands)                             2004        2003        2002
-------------------------------------------------------------------------------
Available-for-Sale:(1)
   Mutual Funds-Mortgage Securities               $1,287      $1,263      4,498
   Mutual Funds-U.S. Government Securities           695         685      1,658
   Mortgage-backed Securities                        201         276        388
   Other                                              74          50          0
                                                  ------      ------    -------
     Total                                         2,257       2,274      6,994
                                                  ------      ------    -------
Held-to-Maturity:
   U.S. Government and Agency  (2)                 3,491       3,495      3,494
                                                  ------      ------    -------
           Total Investment Securities (3)        $5,748      $5,769    $10,488
                                                  ======      ======    =======

(1) At estimated fair value.
(2) Issued by a U. S. Government Agency or secured by U.S. Government Agency
collateral. (3) The outstanding balance of no single issuer, except for U.S.
Government and U.S. Government Agency securities, exceeded ten percent of
stockholders' equity at December 31, 2004 or 2003

Maturities and weighted average yields for debt securities available-for-sale
and held-to-maturity at December 31, 2004 are presented below. All such
securities are due within one year of December 31, 2004, with the exception of
$201,211 which matures in over five years. All such available for sale
securities are reported at fair value. Held to maturity securities appear in the
table at amortized cost. Maturities are stated by maturity adjusted for
estimated calls.

                                                                Weighted
                                                                 Average
(Dollars in thousands)                            Amount          Yield
---------------------------------------------------------------------------
Available for Sale:
   Mutual Funds - Mortgage Securities            $  1,287          2.88%
   Mutual Funds - US Government Securities            695          2.86
   Mortgage Backed Securities                         201          2.66
   Investment in Capital Partnership                   74          0.00
                                                 --------          ----
     Total                                       $  2,257          2.85
                                                 --------          ----
Held-to-Maturity:
   U.S. Government and Agency                       3,491          1.26
                                                 ---------         ----
     Total Investment Securities                 $  5,748          1.85%
                                                 ========          =====


                                       24
<PAGE>

Deposits

The following table sets forth the dollar amount of deposits in the various
types of accounts at December 31.

<TABLE>
<CAPTION>

                                                          2004                                 2003
----------------------------------------------------------------------------------------------------------------
                                                        Weighted                             Weighted
                                                         Average     % of                     Average     % of
(Dollars in thousands)                        Balance     Rate       Total           Balance   Rate       Total
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>       <C>             <C>         <C>      <C>
NOW and Money Market Accounts                $ 29,384     0.85%     20.86%          $ 28,777    0.88%    24.35%
Savings accounts                               18,722     0.76      13.29             18,395    0.75     15.57
Term Certificates                              79,661     2.78      56.56             61,488    3.09     52.04
Checking Accounts                              13,074     0.00       9.29              9,504    0.00      8.04
                                             --------              ------           --------            ------
   Total Deposits                            $140,841              100.00%          $118,164            100.00%
                                             ========              ======           ========            ======

<CAPTION>

                                                          2002
--------------------------------------------------------------------------
                                                        Weighted
                                                         Average     % of
(Dollars in thousands)                        Balance     Rate       Total
--------------------------------------------------------------------------
<S>                                          <C>          <C>       <C>
NOW and Money Market Accounts                $ 22,619     1.22%     22.66%
Savings accounts                               15,926     1.03      15.95
Term Certificates                              55,101     3.33      55.19
Checking Accounts                               6,185     0.00       6.20
                                             --------               ------
   Total Deposits                            $ 99,831               100.00%
                                             ========               ======
</TABLE>

Borrowings

Year-end advances from the Federal Home Loan Bank of Atlanta consisted of the
following: (in thousands)

<TABLE>
<CAPTION>

                           2004                                                   2003
-------------------------------------------------------   --------------------------------------------------
                Maturity                                                 Maturity
Amount            Date         Rate            Type       Amount           Date         Rate       Type
-------------------------------------------------------   --------------------------------------------------
<S>            <C>          <C>            <C>           <C>             <C>        <C>        <C>
$ 30,000       Demand       Variable       Overnight     $  3,750        Demand     Variable   Overnight
    6,000         2006          4.97        Fixed            6,000          2006        4.97     Fixed
    3,000         2006          4.13        Fixed            3,000          2006        4.13     Fixed
      857         2010          3.93        Fixed            1,000          2010        3.78     Fixed
 --------                                                 --------
 $ 39,857                                                 $ 13,750
 ========                                                 ========

<CAPTION>

                           2002
-------------------------------------------------------
                Maturity
Amount            Date         Rate          Type
-------------------------------------------------------
<S>               <C>           <C>
  $ 6,000         2006          4.97        Fixed
    3,000         2006          4.97        Fixed
---------
$   9,000
=========

</TABLE>

Interest Sensitivity

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. Asset/liability
management functions to maximize profitability within established guidelines for
interest rate risk, liquidity, and capital adequacy. The Company'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. Measurement and monitoring of liquidity, interest
rate risk, and capital adequacy are performed centrally through the
Asset/Liability Management Committee, and reported under guidelines established
by management, the Board of Directors and regulators. Oversight of this process
is provided by the Board of Directors.


                                       25
<PAGE>

The Bank has implemented policies by generally emphasizing the origination of
one-year, three-year and five-year adjustable rate mortgage loans and short-term
consumer lending. Since 1995, the Bank has, from time to time, originated fixed
rate mortgages for sale in the secondary market. The Bank is currently
originating loans for sale in the secondary market through the Federal Home Loan
Mortgage Corporation. 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, which may include an appropriate blend of fixed-rate
mortgage loans in its primary market area.

The Company's net income is largely dependent on its net interest income. The
Company seeks to maximize its net interest margin within an acceptable level of
interest rate risk. Interest rate risk can be defined as the amount of
forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities. Net
interest income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by other
sources of funds, such as noninterest-bearing deposits and stockholders' equity.

The Company attempts to manage interest rate risk while enhancing net interest
margin by adjusting its asset/liability position. At times, depending on the
level of general interest rates, the relationship between long- and short-term
interest rates, market conditions and competitive factors, the Company may
decide to increase its interest rate risk position somewhat in order to increase
its net interest margin. The Company monitors interest rate risk and adjusts the
composition of its interest-related assets and liabilities in order to limit its
exposure to changes in interest rates on net interest income over time. The
Company's asset/liability committee reviews its interest rate risk position and
profitability, and recommends adjustments. The asset/liability committee also
reviews the securities portfolio, formulates investment strategies, and oversees
the timing and implementation of transactions. Notwithstanding the Company's
interest rate risk management activities, the potential for changing interest
rates is an uncertainty that can have an adverse effect on net income.

Cecil Federal also analyzes interest rate risk based upon quantitative measures
of the percentage changes in fair value of equity capital (or market value of
portfolio equity) resulting from a hypothetical immediate change (or shock) of
plus or minus 100, 200, and 300 basis points in interest rate levels. This
analysis is based upon models, which are based upon a number of significant
assumptions regarding reactions of interest rates. At December 31, 2004, this
analysis indicated that shock decreases of 100, 200 and 300 basis points would
decrease the market value of portfolio equity by 1.12%, 5.24%, and 9.47%,
respectively, while an interest rate shock increase of 100 basis points would
decrease the market value of portfolio equity by 0.84%, (11.00% of assets).
These regulatory models also provide an analysis of interest rate shock effects
on net interest income, and indicate a maximum decrease of net interest income,
based upon the Bank's December 31, 2004 asset/liability position, of 13.75% from
a 300 basis point rate shock. Although the effects of 300 basis point decreases
in rates shocks are calculated in these models, management believes that such a
decrease in general rates of that magnitude were not possible in the low rate
environment prevailing at December 31, 2004.

Liquidity

Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans and available for sale investments.
Additional sources of liquidity, including cash flow from the repayment of
loans, are also considered in determining whether liquidity is satisfactory.
Liquidity is also achieved through growth of deposits and liquid assets, and
accessibility to the capital and money markets. These funds are used to meet
deposit withdrawals, maintain reserve requirements, fund loans and operate the
organization.

Cash and cash equivalents decreased $1.5 million during 2004. This decrease was
the result of $52.3 million in cash used by investing activities partially
offset by cash provided by financing activities of $48.4 million and $2.4
million in cash provided by operating activities.


                                       26
<PAGE>

Cash and cash equivalents increased $1.2 million during 2003. This increase was
the result of cash provided by financing activities of $25.2 million offset by
$2.6 million in cash used by operating activities and $21.4 million in cash used
by investing activities.

Cecil Federal maintains liquid assets that can be invested in specified
short-term securities, and is also permitted to make certain other investments.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives, management's judgment as to the attractiveness of the
yields then available in relation to other opportunities, its expectations of
the level of yield that will be available in the future and its projections as
to the short term demand for funds to be used in Cecil Federal's loan
origination and other activities. The general objectives of Cecil Federal's
investment policy are to (i) maintain liquidity levels sufficient to meet the
operating needs of Cecil Federal (ii) minimize interest rate risk by managing
the repricing characteristics of Cecil Federal's assets and liabilities, (iii)
reduce credit risk by investing primarily in U.S. Treasury and agency securities
and (iv) absorb excess liquidity when loan demand is low and/or deposit growth
is high. Cecil Federal's investment activities are conducted by senior
management (specifically Chief Executive Officer Halsey) and supervised by the
Board of Directors. Investments are governed by an investment policy adopted by
the Board, which currently provides for maintenance of an investment portfolio
for the purposes of providing earnings, ensuring a minimum liquidity reserve and
facilitating Cecil Federal's asset/liability management objectives (e.g.,
limiting the weighted average terms to maturity or repricing of Cecil Federal's
interest-earning assets). In accordance with the policy, management has
primarily invested in U.S. Treasury, government and agency securities and mutual
funds.

The Company's time deposits of $100,000 or more represented 15.79% of total
deposits at December 31, 2004, and are shown by maturity in the table below.

<TABLE>
<CAPTION>

                                                             Months to Maturity
                                            --------------------------------------
                                             3 or     Over 3     Over 6       Over
(Dollars in thousands)                       less      to 6       to 12        12       TOTAL
---------------------------------------------------------------------------------------------
<S>                                         <C>       <C>        <C>         <C>       <C>
Time deposits--$100 thousand or more        2,625     2,399      10,281      6,940     $22,245

</TABLE>

Capital

Capital adequacy refers to the level of capital required to sustain asset growth
and to absorb losses. During 2004, the Company became subject to regulatory
capital guidelines, as it surpassed $150 million in total consolidated assets.
The Board of Governors of the Federal Reserve System ("Federal Reserve"), which
is the Company's and the Bank's principal regulator, has established
requirements for total and tier 1 (core) risk-based capital and tangible
capital. At December 31, 2004, the Company exceeded applicable capital
requirements, having a total risk based capital ratio of 10.16%, a tier 1
risk-based capital ratio of 9.44%, and a tangible capital ratio of 8.04%. At
December 31, 2004, the Bank also exceeded applicable capital requirements to be
adequately capitalized, having a total risk based capital ratio of 9.95%, a tier
1 risk-based capital ratio of 9.23%, and a tangible capital ratio of 7.97%. See
Note 12 "Regulatory Matters" in the notes to the consolidated financial
statements.

Off-Balance Sheet Arrangements

In the normal course of business, Cecil Bancorp makes use of a number of
different financial instruments to help meet the financial needs of its
customers. In accordance with accounting principles generally accepted in the
United States of America, the full notional amount of these transactions is not
recorded in the accompanying consolidated financial statements and is referred
to as off-balance sheet instruments. These transactions and activities include
commitments to extend credit, standby letters of credit, and lease obligations.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds collateral supporting
those commitments for which collateral is deemed necessary. The issuance of
letters of credit is not a significant activity of the Bank.


                                       27
<PAGE>

Commitments to extend credit are agreements to lend funds to customers as long
as there are no violations of any condition established in the loan contracts.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on credit
evaluation by management. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment as well as income producing
properties. Management believes that the Bank has adequate resources to fund all
loan commitments.

The Bank has entered into leases for its branch and office space.

For additional information regarding off-balance sheet arrangements, please see
Note 15 to the Consolidated Financial Statements.

Critical Accounting Policies

Cecil Bancorp's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") and follow general practices within the banking industry. Application
of these principles requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information changes, the financial statements may reflect different
estimates, assumptions, and judgments. Certain policies inherently rely more on
the use of estimates, assumptions, and judgments and as such have a greater
possibility of producing results that could be materially different than
originally reported. Estimates, assumptions, and judgments are necessary when
assets and liabilities are required to be recorded at fair value, when a decline
in the value of an asset not carried on the financial statements at fair value
warrants an impairment write-down or valuation allowance to be established, or
when an asset or liability must be recorded contingent upon a future event.
Carrying assets and liabilities at fair value inherently results in more
financial statement volatility. The fair values and the information used to
record valuation adjustments for certain assets and liabilities are based either
on quoted market prices or are provided by other third-party sources, when
available.

The allowance for loan losses is an estimate of the losses that may be sustained
in the loan portfolio. The allowance is based on two basic principles of
accounting: (1) Statement of Financial Accounting Standards ("SFAS") No. 5,
"Accounting for Contingencies", which requires that losses be accrued when they
are probable of occurring and estimable, and (2) SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", which requires that losses be accrued when
it is probable that Cecil Bancorp will not collect all principal and interest
payments according to the loan's contractual terms.

Management believes that the allowance is adequate. However, its determination
requires significant judgment, and estimates of probable losses inherent in the
credit portfolio can vary significantly from the amounts actually observed.
While management uses available information to recognize probable losses, future
additions to the allowance may be necessary based on changes in the credits
comprising the portfolio and changes in the financial condition of borrowers,
such as those that may result from changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the credit portfolio and the allowance. Such review may
result in additional provisions based on their judgments of information
available at the time of each examination.

Cecil Bancorp's systematic methodology for assessing the appropriateness of the
allowance includes determination of a formula allowance and specific allowances,
as described above under "Allowance for Loan Losses" and in Notes 1 and 4 to the
Consolidated Financial Statements. At December 31, 2004, a 10% decrease or
increase in all categories of risk rated credits for which specific allowances
had not been recorded would have resulted in a corresponding decrease or
increase of approximately $68,500 in the recommended allowance, assuming no
change in other elements considered in the methodology.


                                       28
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES

                        REPORT ON AUDITS OF CONSOLIDATED
                              FINANCIAL STATEMENTS

                               FOR THE YEARS ENDED
                           DECEMBER 31, 2004 AND 2003











   No extracts from this report may be published without our written consent.
                                Stegman & Company



                                       29
<PAGE>


                                TABLE OF CONTENTS

                                                                       Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                  31

CONSOLIDATED FINANCIAL STATEMENTS

         Balance Sheets                                               32-33

         Statements of Income                                            34

         Statements of Changes in Stockholders' Equity                   35

         Statements of Cash Flows                                     36-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            38-60



                                       30
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Cecil Bancorp, Inc.
Elkton, Maryland

           We have audited the accompanying consolidated balance sheets of Cecil
Bancorp, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

           We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

           In our opinion, the accompanying consolidated balance sheets as of
December 31, 2004 and 2003, and the related consolidated statements of income
and cash flows for the years then ended present fairly, in all material
respects, the financial position of Cecil Bancorp, Inc. and subsidiaries as of
December 31, 2004 and 2003, and the results of its operations and cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.


/s/ Stegman & Company

Baltimore, Maryland
January 21, 2005



                                       31
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003

                                     ASSETS
<TABLE>
<CAPTION>

                                                                           2004                2003
                                                                      -------------        -------------
<S>                                                                   <C>                  <C>
Cash and due from banks                                               $   1,298,979        $   1,032,536
Interest bearing deposits with banks                                      2,935,017            4,660,752
Investment securities:
   Securities available-for-sale at fair value                            2,257,118            2,274,387

   Securities held-to-maturity (fair value of $3,489,695
     in 2004 and $3,496,945 in 2003)                                      3,490,664            3,495,372

Loans receivable                                                        174,979,335          127,672,369
   Less: Allowance for loan losses                                       (1,189,208)            (785,814)
                                                                      -------------        -------------

       Net loans receivable                                             173,790,127          126,886,555
                                                                      -------------        -------------

Premises and equipment - net of accumulated depreciation                  6,138,579            3,447,093
Restricted investment securities - at cost                                2,278,300              871,900
Accrued interest receivable                                                 755,145              638,142
Goodwill                                                                  2,182,144            2,182,144
Other intangible assets                                                     142,710              101,605
Bank-owned life insurance                                                 4,137,053            3,250,951
Other assets                                                                974,207              758,358
                                                                      -------------        -------------

       TOTAL ASSETS                                                   $ 200,380,043        $ 149,599,795
                                                                      =============        =============
</TABLE>


See accompanying notes.


                                       32
<PAGE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                      2004                  2003
                                                                  -------------         -------------
<S>                                                               <C>                   <C>
LIABILITIES:
   Deposits                                                       $ 140,840,908         $ 118,163,776
   Advance payments by borrowers for property
     taxes and insurance                                                      -               450,615
   Employee stock ownership plan debt                                         -                38,508
   Other liabilities                                                  1,365,466               482,539
   Advances from Federal Home Loan Bank of Atlanta                   39,857,143            13,750,000
                                                                  -------------         -------------

       Total liabilities                                            182,063,517           132,885,438
                                                                  -------------         -------------

STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value; authorized 4,000,000
     shares, issued and outstanding 1,634,054 shares in
     2004 and 1,606,200 shares in 2003                                   16,341                16,062
   Additional paid in capital                                         8,377,211             8,014,713
   Employee stock ownership plan debt                                         -               (38,508)
   Deferred compensation - Management Recognition Plan                        -                (7,405)
   Retained earnings                                                  9,929,231             8,721,268
   Accumulated other comprehensive (loss) income, net                    (6,257)                8,227
                                                                  -------------         -------------

       Total stockholders' equity                                    18,316,526            16,714,357
                                                                  -------------         -------------

       TOTAL LIABILITIES AND STOCKHOLDERS'
         EQUITY                                                   $ 200,380,043         $ 149,599,795
                                                                  =============         =============

</TABLE>



                                       33
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
<TABLE>
<CAPTION>

                                                                  2004                 2003
                                                               -----------          -----------
<S>                                                            <C>                  <C>
INTEREST INCOME:
   Interest and fees on loans                                  $10,245,533          $ 8,096,135
   Interest on investment securities                               106,525              211,726
   Dividends on restricted investment securities                    54,083               34,721
   Other interest-earning assets                                    21,366               25,984
                                                               -----------          -----------

         Total interest income                                  10,427,507            8,368,566
                                                               -----------          -----------
INTEREST EXPENSE:
   Interest expense on deposits                                  2,405,695            2,214,626
   Interest expense on advances from Federal Home
     Loan Bank of Atlanta                                          710,327              434,342
                                                               -----------          -----------

         Total interest expense                                  3,116,022            2,648,968
                                                               -----------          -----------

NET INTEREST INCOME                                              7,311,485            5,719,598

PROVISION FOR LOAN LOSSES                                          370,000              220,000
                                                               -----------          -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES              6,941,485            5,499,598
                                                               -----------          -----------

NONINTEREST INCOME:
   Checking account fees                                           335,223              313,265
   ATM fees                                                         67,353              123,187
   Commission income                                                78,857               84,026
   Gain on sale of real estate owned                                16,774                    -
   Loss on sale of investment securities                                 -              (15,353)
   Gain on sale of loans                                           182,375              194,156
   Income from bank-owned life insurance                           236,103               50,951
   Other                                                            88,564               54,818
                                                               -----------          -----------

         Total noninterest income                                1,005,249              805,050
                                                               -----------          -----------
NONINTEREST EXPENSE:
   Salaries and employee benefits                                3,383,672            2,395,256
   Occupancy expense                                               336,283              299,588
   Equipment and data processing expense                           622,673              572,393
   Checking account expense                                        136,592              134,247
   Professional fees                                               161,418               52,706
   Stationery, printing and supplies                               132,471              134,460
   ATM expense                                                      14,215              126,310
   Other                                                           678,871              606,140
                                                               -----------          -----------

         Total noninterest expense                               5,466,195            4,321,100
                                                               -----------          -----------

INCOME BEFORE INCOME TAXES                                       2,480,539            1,983,548

INCOME TAX EXPENSE                                                 948,329              748,738
                                                               -----------          -----------

NET INCOME                                                     $ 1,532,210          $ 1,234,810
                                                               ===========          ===========

Basic net income per common share                              $      0.95          $      0.81
                                                               ===========          ===========

Diluted net income per common share                            $      0.95          $      0.80
                                                               ===========          ===========

Dividends paid per common share                                $      0.20          $      0.20
                                                               ===========          ===========
</TABLE>

See accompanying notes.



                                       34
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>

                                                                               Deferred
                                                                  Employee   Compensation -             Accumulated
                                                     Additional    Stock       Management                  Other           Total
                                            Common     Paid-in   Ownership    Recognition   Retained   Comprehensive   Stockholders'
                                             Stock     Capital      Plan         Plan        Earnings   Income (Loss)     Equity
                                           -------   ----------  ---------   -------------- ---------  --------------  -------------
<S>                                        <C>       <C>         <C>           <C>          <C>             <C>         <C>
BALANCES AT JANUARY 1, 2003                $12,810   $5,420,749  $(77,016)     $(11,655)    $7,803,743      $ 37,676    $13,186,307

   Comprehensive income:
     Net income                                  -            -         -             -      1,234,810             -      1,234,810
     Other comprehensive loss, net of
       related income tax effect                 -            -         -             -              -       (29,449)       (29,449)
                                                                                                                        -----------
         Total comprehensive income              -            -         -             -              -             -      1,205,361
   Cash dividends paid                           -            -         -             -       (317,285)            -       (317,285)
   Sale of common stock                      3,174    2,484,861         -             -              -             -      2,488,035
   Repayment of ESOP debt                        -            -    38,508             -              -             -         38,508
   Release of ESOP shares                        -       38,508         -             -              -             -         38,508
   Stock purchased by dividend
    reinvestment plan                           58       59,615         -         4,250              -             -         63,923
   Stock options exercised                      20       10,980         -             -              -             -         11,000
                                           -------   ----------  --------      --------     ----------      --------    -----------

BALANCES AT DECEMBER 31, 2003               16,062    8,014,713   (38,508)       (7,405)     8,721,268         8,227     16,714,357

   Comprehensive income:
     Net income                                  -            -         -             -      1,532,210             -      1,532,210
     Other comprehensive loss, net of
       related income tax effect                 -            -         -             -              -       (14,484)       (14,484)
                                                                                                                        -----------
         Total comprehensive income              -            -         -             -              -             -      1,517,726
   Cash dividends paid                           -            -         -             -       (324,247)            -       (324,247)
   Repayment of ESOP debt                        -            -    38,508             -              -             -         38,508
   Release of ESOP shares                        -      161,395         -             -              -             -        161,395
   Deferred compensation amortization            -            -         -         7,405              -             -          7,405
   Stock purchased by dividend
    reinvestment plan                           50       70,241         -             -              -             -         70,291
   Stock options exercised                     229      125,600         -             -              -             -        125,829
   Stock option expense                          -        5,262         -             -              -             -          5,262
                                           -------   ----------  --------      --------     ----------      --------    -----------

BALANCES AT DECEMBER 31, 2004              $16,341   $8,377,211  $      -      $      -     $9,929,231      $ (6,257)   $18,316,526
                                           =======   ==========  ========      ========     ==========      ========    ===========

</TABLE>

See accompanying notes.



                                       35
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
<TABLE>
<CAPTION>

                                                                                     2004               2003
                                                                                ------------        ------------
<S>                                                                             <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                                                $  1,532,210        $  1,234,810
      Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation and amortization                                                289,715             138,527
        Provision for loan losses                                                    370,000             220,000
        Gain on sale of loans                                                       (182,375)           (194,156)
        Gain on sale of real estate owned                                            (16,774)                  -
        Loss on sale of investment securities                                              -              15,353
        Increase in cash surrender value of bank-owned life insurance               (236,103)            (50,951)
        Deferred income taxes                                                       (300,748)             94,719
        Excess servicing rights                                                      (81,767)            (90,769)
        Distribution from management recognition plan trust                            7,405               4,250
        Reinvested dividends                                                         (42,622)           (165,475)
        Originations of loans held for sale                                       (6,265,000)         (9,544,415)
        Proceeds from sales of loans held for sale                                 6,491,753           9,350,259
        Net change in:
          Accrued interest receivable and other assets                                99,897            (447,757)
          Other liabilities                                                          888,187              (9,020)
                                                                                ------------        ------------

             Net cash provided by operating activities                             2,553,778             555,375
                                                                                ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of investment securities available-for-sale                             (37,500)        (14,550,000)
    Purchase of investment securities held-to-maturity                            (7,951,317)        (12,967,521)
    Proceeds from sales, maturities, calls and principal payments
      of investment securities available-for-sale                                     72,347          19,373,240
    Proceeds from maturities, calls and principal payments
      of investment securities held-to-maturity                                    8,000,000          13,000,000
    Net (purchase) redemption of stock in Federal Home Loan Bank                  (1,406,400)            200,950
    Net increase in loans                                                        (47,410,515)        (25,147,369)
    Proceeds from sale of real estate owned                                          109,339                   -
    Purchase of bank-owned life insurance                                           (650,000)         (3,200,000)
    Purchases of premises and equipment - net                                     (2,983,065)         (1,364,297)
                                                                                ------------        ------------

              Net cash used by investing activities                              (52,257,111)        (24,654,997)
                                                                                ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits                                                      22,677,132          18,332,365
    Decrease in advance payments by borrowers
      for property taxes and insurance                                              (450,615)            (94,346)
    Proceeds from issuance of common stock                                           196,120           2,558,708
    Net increase (decrease) in advances from Federal Home Loan Bank:
        Short-term                                                                26,250,000           3,750,000
        Long-term                                                                   (142,857)          1,000,000
    Unearned ESOP compensation decrease                                               38,508              38,508
    Payments of cash dividends                                                      (324,247)           (317,284)
                                                                                ------------        ------------

              Net cash provided by financing activities                           48,244,041          25,267,951
                                                                                ------------        ------------

</TABLE>


                                       36
<PAGE>


CECIL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>

                                                                  2004            2003
                                                               -----------    -----------
<S>                                                            <C>            <C>
(Decrease) increase in cash and cash equivalents               $(1,459,292)   $ 1,168,329

Cash and cash equivalents at beginning of year                   5,693,288      4,524,959
                                                               -----------    -----------

Cash and cash equivalents at end of year                       $ 4,233,996    $ 5,693,288
                                                               ===========    ===========

Supplemental disclosure of cash flows information:

   Cash paid for income taxes                                  $   924,090    $   757,806
                                                               ===========    ===========

   Cash paid for interest                                      $ 3,067,603    $ 2,653,562
                                                               ===========    ===========

Supplemental disclosure of noncash investing
   and financing activities:
   Conversion of loans receivable to real estate owned         $    92,565    $         -
                                                               ===========    ===========

Sale of real estate owned:
   Carrying value                                              $    92,565    $         -
   Charge-off                                                            -              -
   Financed sale                                                         -              -
   Gain on sale                                                     16,774              -
                                                               -----------    -----------

   Cash received from sale                                     $   109,339    $         -
                                                               ===========    ===========

</TABLE>


See accompanying notes.



                                       37
<PAGE>


                      CECIL BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



1. SIGNIFICANT ACCOUNTING POLICIES

         The accounting and reporting policies of Cecil Bancorp, Inc. (the
"Corporation") and its wholly-owned subsidiary, Cecil Federal Bank (the "Bank"),
together with its subsidiaries, Cecil Service Corporation and Cecil Financial
Services Corporation, conform to accounting principles generally accepted in the
United States of America and to general practice within the financial services
industry.

         Certain reclassifications have been made to amounts previously reported
to conform to the classifications made in 2004. The following is a summary of
the more significant accounting policies:

         Nature of Operations

              Through its subsidiary bank, the Corporation conducts full-service
commercial banking. Services to individuals and businesses include accepting
deposits, extending real estate, consumer and commercial loans and lines of
credit. The Corporation operates in the two Maryland counties of Cecil and
Harford, and has a concentration in loans secured by residential and commercial
real estate.

         Policy for Consolidation

              The consolidated financial statements include the accounts of the
Corporation and its subsidiary. Consolidation has resulted in the elimination of
all significant intercompany balances and transactions. The financial statements
of the Corporation (parent only) include its investment in the Bank under the
equity method of accounting.

         Use of Estimates

              The preparation of the financial statements in conformity with
accounting principles generally in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

         Cash and Cash Equivalents

              For purposes of the consolidated statement of cash flows, highly
liquid investments with original maturities of three months or less are
classified as cash and cash equivalents. Assets categorized in the balance sheet
as cash and due from banks and interest bearing deposits with banks are
considered cash and cash equivalents.



                                       38
<PAGE>


         Investment Securities

              Securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity and recorded at
amortized cost. Securities are classified as trading securities if bought and
held principally for the purpose of selling them in the near-term. Trading
securities are reported at estimated fair value, with unrealized gains and
losses included in earnings. Securities not classified as held-to-maturity or
trading securities are considered available-for-sale and are reported at
estimated fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity, net of tax
effects, in accumulated other comprehensive income. The Corporation designates
securities into one of the three categories at the time of purchase.

              Premiums and discounts on investments are recognized in interest
income over the terms of the securities using methods that approximate the
interest method. Declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent
and ability of the Corporation to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.

         Loans

              Loans are stated at their principal balance outstanding net of any
deferred fees and costs. Interest income on loans is accrued at the contractual
rate based on the principal outstanding. The Corporation places loans, except
for consumer loans, on nonaccrual when any portion of the principal or interest
is ninety days past due and collateral is insufficient to discharge the debt in
full. Interest accrual may also be discontinued earlier if, in management's
opinion, collection is unlikely. Generally, consumer installment loans are not
placed on nonaccrual, but are charged off when they are three months past due.

              Loans are considered impaired when, based on current information,
it is probable that the Corporation will not collect all principal and interest
payments according to contractual terms. Generally, loans are considered
impaired once principal or interest payments become ninety days or more past due
and they are placed on nonaccrual. Management also considers the financial
condition of the borrower, cash flows of the loan and the value of the related
collateral. Impaired loans do not include large groups of smaller balance
homogeneous credits such as residential real estate and consumer installment
loans, which are evaluated collectively for impairment. Loans specifically
reviewed for impairment are not considered impaired during periods of "minimal
delay" in payment (ninety days or less) provided eventual collection of all
amounts due is expected. The impairment of a loan is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or the fair value of the collateral if repayment is expected to
be provided by the collateral. Generally, the Corporation's impairment on such
loans is measured by reference to the fair value of the collateral. Interest
income generally is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received on such loans
are applied as a reduction of the loan principal balance. Interest income on
other nonaccrual loans is recognized only to the extent of interest payments
received.


                                       39
<PAGE>


         Allowance for Loan Losses

              The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.

              The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the collectibility
of the loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.

              The allowance consists of specific, general and unallocated
components. The specific component relates to loans that are classified as
either doubtful, substandard or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash
flows (or collateral value or observable market price) of the impaired loan is
lower than the carrying value of that loan. The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect management's estimate of probable losses. The
unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.

         Premises and Equipment

              Premises and equipment are stated at cost less accumulated
depreciation and amortization. Premises and equipment, including costs related
to developing or obtaining software for internal use, are depreciated on a
straight-line basis over their useful lives, which range from three to seven
years for furniture, fixtures and equipment and forty years for buildings.
Leasehold improvements are amortized over the shorter of their estimated useful
economic lives or the lives of the leases. Maintenance and repairs are charged
to expense as incurred, while improvements which extend the useful life are
capitalized and depreciated over the remaining life.

         Real Estate Owned

              Real estate owned comprises properties acquired in partial or
total satisfaction of problem loans. The properties are recorded at the lower of
cost or fair value at the date acquired. Losses arising at the time of
acquisition of such properties are charged against the allowance for loan
losses. Subsequent write-downs that may be required are added to a valuation
reserve. Gains and losses realized from sales, as well as valuation adjustments,
are included in noninterest income. Expenses of operation are included in
noninterest expense.

         Restricted Investment Securities

              Restricted investment securities consist of Federal Reserve Bank
("FRB") and Federal Home Loan Bank of Atlanta ("FHLB") stock which are required
by law and are restricted as to marketability. Because the investment securities
are not marketable, they are reported at cost. The FRB and FHLB perform ongoing
reviews of the Corporation's stock level to be sure it meets the minimum
requirements. The FRB requires a minimum stock balance based on the balance of
the Bank's common stock and surplus. The FHLB required stock balance is based on
total assets as of December 31 of the previous year and total FHLB advances
currently outstanding. As of December 31, 2004 and 2003, the Corporation met all
requirements set forth by the FRB and FHLB.


                                       40
<PAGE>

         Goodwill

              Goodwill represents the excess of the cost of assets acquired in
business combinations accounted for under the purchase method over the fair
value of the net assets at dates of acquisition and is tested annually for
impairment.

         Mortgage Servicing Rights

              The cost of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing revenue. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current market
interest rate. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value.

              When participating interests in loans sold have an average
contractual interest rate, adjusted for normal servicing fees, that differs from
the agreed yield to the purchaser, gains or losses are recognized equal to the
present value of such differential over the estimated remaining life of such
loans. The resulting "excess servicing receivable" or "deferred servicing
revenue" is amortized over the estimated life using a method approximating the
interest method.

              Quoted market prices are not available for the excess servicing
receivables. Thus, the excess servicing receivables and the amortization thereon
are periodically evaluated in relation to estimated future servicing revenue,
taking into consideration changes in interest rates, current repayment rates,
and expected future cash flows. The Corporation evaluates the carrying value of
the excess servicing receivables by estimating the future servicing income of
the excess servicing receivables based on management's best estimate of
remaining loan lives discounted at the original discount rate.

         Bank-Owned Life Insurance

              The Bank is the beneficiary of insurance policies on the lives of
officers of the Bank. The Bank has recognized the amount that could be realized
under the insurance policies as an asset in the consolidated balance sheets.

         Income Taxes

              Income tax expense is based on the results of operations, adjusted
for permanent differences between items of income or expense reported in the
financial statements and those reported for tax purposes. Under the liability
method, deferred income taxes are determined based on the differences between
the financial statement carrying amounts and the income tax bases of assets and
liabilities and are measured at the enacted tax rates that will be in effect
when these differences reverse.

         Advertising

              Advertising costs are expensed as incurred. Advertising expense
was $78,684 and $57,778 for the years ended December 31, 2004 and 2003,
respectively.


                                       41
<PAGE>

         Earnings Per Share

              Basic earnings per share (EPS) is calculated by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding during the period less unallocated ESOP shares. Diluted
earnings per share is calculated by dividing such net income by the weighted
average number of common shares used to compute basic EPS plus the incremental
amount of potential common stock determined by the Treasury stock method.

         Stock Based Compensation

              Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, encourages all entities to adopt a fair
value based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. The Corporation has elected to
continue with the accounting methodology in Opinion No. 25. Stock options issued
under the Corporation's stock option plan have no intrinsic value at the grant
date, and under Opinion No. 25, no compensation cost is recognized for them.

              The following table illustrates the effect on net income and
earnings per share if the Corporation had applied the fair value recognition
provisions of SFAS No. 123 to all stock option awards.

<TABLE>
<CAPTION>

                                                                  For the Year Ended December 31,
                                                                  -------------------------------
                                                                       2004            2003
                                                                  ------------     --------------
         <S>                                                        <C>            <C>
         Net income, as reported                                    $1,532,210     $1,234,810

         Less: total option expense determined under
           fair value method for all option awards, net
           of related tax effects                                       (6,549)        (6,549)
                                                                    ----------     ----------

         Pro forma net income                                       $1,525,661     $1,228,261
                                                                    ==========     ==========

         Pro forma net income per share:
           Basic - as reported                                           $0.95          $0.81
                                                                         =====          =====
           Basic - pro forma                                             $0.94          $0.80
                                                                         =====          =====
           Diluted - as reported                                         $0.95          $0.80
                                                                         =====          =====
           Diluted - pro forma                                           $0.94          $0.79
                                                                         =====          =====
</TABLE>

              The fair values of stock options granted were estimated at the
date of grant using the Black-Scholes option pricing model. The Black-Scholes
option pricing model was originally developed for use in estimating the fair
value of traded options, which have different characteristics from the
Corporation's employee stock options. The model is also sensitive to changes in
assumptions, which can materially affect the fair value estimate. There were no
options granted in the years ended December 31, 2004 or 2003.


                                       42
<PAGE>

         Comprehensive Income

              The Corporation reports comprehensive income which includes net
income, as well as other changes in stockholders' equity that result from
transactions and economic events other than those with stockholders. The
Corporation's only significant element of comprehensive income is unrealized
gains and losses on available-for-sale securities.

2. RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2004, the Financial Accounting Standards Board ("FASB")
revised Statement of Financial Accounting Standards ("SFAS") 123, Accounting for
Stock-Based Compensation. SFAS 123R establishes accounting requirements for
share-based compensation to employees and carries forward prior guidance on
accounting for awards to non-employees. The provisions of this statement will
become effective January 1, 2006 for all equity awards granted after the
effective date. SFAS 123R requires an entity to recognize compensation expense
based on an estimate of the number of awards expected to actually vest,
exclusive of the awards expected to be forfeited. The adoption of this standard
is not expected to have a material effect on the financial condition, results of
operations, or liquidity of the Corporation.

         In March 2004, the FASB Emerging Issues Task Force ("EITF") released
Issue 03-01, Meaning of Other Than Temporary Impairment, which addressed
other-than-temporary impairment for certain debt and equity investments. The
recognition and measurement requirements of Issue 03-01, and other disclosure
requirements not already implemented, were effective for periods beginning after
June 15, 2004. In September 2004, FASB issued FASB Staff Position ("FSP") EITF
03-01-1, which delayed the effective date for certain measurement and
recognition guidance contained in Issue 03-01. The FSP requires the application
of pre-existing other-than-temporary guidance during the period of delay until a
final consensus is reached. Management does not anticipate the issuance of the
final consensus will have a material impact on the financial condition, results
of operations, or liquidity of the Corporation.

         In March 2004, the SEC issued Staff Accounting Bulletin 105 ("SAB
105"), Application of Accounting Principles to Loan Commitments, stating that
the fair value of loan commitments is to be accounted for as a derivative
instrument under SFAS 133, but the valuation of such commitment should not
consider expected future cash flows related to servicing of the future loan. The
adoption of this standard did not have a material effect on the financial
condition, results of operations, or liquidity of the Corporation.

         In December 2003, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires
acquired loans, including debt securities, to be recorded at the amount of the
purchaser's initial investment and prohibits carrying over valuation allowances
from the seller for those individually evaluated loans that have evidence of
deterioration in credit quality since origination, and it is probable all
contractual cash flows on the loan will be unable to be collected. SOP 03-3 also
requires the excess of all undiscounted cash flows expected to be collected at
acquisition over the purchaser's initial investment to be recognized as interest
income on a level-yield basis over the life of the loan. Subsequent increases in
cash flows expected to be collected are recognized prospectively through an
adjustment of the loan's yield over its remaining life, while subsequent
decreases are recognized as impairment. Loans carried at fair value, mortgage
loans held for sale, and loans to borrowers in good standing under revolving
credit agreements are excluded from the scope of SOP 03-3. The guidance is
effective for loans acquired in fiscal years beginning after December 15, 2004
and is not expected to have a material impact on the financial condition,
results of operations, or liquidity of the Corporation.


                                       43
<PAGE>

         In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for classifying and measuring certain financial
instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. The provisions of SFAS 150 became effective June 1,
2003, for all financial instruments created or modified after May 31, 2003, and
otherwise became effective as of July 1, 2003. The adoption of this standard did
not have a material impact on the financial condition, results of operations, or
liquidity of the Corporation.

         In January 2003, the FASB issued FASB Interpretation Number 46 ("FIN
46"), Consolidation of Variable Interest Entities. FIN 46 provides guidance on
how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE are to be included in an entity's consolidated financial statements. A VIE
exists when either the total equity investment at risk is not sufficient to
permit the entity to finance its activities by itself, or the equity investors
lack one of three characteristics associated with owning a controlling financial
interest. Those characteristics include the direct or indirect ability to make
decisions about an entity's activities through voting rights or similar rights,
the obligation to absorb the expected losses of an entity if they occur, or the
right to receive the expected residual returns of the entity if they occur. The
adoption of this standard did not have a material effect on the financial
condition, results of operations, or liquidity of the Corporation.

3. INVESTMENT SECURITIES

         Investment securities have been classified in the consolidated
statements of financial position according to management's intent and ability to
hold the investment to maturity.

         Investment securities at December 31, 2004 and 2003 are summarized on
the following page.





                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                                                 2004
                                                     -------------------------------------------------------------
                                                                        Gross           Gross           Estimated
                                                      Amortized       Unrealized      Unrealized           Fair
                                                         Cost           Gains           Losses             Value
                                                     ----------       ----------      ----------        ----------
<S>                                                  <C>              <C>              <C>              <C>
Available for sale:
   Mutual funds - mortgage securities                $1,298,615       $        -       $   11,023       $1,287,592
   Mutual funds - U.S. Government securities            687,914            6,767                -          694,681
   Mortgage-backed securities                           207,149                -            5,938          201,211
   Other                                                 73,634                -                -           73,634
                                                     ----------       ----------       ----------       ----------

                                                     $2,267,312       $    6,767       $   16,961       $2,257,118
                                                     ==========       ==========       ==========       ==========

Held to Maturity:
   U. S. Treasury securities and obligations
     of U. S. Government and Federal agencies        $3,490,664       $        -       $      969       $3,489,695
                                                     ==========       ==========       ==========       ==========

<CAPTION>

                                                                                 2004
                                                     -------------------------------------------------------------
                                                                        Gross           Gross           Estimated
                                                      Amortized       Unrealized      Unrealized           Fair
                                                         Cost           Gains           Losses             Value
                                                     ----------       ----------      ----------        ----------
<S>                                                  <C>              <C>              <C>              <C>
Available for sale:
   Mutual funds - mortgage securities                $1,261,854       $    1,771       $        -       $1,263,625
   Mutual funds - U.S. Government securities            668,187           16,502                -          684,689
   Mortgage-backed securities                           280,943                -            4,870          276,073
   Other                                                 50,000                -                -           50,000
                                                     ----------       ----------       ----------       ----------

                                                     $2,260,984       $   18,273       $    4,870       $2,274,387
                                                     ==========       ==========       ==========       ==========

Held to Maturity:
   U. S. Treasury securities and obligations
     of U. S. Government and Federal agencies        $3,495,372       $    1,573       $        -       $3,496,945
                                                     ==========       ==========       ==========       ==========

</TABLE>

         At December 31, 2004 and 2003, investment securities with a carrying
value of $3,610,527 and $3,660,601, respectively, were pledged to secure
deposits of municipalities.

         The tax effect of the net unrealized holding gains or losses of
available-for-sale securities is included as a component of the net deferred tax
asset and the remaining portion of the holding gain or loss is included as a
component of accumulated other comprehensive income. At December 31, 2004, a
deferred tax asset of $3,937 and accumulated other comprehensive loss of $6,257
relate to the unrealized holding loss on available-for-sale securities. At
December 31, 2003, a deferred tax liability of $5,177 and accumulated other
comprehensive income of $8,227 relate to the unrealized holding gain on
available-for-sale securities.

         The U. S. Treasury securities and obligations of the U.S. Government
and Federal agencies at December 31, 2004, by contractual maturities, are due
within one year. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.



                                       45
<PAGE>

         As of December 31, 2004, unrealized losses on securities were comprised
of the following based on the length of time that the securities have been in a
continuous loss position:

<TABLE>
<CAPTION>

                                                    Less than                   More than
                                                    12 months                    12 months                  Total
                                          --------------------------- ------------------------------------------------------
                                                Fair      Unrealized        Fair        Unrealized    Fair        Unrealized
                                               Value         Loss           Value          Loss       Value          Loss
                                            -----------   ----------       --------     ----------   ----------   ----------
<S>                                          <C>           <C>             <C>              <C>      <C>           <C>
Available-for-sale:

     Mutual funds -
       mortgage securities                   $1,287,592    $   11,023      $      -         $   -    $1,287,592    $   11,023
     Mortgage-backed securities                       -             -       201,211         5,938       201,211         5,938

Held-to-maturity:

     U. S. Treasury securities
     and obligations of U. S
     Government and
     Federal agencies                         3,489,695           969             -             -     3,489,695           969
                                             ----------    ----------    ----------    ----------    ----------    ----------

                                             $4,777,287    $   11,992    $  201,211    $    5,938    $4,978,498    $   17,930
                                             ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

         The securities with unrealized holding losses are impaired due to
declines in fair value resulting from changes in interest rates. None of these
securities have exhibited a decline in value due to changes in credit risk.
Additionally, the Corporation has the intent and ability to hold these
securities until they mature and does not expect to realize losses on any of the
investments. Therefore, management does not consider the declines in fair value
to be other than temporary.

         There were no sales of investment securities during the year ended
December 31, 2004. During 2003, the Corporation sold investments with an
amortized cost of $19,265,353 for $19,250,000, and thus realized a loss of
$15,353. During 2003, the Corporation also redeemed stock in FHLB in Atlanta at
its book value of $200,950.



                                       46
<PAGE>


4. LOANS AND ALLOWANCE FOR LOAN LOSSES

         The Corporation's lending activities are predominantly conducted in
Cecil and Harford Counties in the State of Maryland.

         A summary of loans follows:

<TABLE>
<CAPTION>

                                                              2004               2003
                                                         -------------      -------------
<S>                                                      <C>                <C>
First mortgage loans:
  1 - 4 dwelling units                                   $  64,272,840      $  53,344,452
  5 or more                                                  4,422,709          1,481,450
  Nonresidential                                            26,173,892         21,760,074
  Land                                                       2,182,558          4,021,010
  Construction                                              20,733,290         16,534,542
                                                         -------------      -------------
                                                           117,785,289         97,141,528
                                                         -------------      -------------
Other loans:
  Home equity loans                                          5,398,377          5,747,533
  Commercial loans                                          49,473,762         23,448,700
  Consumer loans                                             8,410,209          5,948,292
  Loans on deposit accounts                                    730,022          1,059,490
  Education loans                                               18,915             18,604
                                                         -------------      -------------
                                                            64,031,285         36,222,619
                                                         -------------      -------------

         Total loans                                       181,816,572        133,364,147

Less:
  Undisbursed proceeds on loans in process                  (6,177,986)        (5,304,454)
  Deferred loan fees and costs                                (659,253)          (387,324)
                                                         -------------      -------------

                                                         $ 174,979,335      $ 127,672,369
                                                         =============      =============
</TABLE>

         In the normal course of banking business, loans are made to officers
and directors and their affiliated interests. These loans are made on
substantially the same terms and conditions as those prevailing at the time for
comparable transactions with outsiders and are not considered to involve more
then the normal risk of collectibility. As of December 31, activity in such
loans outstanding, both direct and indirect (including guarantees), to
directors, their associates and policy-making officers were as follows:

                                                     2004               2003
                                                  -----------       -----------
Balance at beginning of year                      $ 2,006,194       $     6,382
Loans to new directors at beginning of year                 -           756,280
New loans and additional borrowings                 1,748,753         1,387,712
Repayments                                           (545,112)         (144,180)
                                                  -----------       -----------

Balance at end of year                            $ 3,209,835       $ 2,006,194
                                                  ===========       ===========



                                       47
<PAGE>

         An analysis of the allowance for loan losses for the years ended
December 31, 2004 and 2003 is as follows:

                                                       2004             2003
                                                    ----------       ----------
Balance at beginning of period                      $  785,814       $  612,679
Provision charged to operations                        370,000          220,000
Recoveries (charge-offs), net                           33,394          (46,865)
                                                    ----------       ----------

Balance at end of period                            $1,189,208       $  785,814
                                                    ==========       ==========

         Commercial and commercial real estate loans are considered impaired
when it is probable that the Corporation will not collect all amounts due in
accordance with the contractual terms of the loan. Except for certain
restructured loans, impaired loans are loans that are on nonaccrual status.
Loans that are returned to accrual status are no longer considered to be
impaired.

         Information with respect to impaired loans at December 31, 2004 and
2003 and for the years then ended is as follows:

                                                            2004         2003
                                                         ----------   ----------
Impaired loans with a valuation allowance                $1,995,806   $  806,271
Impaired loans without a valuation allowance                123,984      446,169
                                                         ----------   ----------

         Total impaired loans                            $2,119,790   $1,252,440
                                                         ==========   ==========

Allowance for loan losses related to impaired loans      $  490,476   $  252,721
Allowance for loan losses related to other than
  impaired loans                                            698,732      533,093
                                                         ----------   ----------

         Total allowance for loan losses                 $1,189,208   $  785,814
                                                         ==========   ==========

Average impaired loans for the year                      $1,766,325   $  967,301
                                                         ==========   ==========
Interest income on impaired loans
  recognized on the cash basis                           $   56,483   $   35,709
                                                         ==========   ==========

5. SERVICING

           At December 31, 2004 and 2003, the Bank was servicing loans for
others amounting to approximately $18,811,000 and $14,985,000, respectively.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing. Loan servicing income is recorded upon receipt and includes
servicing fees from investors and certain charges collected from borrowers, such
as late payment fees. Mortgage servicing rights had a carrying value of $142,710
and $101,605 as of December 31, 2004 and 2003, respectively. Estimated fair
value of the servicing rights approximates carrying value. Amortization expense
of servicing rights was $40,662 and $50,816 for the years ended December 31,
2004 and 2003, respectively.


                                       48
<PAGE>

           The following table summarizes the activity pertaining to mortgage
servicing rights:

                                                        2004             2003
                                                      ---------       ---------
Balance at beginning of period                        $ 101,605       $  61,652
Mortgage servicing rights capitalized                    81,767          90,769
Mortgage servicing rights amortized                     (40,662)        (50,816)
                                                      ---------       ---------

Balance at end of period                              $ 142,710       $ 101,605
                                                      =========       =========

6. PREMISES AND EQUIPMENT

           Premises and equipment are summarized by major classifications as
follows:

                                                        2004             2003
                                                     ----------       ----------
Land                                                 $1,689,777       $  299,500
Buildings and improvements                            3,862,202        2,570,820
Furniture, fixtures and equipment                     1,936,714        1,642,994
Leasehold improvements                                  430,558          422,872
                                                     ----------       ----------
                                                      7,919,251        4,936,186
Less: accumulated depreciation                        1,780,672        1,489,093
                                                     ----------       ----------

                                                     $6,138,579       $3,447,093
                                                     ==========       ==========

           Depreciation expense for the years ended December 31, 2004 and 2003
was $291,579 and $245,819, respectively.

           The Bank leases three of its branch facilities and one operations
building under operating lease agreements which provide for the payment of
utilities and taxes by the lessee. Future minimum payments for each of the five
succeeding years under noncancelable leases consisted of the following at
December 31, 2004:

Year ending December 31:
       2005                      $127,097
       2006                       132,172
       2007                       133,085
       2008                       135,191
       2009                       138,517
       Thereafter                 289,204

           Rent expense was $101,487 and $80,292 for the years ended December
31, 2004 and 2003, respectively.

7.   GOODWILL

           Goodwill represents the excess of the cost of assets acquired in
business combinations accounted for under the purchase method of accounting over
the fair value of the net assets acquired at the dates of acquisition. Prior to
the adoption of SFAS Nos. 141 and 142, the excess purchase price was being
amortized using the straight-line method over varying periods not exceeding ten
years. Goodwill is no longer amortized but rather tested annually for impairment
under the provisions of SFAS No. 142. A schedule of goodwill is as follows:


                                       49
<PAGE>

               2004                                         2003
-------------------------------------      -----------------------------------
   Gross                        Net          Gross                       Net
  Carrying   Accumulated     Carrying       Carrying    Accumulated    Carrying
   Amount    Amortization     Amount         Amount     Amortization    Amount
----------   ------------    --------      ---------   ------------    -------
$2,815,669     $633,525     $2,182,144     $2,815,669    $633,525     $2,182,144

8. DEPOSITS

           The following is a summary of deposits as of December 31:
<TABLE>
<CAPTION>

                                                2004                       2003
                                       ------------------------  --------------------------
                                                       Weighted                  Weighted
                                                       Average                   Average
                                          Amount         Rate       Amount          Rate
                                       ------------    --------  -----------      ---------
<S>                                    <C>               <C>     <C>                <C>
N.O.W. and Money Market accounts       $ 29,383,479      0.85%   $ 28,776,990       0.88%
Savings accounts                         18,722,440      0.76      18,395,217       0.75
Term certificates                        79,661,231      2.78      61,488,223       3.09
Checking accounts                        13,073,758      0.00       9,503,346       0.00
                                       ------------              ------------

                                       $140,840,908              $118,163,776
                                       ============              ============
</TABLE>

          A summary of certificate accounts (in thousands) by maturity as of
December 31, 2004 follows:

             Three months or less                            $10,343
             Three months to twelve months                    32,772
             Twelve months to twenty-four months              19,079
             Twenty-four months to thirty-six months           6,674
             Thirty-six months to forty-eight months           6,738
             Forty-eight months to sixty months                4,052
             Over sixty months                                     3
                                                             -------
                                                             $79,661
                                                             =======

          Eligible deposits are insured up to $100,000 by the Federal Deposit
Insurance Corporation.

          Team certificates include certificates of deposit in denominations of
$100,000 or more aggregating approximately $22,245,000 and $25,902,000 as of
December 31, 2004 and 2003, respectively.

          Officers' and directors' deposit accounts amounted to approximately
$2,058,338 and $1,173,458 at December 31, 2004 and 2003, respectively.

9. ADVANCES FROM FHLB

           At December 31, advances from the FHLB consisted of the following:

<TABLE>
<CAPTION>

                          2004                                                         2003
-------------------------------------------------------      -----------------------------------------------------
                Maturity        Interest                                       Maturity    Interest
   Amount          Date           Rate          Type           Amount            Date         Rate           Type
 -----------    ----------      --------       ---------     -----------      ----------   ---------    ----------
<S>            <C>              <C>            <C>           <C>              <C>          <C>          <C>
$30,000,000    On Demand        Variable       Overnight     $ 3,750,000      On Demand     Variable     Overnight
  6,000,000       2006            4.97%          Fixed         6,000,000         2006         4.97%        Fixed
  3,000,000       2006            4.13%          Fixed         3,000,000         2006         4.13%        Fixed
    857,143       2010            3.93%          Fixed         1,000,000         2010         3.93%        Fixed
-----------                                                  -----------
$39,857,143                                                  $13,750,000
===========                                                  ===========
</TABLE>


                                       50
<PAGE>

           The Bank has lines of credit with the FHLB with a total maximum
available balance of $50,120,000. As of December 31, 2004, $10,263,000 was
available to be drawn against the lines of credit.

           Wholly owned first mortgage loans on 1 - 4 family and multifamily
dwelling units, commercial real estate loans, and second mortgages and home
equity lines of credit with unpaid principal balances of approximately
$89,906,000 were pledged to the FHLB as collateral on advances as of December
31, 2004.

           The Bank has an unsecured line of credit with the Community Bankers
Bank with a total maximum available balance of $5,000,000. As of December 31,
2004 the entire $5,000,000 was available to be drawn against the line of credit.

10. INCOME TAXES

           Income tax expense for the years ended December 31 consists of:

                                                 2004              2003
                                             -----------        -----------

Current income taxes:
   Federal                                   $   957,593        $   549,620
   State                                         291,484            104,399
                                             -----------        -----------
                                               1,249,077            654,019
                                             -----------        -----------
Deferred income taxes:
   Federal                                      (244,099)            77,551
   State                                         (56,649)            17,168
                                             -----------        -----------
                                                (300,748)            94,719
                                             -----------        -----------

       Total income tax expense              $   948,329        $   748,738
                                             ===========        ===========

           The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:

<TABLE>
<CAPTION>

                                                                2004           2003
                                                             -----------    -----------
<S>                                                        <C>            <C>
Deferred tax assets:
   Deferred loan origination fees                          $   254,604    $   149,585
   Loan loss allowance                                         459,272        303,481
   Deferred compensation                                       243,656        102,294
   Other                                                        48,028         22,362
                                                           -----------    -----------

       Total gross deferred tax assets                       1,005,560        577,722
                                                           -----------    -----------

Deferred tax liabilities:
   FHLB stock dividends                                    $    27,691    $    27,691
   Mortgage servicing rights                                    55,115         39,240
   Carrying value in excess of tax basis of goodwill           143,059         69,139
   Tax accumulated depreciation in excess of book              185,761        148,466
   Net unrealized (loss) gain on available-for-sale
     securities                                                 (3,937)         5,177
                                                           -----------    -----------

       Total gross deferred tax liabilities                    407,689        289,713
                                                           -----------    -----------

Net deferred tax assets                                    $   597,871    $   288,009
                                                           ===========    ===========

</TABLE>


                                         51
<PAGE>

           At December 31, 2004, the Company had state net operating loss
carry-forwards of approximately $1,038,000 which, due to the uncertainty of
realization, have a full valuation allowance established.

           A two year reconcilement of the difference between the statutory
federal income tax rate and the effective tax rate for the Corporation is as
follows:
                                                     2004           2003
                                                     ----           ----

Federal income tax rate                              34.0%          34.0%
   Increase (decrease) resulting from:
     State income taxes, net of federal
       income tax benefit                             4.5            4.5
     Other                                           (0.3)          (0.8)
                                                     ----           ----

Effective tax rate                                   38.2%          37.7%
                                                     ====           ====

11. STOCKHOLDERS' EQUITY

           The Corporation has a dividend reinvestment and stock purchase plan
which provides stockholders with the opportunity to increase their equity
ownership by electing to have cash dividends automatically reinvested in
additional shares of common stock without payment of any brokerage commission or
service charge. Pursuant to the plan, stockholders are also permitted to make
optional quarterly cash purchases of stock, subject to minimum and maximum
dollar amounts. The Board has reserved 60,000 shares for issuance under the
plan.

12. REGULATORY MATTERS

           The Corporation and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. The
Corporation became subject to the holding company risk-based capital
requirements during 2004, when its consolidated assets exceeded $150 million.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.

           Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). As of December 31, 2004 and 2003, the
capital levels of the Corporation and the Bank substantially exceed all capital
adequacy requirements to which they are subject. There are no subsequent
conditions or events that management believes have changed the Corporation's or
the Bank's category.



                                         52
<PAGE>


           The Corporation's and the Bank's actual capital amounts and ratios
are also presented in the table below.

<TABLE>
<CAPTION>

                                                                               To Be Well
                                                                            Capitalized Under
                                                                            Prompt Corrective             For Capital
                                                     Actual                 Action Provisions          Adequacy Purposes
                                                ----------------             ----------------           ----------------
                                                Amount     Ratio             Amount    Ratio            Amount     Ratio
                                                ------     -----             ------    ------           ------     -----
                                                 (in thousands)               (in thousands)             (in thousands)
<S>                                            <C>         <C>             <C>       <C>               <C>          <C>
As of December 31, 2004:

   Total risk-based capital
     (to risk-weighted assets)
       Consolidated                            $16,589     10.16%              N/A     N/A             $13,057      8.00%
       The Bank                                 16,465      9.95            16,548   10.00              13,239      8.00
   Tier I capital
     (to risk-weighted assets)
       Consolidated                             15,400      9.44               N/A     N/A               6,529      4.00
       The Bank                                 15,276      9.23             9,929    6.00               6,619      4.00
   Tier I capital
     (to adjusted total assets)
       Consolidated                             15,400      8.04               N/A     N/A               7,664      4.00
       The Bank                                 15,276      7.97             9,580    5.00               7,664      4.00

As of December 31, 2003:

   Total risk-based capital
     (to risk-weighted assets)                 $15,032     12.75%          $11,793   10.00%            $ 9,434      8.00%
   Tier I capital
     (to risk-weighted assets)                  14,246     12.08             7,076    6.00               4,717      4.00
   Tier I capital
     (to adjusted total assets)                 14,246      9.99             7,132    5.00               5,706      4.00

</TABLE>

13. OFFICER, DIRECTOR AND EMPLOYEE BENEFIT PLANS

           Employee Stock Ownership Plan

                  The Board of Directors approved a contributory Employee Stock
Ownership Plan (ESOP) for employees who have attained age 21 and completed one
year of service with the Corporation or its subsidiaries, effective January 1,
1994. The ESOP acquired 38,508 shares of common stock in November 1994 for
$385,080 financed by a loan from the Corporation. Shares acquired with such loan
proceeds are to be held in a suspense account for allocation among the
participants as the loan is repaid. The loan agreement is secured by a pledge of
the common stock owned by the ESOP and purchased with the proceeds of the loan.
The outstanding loan balance is included as a liability in the accompanying
consolidated balance sheet, and the Corporation's obligation related to the ESOP
debt is reflected as a reduction in stockholders' equity. The loan is to be paid
in annual installments of $38,508 plus interest at prime plus 1% (6.25% at
December 31, 2004) over a ten-year period. Payments began on December 31, 1995.
As of December 31, 2004, the loan has been paid in full, and thus the related
liability and reduction in stockholders' equity have been eliminated.

              The Corporation accounts for its ESOP in accordance with Statement
of Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and
shares pledged as collateral are reported as unearned ESOP shares, a reduction
of stockholders' equity. As shares are released from collateral, the Bank
records compensation expense in an amount equal to the fair value of the shares,
and the shares become outstanding for earnings per share computations. All
shares have been released from collateral as of December 31, 2004, as the loan
balance has been paid in full. Compensation expense is also recognized for
Corporation dividends on unallocated shares paid or added to participant
accounts. Compensation expense is reduced by the amount of the annual interest
paid by the ESOP to service the loan issued to acquire the shares of stock. ESOP
compensation expense was $109,299 and $79,651 in 2004 and 2003, respectively.


                                       53
<PAGE>

         Stock-Based Compensation Plans

              In 1995, the Corporation formed a Management Recognition Plan
(MRP), which was authorized to acquire 4% of the shares of common stock issued
on the date of conversion to a stock corporation to provide them with a
proprietary interest in the Corporation in a manner designed to encourage such
employees to remain with the Corporation. Compensation expense in connection
with the MRP was $3,592 and $6,776 for the years ended December 31, 2004 and
2003, respectively.

              The Corporation adopted stock option plans in 1992 and 1995 for
the benefit of Directors, selected officers, and other key employees. The Plans
provide for the granting of options for the common shares of the Corporation at
the fair market value at the time the options are granted. The term of each
option awarded is to be determined by a committee of the Board of Directors, but
shall not exceed ten years. The term of an option shall not exceed five years
for employees and directors owning more than 10% of the outstanding common stock
at the time the option is granted. Discretionary stock appreciation rights may
be granted in conjunction with, or independently of, any options granted under
the Plans. Upon exercise of a stock appreciation right, the related option, or
portion thereof, is cancelled.

              In accordance with the stock option plans, a total of 115,676
shares of unissued common stock are reserved for issuance pursuant to incentive
stock options.

              The Corporation's 1995 Stock Option Plan has authorized the grant
of options to management personnel for up to 96,442 shares of the Corporation's
common stock. All options granted have 10 year terms and vest over a period of 5
years.

              A summary of the Corporation's stock option activity, and related
information for the years ended December 31 is as follows:

<TABLE>
<CAPTION>

                                                     2004                       2003
                                            ---------------------------  --------------------------
                                                           Weighted-                   Weighted-
                                                            Average                     Average
                                            Shares       Exercise Price  Shares      Exercise Price
                                            ------       --------------  ------      --------------
<S>                                        <C>             <C>           <C>         <C>
Outstanding at beginning of year            32,756         $    7.14      34,756         $7.04
Granted                                          -                 -           -             -
Exercised                                  (22,878)             5.50      (2,000)         5.50
                                            ------                         -----

Outstanding at end of year                   9,878         $   10.96      32,756         $7.14
                                             =====         =========      ======         =====

Options exercisable at year end              9,878         $   10.96      31,212         $6.78
                                             =====         =========      ======         =====

</TABLE>


                                       54
<PAGE>

              The following table summarizes information about stock options
outstanding at December 31, 2004:

                                     Options Outstanding and Exercisable
                                   -----------------------------------------
                                                                  Remaining
                Exercise                 Number                      Life
                  Price               Outstanding                   (Years)
                ---------             -----------                 ----------
                    5.50                   2,174                      1.7
                   12.50                   7,704                      4.3

              No stock options were granted in the years ended December 31, 2004
and 2003.

              As of December 31, 2004, all of the Corporation's outstanding
stock options were considered to be in the money.

              The Corporation has adopted a Retirement Plan for non-employee
directors under which each participating director would receive monthly benefits
upon termination of service based on a benefits formula. The Corporation is
accruing this liability over the remaining service period for each participating
director. There was no compensation expense incurred by the Corporation in
connection with the Plan for the years ended December 31, 2004 or 2003.

         Deferred Compensation

              The Bank has entered into deferred compensation agreements with
some of its executive officers. Under the agreements, the Bank is obligated to
provide annual benefits for the officers or their beneficiaries, after the
officer's death, disability, or retirement. The estimated present value of
future benefits to be paid is being accrued over the period from the effective
date of the agreements until the full eligibility dates of the participants. The
expense incurred for this plan for the years ended December 31, 2004 and 2003
was $385,652 and $32,137, respectively. The Bank is the beneficiary of life
insurance policies, with an aggregate cash surrender value of $4,137,054 and
$3,250,951 at December 31, 2004 and 2003, respectively, that were purchased as a
method of partially financing the benefits under this plan.

14. PENSION PLANS

              The Bank has established a defined contribution 401(k) profit
sharing plan for the benefit of its employees. The Plan covers all full-time
employees who meet certain eligibility requirements as to age and length of
service. Company contributions to the 401(k) section of the plan are based on
the amounts contributed by employees. The employees may contribute a percentage
of their annual compensation to the Plan. The Bank makes a discretionary
matching contribution equal to a uniform percentage of the amount of the
employees' contribution. In applying the matching contribution, only employee
salary reductions up to 2% will be considered. The Bank may also make a
discretionary profit sharing contribution to the Plan as determined by the Board
of Directors. For the years ended December 31, 2004 and 2003, the Bank's expense
related to the Plan was $120,598 and $97,913, respectively.


                                       55
<PAGE>


15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

              In the normal course of business, the Bank has various outstanding
credit commitments which are properly not reflected in the financial statements.
These commitments are made to satisfy the financing needs of the Bank's clients.
The associated credit risk is controlled by subjecting such activity to the same
credit and quality controls that exist for the Bank's lending and investing
activities. The commitments involve diverse business and consumer customers and
are generally well collateralized. Management does not anticipate that losses,
if any, which may occur as a result of these commitments, would materially
affect the stockholders' equity of the Bank. Since a portion of the commitments
have some likelihood of not being exercised, the amounts do not necessarily
represent future cash requirements.

              Loan and credit line commitments, excluding unused portions of
home equity lines of credit, totaled approximately $21,998,000 at December 31,
2004, and $13,989,000 at December 31, 2003. These commitments are contingent
upon continuing customer compliance with the terms of the agreement.

              Unused portions of equity lines at year-end amounted to
approximately $2,287,000 in 2004 and $2,158,000 in 2003. The Bank's home equity
line accounts are secured by the borrower's residence.

              Irrevocable letters of credit, totaling $11,731,000 at December
31, 2004 and $5,748,000 at December 31, 2003, are obligations to make payments
under certain conditions to meet contingencies related to customers' contractual
agreements. They are primarily used to guarantee a customer's contractual and/or
financial performance and are seldom exercised.

16. EARNINGS PER SHARE

              In the following table, basic earnings per share is derived by
dividing net income available to common stockholders by the weighted-average
number of common shares outstanding, and does not include the effect of any
potentially dilutive common stock equivalents. The diluted earnings per share is
derived by dividing net income by the weighted-average number of shares
outstanding, adjusted for the dilutive effect of outstanding stock options.

              The calculation of net income per common share for the years ended
December 31 was as follows:

                                                           2004          2003
                                                        ----------    ----------
BASIC:
     Net income available to common stockholders        $1,532,210    $1,234,810
                                                        ==========    ==========
     Average common shares outstanding                   1,616,832     1,531,018
                                                        ==========    ==========
         Basic net income per share                     $     0.95    $     0.81
                                                        ==========    ==========

DILUTED:
     Net income available to common stockholders        $1,532,210    $1,234,810
                                                        ==========    ==========

     Average common shares outstanding                   1,616,832     1,531,018
     Stock option adjustment                                 4,016        20,045
                                                        ----------    ----------

     Average common shares outstanding - diluted         1,620,848     1,551,063
                                                        ==========    ==========
         Diluted net income per share                   $     0.95    $     0.80
                                                        ==========    ==========


                                       56
<PAGE>

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

              SFAS No. 107 Disclosure About Fair Value of Financial Instruments
requires that the Corporation disclose estimated fair values for both its on and
off-balance-sheet financial instruments. The following methods and assumptions
were used to estimate the fair value of the Corporation's financial instruments.
Changes in estimates and assumptions could have a significant impact on these
fair values.

              Cash and Cash Equivalents - The fair values of cash and cash
              equivalents approximate their carrying values.

              Investment Securities - The fair values of investment securities
              are based on quoted market prices, where available. If a quoted
              market price is not available, fair value is estimated using
              quoted market prices of comparable instruments.

              Loans - The fair value of the loan portfolio is estimated by
              evaluating homogeneous categories of loans with similar financial
              and credit risk characteristics. Loans are segregated by types,
              such as residential mortgage, commercial real estate and consumer.
              Each loan category is further segmented into fixed and
              adjustable-rate interest terms.

              The fair values of each loan category are estimated by discounting
              contractual cash flows adjusted for estimated prepayments.
              Assumptions regarding prepayment estimates and discount rates are
              judgmentally determined by using available market information.

              Accrued Interest Receivable - The fair value of the Corporation's
              interest receivable approximates its carrying value.

              Restricted Investment Securities - The fair value of the
              Corporation's investment in stock of the FHLB and FRB approximates
              its carrying value.

              Deposits and Advance Payments by Borrowers - The fair values of
              passbook accounts, NOW accounts, demand deposit accounts and
              variable rate money market accounts approximate their carrying
              values. The fair values of fixed rate certificates of deposit are
              estimated using a discounted cash flow calculation that applies
              interest rates currently offered for deposits of similar remaining
              maturities.

              Advances from the FHLB - The fair value of FHLB advances was
              estimated by computing the discounted value of contractual cash
              flows payable at current interest rates for obligations with
              similar remaining terms.

              Commitments to Extend Credit - The Corporation's adjustable rate
              commitments to extend credit move with market rates and are not
              subject to interest rate risk. The rates and terms of the
              Corporation's fixed rate commitments to extend credit are
              competitive with others in the various markets in which the
              Corporation operates.


                                       57
<PAGE>

              The estimated fair values of financial instruments at December 31,
2004 are as follows:

                                                                     Estimated
                                                    Carrying            Fair
                                                     Value             Value
                                                  ------------      ------------
Financial assets:
  Cash and cash equivalents                       $  4,233,996      $  4,233,996
  Investment securities:
     Available-for-sale                              2,257,118         2,257,118
     Held-to-maturity                                3,490,664         3,489,695
  Loans                                            174,979,335       176,164,000
  Restricted investment securities                   2,278,300         2,278,300
  Accrued interest receivable                          755,145           755,145
Financial liabilities:
  Deposits                                         140,840,908       137,729,000
  Advances from FHLB                                39,857,143        39,868,000


         The estimated fair values of financial instruments at December 31, 2003
are as follows:



                                                                     Estimated
                                                      Carrying          Fair
                                                       Value           Value
                                                    ------------    ------------
Financial assets:
  Cash and cash equivalents                         $  5,693,288    $  5,693,288
  Investment securities:
     Available-for-sale                                2,274,387       2,274,387
     Held-to-maturity                                  3,495,372       3,496,945
  Loans                                              127,672,369     129,902,000
  Restricted investment securities                       871,900         871,900
  Accrued interest receivable                            638,142         638,142
Financial liabilities:
  Deposits and advance payments by borrowers         118,614,391     115,724,000
  Employee stock ownership plan debt                      38,508          38,508
  Advances from FHLB                                  13,750,000      14,218,000

         Off-balance sheet financial assets:

<TABLE>
<CAPTION>

                                                2004                           2003
                                     ----------------------------    -------------------------
                                      Estimated       Estimated       Estimated     Estimated
                                        Amount        Fair Value       Amount       Fair Value
                                     -----------     ------------    -----------    ----------
<S>                                  <C>             <C>              <C>           <C>
Commitments to extend credit         $24,285,000     $24,285,000      $8,439,000    $8,439,000
Letters of credit                     11,731,000      11,731,000       5,748,000     5,748,000

</TABLE>


                                       58
<PAGE>


18. CECIL BANCORP, INC. - HOLDING COMPANY ONLY FINANCIAL INFORMATION

           The following condensed balance sheets as of December 31, 2004 and
2003 and condensed statements of income and cash flows for the years then ended
for Cecil Bancorp, Inc. should be read in conjunction with the consolidated
financial statements and notes thereto.


                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                     ASSETS
                                                                       December 31,
                                                                 2004               2003
                                                             ------------       ------------
<S>                                                          <C>                <C>
Cash                                                         $     65,027       $    178,527
Investment in subsidiary banks                                 18,192,532         16,542,959
Other assets                                                       58,967             41,892
                                                             ------------       ------------

     Total assets                                            $ 18,316,526       $ 16,763,378
                                                             ============       ============

                LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities                                             $         -       $     10,513
Employee stock ownership plan debt                                      -             38,508
                                                             ------------       ------------
                                                                        -             49,021
                                                             ------------       ------------
Stockholders' equity:
Common stock, $.01 par value, authorized
   4,000,000 shares, issued and outstanding
   1,634,054 shares in 2004 and
   1,606,200 shares in 2003                                        16,341             16,062
Additional paid-in capital                                      8,377,211          8,014,713
Employee stock ownership plan debt                                      -            (38,508)
Deferred compensation - Management
   Recognition Plan                                                     -             (7,405)
Retained earnings                                               9,929,231          8,721,268
Accumulated other comprehensive (loss) income                      (6,257)             8,227
                                                             ------------       ------------

                                                               18,316,526         16,714,357
                                                             ------------       ------------

     Total liabilities and stockholders' equity              $ 18,316,526       $ 16,763,378
                                                             ============       ============
</TABLE>



                                       59
<PAGE>


                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                           Years Ended December 31
                                                                                          2004                 2003
                                                                                       -----------          -----------
<S>                                                                                    <C>                  <C>
      Income:
         Equity in earnings of subsidiary banks                                        $ 1,541,170          $ 1,255,626
                                                                                       -----------          -----------

      Operating expenses:
         Compensation and benefits                                                          14,521               16,188
         Other                                                                               6,252               12,623
                                                                                       -----------          -----------

              Total operating expenses                                                      20,773               28,811
                                                                                       -----------          -----------

      Net income before income taxes                                                     1,520,397            1,226,815

      Income tax benefit                                                                    11,813                7,995
                                                                                       -----------          -----------

      Net income                                                                       $ 1,532,210          $ 1,234,810
                                                                                       ===========          ===========
</TABLE>

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                           Years Ended December 31
                                                                                          2004                 2003
                                                                                       -----------          -----------
<S>                                                                                    <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                          $ 1,532,210          $ 1,234,810
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Equity in undistributed earnings of subsidiary                                     (1,541,170)          (1,255,626)
     Net change in other assets and other liabilities                                      (22,326)              (5,595)
     Distribution from Management Recognition
       Plan Trust                                                                            7,405                4,250
                                                                                       -----------          -----------

           Net cash flows used by operating activities                                     (23,881)             (22,161)
                                                                                       -----------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid                                                                         (324,247)            (317,284)
   Unearned ESOP compensation expense                                                       38,508               38,508
   Proceeds from sale of common stock                                                       70,291            2,547,708
   Proceeds from exercise of stock options                                                 125,829               11,000
   Contribution to subsidiary                                                                    -           (2,200,000)
                                                                                       -----------          -----------

           Net cash (used) provided by financing activities                                (89,619)              79,932
                                                                                       -----------          -----------

NET (DECREASE) INCREASE IN CASH                                                           (113,500)              57,771

CASH AT BEGINNING OF PERIOD                                                                178,527              120,756
                                                                                       -----------          -----------

CASH AT END OF PERIOD                                                                  $    65,027          $   178,527
                                                                                       ===========          ===========
</TABLE>



                                       60
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         None

ITEM 8A. CONTROLS AND PROCEDURES.

The Company's management, under the supervision and with the participation of
its Chief Executive and Chief Financial Officer, evaluated as of the last day of
the period covered by this report, the effectiveness of the design and operation
of its disclosure controls and procedures, as defined in Rule 13a-15 under the
Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures were adequate. There were no significant changes in the Company's
internal controls over financial reporting (as defined in Rule 13a-15 under the
Securities Act of 1934) during the quarter ended December 31, 2004, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

         None.
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Other Executive Officers
Following are the name, age (as of December 31, 2004) and principal position of
executive officers of the Company and Cecil Federal who are not directors.

<TABLE>
<CAPTION>

Name                   Age    Title
------------------     ---    -----------------------------------------------------------------
<S>                    <C>    <C>
Brian J. Hale          45     Executive Vice President/Chief Operating Officer of Cecil Federal
Sandra D. Feltman      55     Sr. Vice President/Director of Lending of Cecil Federal
Thomas L. Lofland      52     President/Chief Executive Officer of Columbian Division
Brian L. Lockhart      40     Vice President/Business Development

</TABLE>

BRIAN J. HALE is Executive Vice President/Chief Operating Officer of Cecil
Federal. Before joining Cecil Federal, Mr. Hale was employed at County Banking
and Trust Company, Elkton, Maryland for 17 years in various capacities, finally
as Assistant Vice President in charge of loan operations. Since joining Cecil
Federal in 1995, Mr. Hale's responsibilities as Chief Operating Officer include
the administration of all human resource, lending, savings, and operational
activities of Cecil Federal. Mr. Hale is currently a Director of the United Way
of Cecil County. Mr. Hale resides in North East, Maryland.

SANDRA D. FELTMAN is Senior Vice President/Director of Lending of Cecil Federal.
Ms. Feltman has previously served in various capacities since joining Cecil
Federal in 1972 and has served in her present capacity as Director of Lending
since 1982. Her responsibilities include carrying out Cecil Federal's lending
policies and acting as the Community Reinvestment Act Officer. Ms. Feltman has
previously served as the President and Director of the Greater Elkton Chamber of
Commerce as well as a member in the committee to select a new Elkton Police
Chief and the Teacher Recruitment/Retention Committee. She also participates in
various activities for the Business and Education Partnership Advisory Council.
Ms. Feltman is a member and past chairman of the Finance Committee of the Cecil
County Board of Realtors. Ms. Feltman is also a past director of the Cecil
County Home Builders Association.

THOMAS W. LOFLAND is President of the Columbian Bank Division. Before joining
Cecil in 2000, Mr. Lofland was employed by People's Bank of Elkton, for six
years as President, Chief Operating Officer and Director. Prior to that Mr.
Lofland spent 21 years in various capacities at County Banking and Trust Company
located in Elkton, Maryland. Mr. Lofland was appointed to serve on the Economic
and Development Commission for the State of Maryland and the Cecil Community
College Foundation Board. He also is a member of Union Hospital of Cecil County
Heath Systems, Inc., participating on the Finance, Audit and Quality Control
committees, and Trustee of the Cecil County Paramedic Foundation, Inc. He is a
member of the Business Education Partnership Advisory Council, and a director of
the Town of Elkton Revitalization Committee. Mr. Lofland is a past Chairman of
the Maryland Bankers Association Young Bankers Committee, the Cecil County
Chamber of Commerce, Elkton Rotary Club, Cecil County Red Cross, Elkton Chamber
of Commerce, Cecil County Arts Council, and the Chesapeake Hospice. Mr. Lofland,
formerly of Havre de Grace, resides in Fair Hill, Maryland.


                                       61
<PAGE>

BRIAN L. LOCKHART is Vice President/Business Development Officer of Cecil
Federal. Mr. Lockhart was employed with Waste Management for 16 years in its
Sales Department before joining Cecil Federal in 2002. A lifelong Cecil County
resident, Mr. Lockhart has been on Cecil Federal Bank's advisory board for the
past 3 years. He is also a past president of the Rising Sun Business
Association, member of the Union Hospital's Health Services Board of Directors,
Mount Aviat Board of Directors, member of Good Shepherd Parish, and Member/Owner
of Chesapeake Bay Golf Course. Brian resides in Rising Sun, Maryland.

Other information required by this item is incorporated by reference from the
registrant's definitive proxy statement pursuant to General Instruction E to
Form 10-KSB.

ITEM 10. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference from the
registrant's definitive proxy statement pursuant to General Instruction E to
Form 10-KSB.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED SHAREHOLDER MATTERS

Information required by this item is incorporated by reference from the
registrant's definitive proxy statement pursuant to General Instruction E to
Form 10-KSB.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference from the
registrant's definitive proxy statement pursuant to General Instruction E to
Form 10-KSB.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
         (a)  Documents Filed as Part of this Report
              --------------------------------------

         (1)  Financial Statements.
         The following financial statements are filed in Item 7 of this
                  report:
                  Report of Independent Registered Public Accounting Firm
                  Consolidated Balance Sheets as of December 31, 2004 and 2003
                  Consolidated Statements of Income for the Years Ended
                    December 31, 2004 and 2003
                  Consolidated Statements of Changes in Stockholders' Equity for
                    the Years Ended December 31, 2004 and 2003
                  Consolidated Statements of Cash Flows for the Years Ended
                    December 31, 2004 and 2003 Notes to Consolidated Financial
                    Statements.

         (2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the SEC are omitted because of
the absence of conditions under which they are required or because the required
information is included in the consolidated financial statements and related
notes thereto.


                                       62
<PAGE>


         (3) Exhibits. The following exhibits are filed as a part of this
report:

<TABLE>
<CAPTION>

Exhibit No.                           Description                    Incorporated by Reference to:
----------------- -------------------------------------------------- -----------------------------------------------
<S>               <C>                                                <C>
3.1               Articles of Incorporation of Cecil Bancorp, Inc.   Exhibit 3.1 to Registration Statement on
                                                                     Form  S-1 (File No. 33-81374)

3.2               Bylaws of Cecil Bancorp, Inc.                      Exhibit 3.2 to Form 10-KSB for the year ended
                                                                     December 31, 2002, SEC File No. 0-24926.

3.3               Articles of Incorporation of Cecil Federal Bank,   Exhibit 3.3 to Form 10-KSB for the year ended
                  Inc.                                               December 31, 2003, SEC File No. 0-24926.

3.4               Bylaws of Cecil Federal Bank                       Exhibit 3.4 to Form 10-KSB for the year ended
                                                                     December 31, 2003, SEC File No. 0-24926.

4                 Form of Common Stock Certificate                   Exhibit 4 to Registration Statement on Form
                                                                     S-1 (File No. 33-81374)

10.1*             Employment Agreement between Cecil Bancorp,        Exhibit 10.1 to Registration Statement on
                  Inc., Cecil Federal Savings Bank and Mary Halsey   Form S-1 (File No. 33-81374)

10.2*             Cecil Bancorp, Inc. Stock Option and Incentive     Exhibit to Company's Proxy Statement for its
                  Plan                                               Annual Meeting of May 25, 1995 (File No.
                                                                     0-24926).

10.3*             Cecil Bancorp, Inc. Management Recognition Plan    Exhibit to Company's Proxy Statement for its
                                                                     Annual Meeting of May 25, 1995 (File No.
                                                                     0-24926).

10.4*             Cecil Federal Savings Bank Retirement Plan for     Exhibit 10.4 to Form 10-KSB for the year
                  Non-Employee Directors                             ended December 31, 1994, SEC File No. 0-24926.

10.5*             Columbian Bank, a Federal Savings Bank 1994        Columbian Bank, a Federal saving Bank,
                  Stock Option and Incentive Plan                    Registration Statement on Form S-B.

10.6*             Cecil Federal Bank Supplemental Executive          Exhibit 10.1 to the Company's Quarterly
                  Retirement Plan covering Charles F. Sposato,       Report on Form 10-QSB for the quarterly
                  Chairman; Mary B. Halsey, President and Chief      period ending June 30, 2003
                  Executive Officer; and Brian J. Hale, Executive
                  Vice President and Chief Operating Officer and
                  related agreements with such officers

21                Subsidiaries
</TABLE>


                                       63
<PAGE>

<TABLE>

<S>               <C>                                                <C>
23                Consent of Stegman & Company

31                Rule 13a-14(a)/15d-14(a) Certification

32                18 U.S.C. Section 1350 Certification

99                Letter to Shareholders Accompanying Annual
                  Report on Form 10-KSB
</TABLE>

* Management Contract or Compensatory Plan or Arrangement.

--------------
         (b)  Reports on Form 8-K.
         None
         (c) Exhibits. See (a)(3) above for all exhibits filed herewith and the
         Exhibit Index.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is incorporated by reference from the
registrant's definitive proxy statement pursuant to General Instruction E to
Form 10-KSB.



                                       64
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                         CECIL BANCORP, INC.

March 22, 2005                           By: /s/ Mary B. Halsey
                                         --------------------------------------
                                         Mary B. Halsey
                                         President and Chief Executive Officer

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.

By: /s/ Mary B. Halsey                                  Date: March 22, 2005
----------------------------------------
Mary B. Halsey
President and Chief Executive Officer
(Principal Executive Officer)

By: /s/ Mary B. Halsey                                  Date: March 22, 2005
----------------------------------------
Mary B. Halsey
President and Chief Executive Officer
(Principal Financial and Accounting Officer)

By: /s/ Charles F. Sposato                              Date: March 22, 2005
----------------------------------------
Charles F. Sposato
Chairman of the Board

By: /s/ Donald F. Angert                                Date: March 22, 2005
----------------------------------------
Donald F. Angert
Director

By: /s/ Robert L. Johnson                               Date: March 22, 2005
----------------------------------------
Robert L. Johnson
Director

By: /s/ Matthew G. Bathon                               Date: March 22, 2005
----------------------------------------
Matthew G. Bathon
Director

By: /s/ Thomas L. Vaughan, Sr.
----------------------------------------
Thomas L. Vaughan, Sr.                                 Date: March 22, 2005
Director